Wellstream Holdings PLC Annual Report & Accounts 2007 · 2008-09-03 · Wellstream Holdings PLC Annual Report & Accounts 2007 | 1 Financial Highlights Revenue Backlog is the aggregate

Wellstream Holdings PLC Annual Report & Accounts 2007

Project1:Layout 1 17/4/08 12:32 Page 1

Financial Highlights 1

Chairman’s Statement 2

Chief Executive’s Review 4

Financial Review 30

Board of Directors 34

Directors’ Report 36

Corporate Governance Report 44

Audit Committee Report 49

Directors’ Remuneration Report 51

Statement of Directors’ Responsibilities 57

Independent auditors’ report to the members of Wellstream Holdings PLC 58

Group Income Statement 60

Statements of Recognised Income and Expense 60

Balance Sheets 61

Cash Flow Statements 62

Notes to the Accounts 63

Historical Results 90

Shareholder Information 91

Glossary 92

Notice of Annual General Meeting 93

Contents

48723 MG Annual Report - Front 17/4/08 11:39 Page 2

Wellstream Holdings PLC Annual Report & Accounts 2007 | 1

Financial Highlights

Revenue Backlog is the aggregate of revenue that has not yet been recognised in the accounts from contracts that have been enteredinto and from contracts that the directors are confident will be entered into.

Backlog £m

2006 2007

226.8

335.9

Profit before Tax £m

2006 2007

25.4

41.7

Revenue £m

Revenue up 81.2%

Profit before Tax up 64.1%

Backlog up 48.1%

2006 2007

147.2

266.8


2 | Chairman’s Statement

Chairman’s Statement

Wellstream has achieved a recordfinancial performance during 2007.


Chairman’s StatementI am pleased to announce that Wellstreamhas achieved a record financialperformance during 2007. In addition, we successfully completedthe Initial Public Offering (IPO) andlisted our shares on the London StockExchange on 1 May 2007.

Financial performanceIn the 12 months to 31 December 2007,Revenue increased by 81% to £266.8m(2006: £147.2m), Adjusted EBITDAincreased by 136% to £56.9m (2006:£24.1m), and adjusted earnings pershare reached 34.7p against 11.4p for2006. We maintain a strong backlogwhich has increased by £109.1m during2007, ending the year at £335.9m.

Improved utilisation in NewcastleHigh utilisation rates have been achievedthroughout the year in Newcastle and weachieved a record throughput of 237 nkm.This contributed substantially to ourbuoyant performance this year. Followinga programme of process improvements,we also revised our capacity in Newcastleto 260 nkm and plan to further expandthat capacity.

Successful start-up of our newproduction plant in BrazilWe officially opened the Niterói plant inJuly 2007 having started production inMay and I am pleased to report that theplant is already making a contribution inexcess of our expectations. In total weachieved a throughput of 52 nkm, whichwas ahead of our ramp-up plan. On29 November 2007 we announced plansto further expand capacity at Niterói,recognising the Board’s confidence infuture demand for our products.

Establishment of Seastream JVIn July 2007, we successfully establisheda Joint Venture called Seastream. It hassecured a major contract from BHP Billiton,in which we offered our products onan installed basis for the first time.This project is progressing to planand we look forward with confidence tosecuring additional contracts forinstallation of our flexible pipe products.

Board additionsI welcome the addition to the board ofthree industry specialists, Neil Gaskell,the former Treasurer of Royal Dutch Shell,Francisco Gros, former CEO of Petrobrasand Pat Murray the former CEO ofDresser Inc. I also welcome Chris Gill asFinance Director, who joined us on7 January 2008. Marek Gumienny, ofCandover Partners, resigned as a non-executive director at the IPO and AndrewTurk, Finance Director, left the Companyon 31 December 2007. I thank them bothfor their contribution during a period ofrapid growth and considerable changein the Company.

OutlookWith our new investment in capacity, we have set the foundations to takeadvantage of the anticipated demand forflexible pipe. The market fundamentalsremain strong and we have confidencethat we are well positioned to capture asignificant share of this growing market.

Finally, I pay tribute to the professionalismof our staff, whose hard work anddedication have helped bring about theserecord breaking results.

John Kennedy Chairman



4 | Chief Executive’s Review

Chief Executive’s Review

“In 2007 Wellstreamhad approximately30% of the globaloffshore flexible pipemarket and was theworld’s secondlargest supplier.”

2007 was a remarkable year forWellstream. Several records were brokenand strong foundations were set forfuture growth.

Significant highlights included the strongperformance from the Newcastleoperation, on-time start up of the newNiterói plant in Brazil, further growth ofthe onshore FlexSteelTM business andthe launch of an installation capabilitythrough the Seastream JV. Towards theend of the year the Company decided tofurther expand its future offshoreflexible capacity by some 40% throughan investment programme in the Niteróiand Newcastle offshore productionfacilities.

Scope of the businessWith over 20 years’ experience,Wellstream is a leading designer andsupplier of high quality unbondedflexible pipeline products and systems.

In 2007 Wellstream had approximately30% of the global offshore flexible pipemarket and was the world’s secondlargest supplier. Our portfolio includesdynamic risers, static flowlines, subseaand topside jumpers, fluid transfer linesand well service lines for use in theoffshore oil and gas market. Onshorewe produce FlexSteel™ a flexiblepipeline product. Our success is basedon strong technology supported bycontinuous research and development,excellent customer relationships and afocus on working collaboratively withcustomers and partners.

Wellstream’s core business addressesthe needs of the floating productionand subsea sectors of the offshore oiland gas industry. This is a fast growingsegment, where deepwater applicationsare becoming more common and forwhich flexible pipe is often a criticalelement of the development solution.

I am delighted to deliver my first Chief Executive’s Review for Wellstream asa newly listed Public Company.

Financial Highlights 2007 2006 Change

Revenue £266.8m £147.2m +81.2%

Adjusted EBITDA (b) £56.9m £24.1m +136%

Backlog (a) £335.9m £226.8m +48.1%



Year End Annualised Offshore Capacity

2005

200220

360

410

2006 2007 2008(F)

+10%

+64%

+14%

In normalised km of 8 inch ID pipe.A mechanism for determining the equivalent length ofany pipe to a ‘standard’ product.

Revenue & Backlog Growth

(a) Blue arrows represent year-on-year revenue growth.Revenue Backlog is the aggregate of revenue that hasnot yet been recognised in the accounts from contractsthat have been entered into and from contracts that thedirectors are confident will be entered into. RevenueBacklog is not a measure of profit or operating performancerecognised under IFRS.

Revenue

(in £ millions)

Offshore Flexible Pipeline Throughput

2005

169.5208.0

289.1

2006 2007

+23%

+39%

2005

90.1 78.6

147.2

226.8

266.8

335.9

2006 2007

+63%

+81%

In normalised km of 8 inch ID pipe.A mechanism for determining the equivalent length ofany pipe to a ‘standard’ product.

(in £ millions)Adjusted EBITDA

2005

9.1

24.1

56.9

2006 2007

+165%

+136%

(b) Adjusted EBITDA represents operating profit beforedepreciation and excludes the share option expense asdefined on page 30 of the Financial Review. AdjustedEBITDA is not a measure of profit or operating performancerecognised under IFRS.

RevenueBacklog


Offshore Market OverviewOil and gas are expected to continue asthe world’s dominant energy sources forthe foreseeable future. As many of themore easily accessible offshorehydrocarbon deposits have now beendiscovered and produced, the industryhas to explore in progressively moreremote locations, often in deeper waterdepths. This has increased the capitalintensity of the newer developments andsparked an evolution in developmentconcepts from fixed platforms to floatingproduction facilities such as FPSO(Floating Production, Storage andOffloading) vessels.

Industry analysts, Infield Systems Ltd,have estimated that capital expenditureon deepwater developments hasincreased from approximately $9bn in2004 to $19bn in 2007. Over the nextfive years, they expect this expenditureto increase further to in excess of$25bn per annum.

As oil companies move in to more remoteareas, and deeper water depths, the useof floating production facilities hasbecome more prevalent. Flexiblepipelines are a critical element of themajority of FPSO developments;connecting the wellheads to the surfacevia flexible risers. Thus, the increaseduse of FPSOs worldwide has been oneof the drivers for rapid growth inWellstream’s business.

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drill

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BTU

World Marketed Energy Use by Fuel Type,1980-2030(1)

NuclearRenewablesNatural GasCoalLiquids


(1) Source: Energy Information Administration (EIA) 2007.



(Courtesy: Subsea 7 and Chevron)

Capital expenditure on deepwaterdevelopments has increased fromapproximately $9bn in 2004 to$19bn in 2007.Over the next 5 years expenditureis expected to increasefurther to in excess of$25bn per annum.



Source:(1) International Maritime Associates Inc (2008). (2)Energy Information Administration, (EIA).

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Total U.S. Wells Completed(2)

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0

There are now approximately 200 floatingproduction systems in service worldwide,of which some 60% are FPSOs.International Maritime Associates Inc.project that this inventory of FPSOs willdouble over the next five years.

The most important regions globally forthis type of development are LatinAmerica and West Africa which togetheraccount for over 40% of the globalinstalled base for FPSOs. The market inLatin America dominates the worldwideflexible market, underpinned by Brazil,and if the potential of the majordiscoveries made in the country during2007 is realised, this trend is expectedto continue. A significant market is alsodeveloping in Asia.

In addition to FPSOs, subseadevelopments are also an importantdriver for Wellstream’s business. Whilstmuch of the subsea market has evolvedin support of floating production vesselsand deepwater developments, subseatiebacks in shallow water remainsignificant, particularly in matureproduction basins like the North Sea andGulf of Mexico. In these regions, thecurrent high oil and gas prices have madethe development of marginal fieldseconomic. Many of these developmentshave been facilitated by the use offlexible flowlines, which can be quicklymanufactured and rapidly installed usingreadily available and cost effectiveoffshore installation vessels.

Onshore Market OverviewThe onshore market in North America,and in particular the USA, hasremained robust during 2007 as oilcompanies have sought to increaseproduction and exploit unconventionalgas plays. A growing market forrefurbishment of existing flowlineinfrastructure is also emerging.

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2007

150

100

50

0

30 Year Development of the Worldwide FPSO Inventory(1)

(no. units as of end year)



The increased use of FPSOs worldwide has been one of the drivers for rapid growth in Wellstream’s business.



Wellstream’s ability to deliveragainst its goals rests firmly withits employees and Wellstreamtherefore seeks to create anenvironment of enthusiasm,engagement and opportunity forall of its staff.



Strategy for GrowthWellstream aims to build a leadershipposition as a supplier of bespokeengineered flexible pipeline products foroil companies around the world. Thisleadership position will be built uponsuperior customer relationships,innovation, technology, manufacturingand project delivery excellence.Wellstream’s ability to deliver againstthese goals rests firmly with its employeesand Wellstream therefore seeks to createan environment of enthusiasm,engagement and opportunity for all ofits staff. The business will deliver growthorganically and through alliances andacquisitions that add capacity andcapability. Currently, the Company is:

• Increasing production throughput in Brazil and the UK

• Adding capacity in Newcastle, UK to reach 300 nkm/pa in 2009

• Increasing capacity in Niterói, Brazil to reach 270 nkm/pa in 2009

• Continuing to grow production of onshore flowline products

• Developing the Seastream JV focusedon installation of flexible pipelines andrisers to support Wellstream’s strategicintent to keep the installed cost offlexible pipe visible to end customers.



NewcastleThe centrepiece of 2007’s strongperformance was the Newcastlemanufacturing operation whichsuccessfully met many challengesincluding complexity in design,manufacturing, testing, packaging andshipping of flexible pipe. The capacityat Newcastle, measured in normalisedkilometres (nkm), was upgraded at thestart of the year to 240 nkm/pa andfurther upgraded mid year to 260 nkm/paTotal throughput of 237 nkm representeda new annual record for the plant, being14% ahead of 2006. The outcomevalidated the ongoing focus oncontinuous improvement in all facets ofthe operation.

BrazilUndoubtedly a major 2007 milestone wasthe successful commissioning of the newplant in Niterói, Brazil in May 2007. TheNiterói plant was formally inauguratedon 11 July 2007 with Governmentrepresentatives, Petrobras, and othermajor customers and suppliers inattendance. The ramp-up of productionat the plant progressed ahead of planfor the remainder of the year and atotal of 52 nkm throughput wasachieved. The plant has also receivedfull accreditation from Petrobras. Theramp-up of the Niterói plant exceededexpectations and we have broughtforward the commitment to a 4 shiftsystem to allow 24/7 operations.

With the establishment of two manufacturing facilities for our offshore business,the operational teams in Niterói and Newcastle are actively working onproduction optimisation and taking advantage of the plants’ combined andcomplementary capabilities.

Throughput in the Newcastle plant 2004-2007

2007200620052004

237 nkm



Major ProjectsIn total 26 projects were at an executionstage during 2007. Of particular note wasthe Frade project for Chevron in Brazil.This is a contract valued in the order of£100m requiring the design and productionof 138km of pipes varying in size from2 inch to 8 inch. The Frade projectaccounted for some two thirds of the annualproduction in Newcastle and at year endthe programme was on schedule and over70% complete.

The year also featured eight major projectsfor Petrobras. These projects involved boththe Newcastle and Niterói operations. Ofparticular note was the technically complexP52 16 inch loading line contract whichwas successfully completed in July andhas now been installed offshore by thecustomer. Other major contracts includedUNBC phase 1 which is the first project tobe entirely executed and manufactured inBrazil. The UNBC projects are continuinginto 2008 where several pipe designs arebeing delivered from the Niterói plant.

Of particular note was theFrade project for Chevron inBrazil. This is a contractvalued in the order of £100m.

Frade Field Layout

Niterói Plant, Brazil

Partners: Chevron, Petrobras and INPEX



Supply Chain ManagementThe supply chain is critical toWellstream’s operations with carbonsteels, alloy steels, high grade polymers,end fittings and ancillaries being sourcedglobally for our three major operations.Overall, there have been no majorinterruptions to the supply chainthroughout 2007 and we are continuingto extend material solutions and thevendor base. We are intensivelydeveloping further Brazilian sources ofsupply to support the Niterói plant.

A notable success has been theintroduction of the new PA12 nylon grade,which was developed collaborativelywith Degussa. This new pipeline barrierand shield material has achieved rapidand widespread acceptance by ourcustomers and is a welcome alternativeto the previously existing nylon solution.

We have seen recent encouraging signsin stabilisation and in some casesreduction in raw material prices.This is most prominent in the high valuealloy steels.

Capacity ExpansionIn November we announced capacityexpansions in both Niterói (from 150nkm/pa to 270 nkm/pa) and Newcastle(from 260 nkm/pa to 300 nkm/pa); a £35million investment has been approvedfor this. This is further supported by aglobal continuous improvement initiative.

The capacity expansion project hassuccessfully transitioned from thedefinition to execution phase. Criticalactivities are on track to support theQ1 2009 operational handover. Long leadequipment items have been orderedand pre-construction activities for Niteróiand Newcastle are progressing well.

In support of capacity expansion, anaccelerated reel build programme hasbeen progressing in both Brazil and theUK and will run through 2008.



A £35 million investmenthas been approved forcapacity expansion.

Year End Annualised Capacity - Wellstream Newcastle & Niterói

2004

200 nkm

2005

200 nkm

2006

220 nkm

2007

360 nkm

260 nkm

410 nkm

260 nkm300 nkm

2008FCST

2009FCST

570 nkm

+10%

+64%

+14%

+39%

Niterói

Newcastle


SafetyWellstream places great emphasis onHealth, Safety and Environmental (HSE)performance. In terms of keymeasurables, 2007’s performance wasalmost twice as effective as 2006.

Two Lost Time Incidents (LTIs) wererecorded (eight in 2006) and the OSHArecordable rate was 1.68 (3.33 in 2006).In order to continue this improvementand further enhance the entireorganisation’s focus on safety, newinitiatives have been launched thatconcentrate on leading HSE indicatorsand the behavioural aspects of safety.

In 2007 the Company embarked upona programme of change - “Journey toZero”. The driver for this change hasbeen the Company’s belief that allaccidents and incidents are preventableand the programme ensures that thisprinciple is embedded within theCompany’s organisational culture.

Building on the successes of 2007, weaim to further develop our policies andpractices. We have identified thefollowing objectives as beingfundamental to this goal in 2008;

• Continuous Improvement - Implementing lean manufacturing principles throughout the business

• Supply Chain Management - Engagingwith our key suppliers to assess HSEcompetencies and share learning

• Percentage Safe Auditing - A daily workroutine involving a team ofManagement, Operators and HSEpersonnel

• Behavioural Safety Training - Tosupport the “Journey to Zero”

• OHSAS 18001/ISO 14001certification - Expanding the scope toinclude the Niterói plant in Brazil.

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2007 OSHA Recordable Incident Frequency Rates(last 12 months rolling)

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Health, Safety and EnvironmentWellstream places great emphasis onHealth, Safety and Environmental (HSE)performance. In terms of keymeasurables, 2007’s performance wasalmost twice as effective as 2006.

OSHA Recordable Incident 1 Day Lost Time Incident



EnvironmentWellstream is committed to seeking waysto minimise avoidable harm to theenvironment. In Newcastle, Wellstreamhas implemented an EnvironmentalManagement system, certified toISO 14001. Resource conservation andpollution prevention principles areintegrated into our business processes,facilities, operations and products. InBrazil and Panama City, USA, 2008 willsee a focus on improving monitoringand setting of targets.

The Company is in the early stages ofimplementing an Energy and WasteManagement Programme. Thisencompasses auditing, further definitionof waste production and the carbonfootprint. The intention is to further refinereduction targets and recycling initiatives.


Customers and AwardsOur 20 year relationship with Petrobrashas been further enhanced by theopening of the plant in Niterói, Brazil.


This has already begun to benefit thebusiness by facilitating greaterco-operation in terms of collaborativecapacity planning, product qualificationand technology development. Keycommitments have been received fromPetrobras for 2008.

The Niterói plant has also supportedother Wellstream customers such asDevon Energy, Chevron, Anadarko andStatoilHydro, all of whom have projectsthat were executed in 2007 or will bemanufactured in 2008.

In total this customer support translatedinto a backlog at 31 December 2007 of£335.9m.

Seastream and the Pyrenees projectOn 3 July 2007, BHP Billiton awardedWellstream and its Seastream JointVenture, contracts for its Pyreneesproject offshore Western Australia.The contracts involve the supply andinstallation of flexible flowlines and risersand installation of the subseainfrastructure and the Floating ProductionStorage and Offloading vessel (FPSO).The value of these contracts is in excessof £100m and represents a significantmilestone for both Wellstream and theJoint Venture. At the end of the yearpreparations were well underway froma new operating centre in Perth, Australiafor the offshore programme which is dueto commence in early 2009. The pipe

manufacturing programme willcommence in Newcastle in mid 2008 andthe project team is overseeing anextensive engineering, procurement andmanufacturing preparedness programme.

At year end we also received acommitment from Devon Energy forremedial installation work on the Polvofield in Brazil. The offshore work wascompleted in February 2008.



The Seastream initiative underpinsWellstream’s strategic intent to keepthe installed cost of flexible pipesvisible to end customers.



The onshore FlexSteelTM

business has performed wellwith encouraging new salesbeing achieved in LatinAmerica.


OnshoreThe onshore FlexSteelTM business hasperformed well with encouraging newsales being achieved in Latin America.Production in the Panama City plant hasaccelerated with the introduction of newequipment during the first quarter of 2007.In total 618 nkm(1) of pipeline wasproduced during 2007. The period alsosaw the successful introduction of5.5 inch and 6 inch diameter products.The first 6 inch pipe delivery is destinedfor Pemex in Mexico. South Americacontinues to show promise with Petrobrasplacing initial orders and negotiationscontinuing in Venezuela.

The American and Canadian marketscontinue to underpin the business anddespite the drop-off in the Canadian gasmarket, the high pressure market for theFlexSteelTM product has remained positive.


Note (1): Normalised kilometre (nkm) for Wellstream’sonshore pipe is based on a standard 4 inch InternalDiameter pipe. A relative scale factor is applied to otherpipes to convert actual production lengths andcomposition into nkm.


OrganisationWith the upturn in activity, globalstaff numbers have grown from715 at 31 December 2006 to 945 at31 December 2007.

OrganisationThe principal growth has been inBrazil with the start-up of the newplant and associated operations. Thesmooth start-up in Niterói has beenfacilitated by an intensive inductionand training programme whichincluded the placement of Brazilemployees in the UK in the first halfof the year and the deployment ofseveral UK and US based specialistsin Niterói to assist with knowledgetransfer in the second half of the year.

Following flotation, an SAYE schemewas made available to UK employeeswith 79% of the eligible UK workforceparticipating. This has had a positiveeffect and has raised the sense of longterm involvement in the Company’sfuture. To further emphasise this, atyear end a 3 year pay agreement hasbeen concluded with the Newcastleworkforce.

The success of the Company wasrecognised locally and nationally inthe UK. Wellstream became NorthEast of England Company of the Yearat the North East Business Awards. InNovember, Wellstream received theUK Company of the Year award fromthe British Chamber of Commerce.

ERP system2007 also saw the start-up of acompany wide Enterprise ResourcePlanning (ERP) project. The intentionis to replace stand-alone systems,spreadsheets and databases that haveserved their purpose to date, with anew integrated system.

Technology R&DWe have an extensive R&Dprogramme designed to meetcustomer and market needs and tocreate and commercialise newdesigns and solutions. Full-scale testand qualification work for customer-funded programmes are now beingscheduled out to 2011.

During 2007 our strategic programmehas included completion of a highpressure deepwater riser qualification.As a result of the qualificationrequirements there are a number offull-scale tests such as burst, tensionand dynamic cycling of completeriser structures to demonstrate theperformance against industrystandards. Each flexible riser is acomplex non-bonded structurecomprising polymers, metals, structuraltapes and end terminations. Theselayers all interact with one another andthe testing ensures that during serviceno unacceptable wear, cracks orbreaks occur within the structure.Completion of the 540 bar design addsto the qualification envelope and alsoprovides invaluable performancedata as even more challengingservice requirements are considered.

It is important to continue to enhancethe knowledge base of materialstechnology even for existing materials.Industry requirements for service in theorder of 25 years mean that fatiguetesting to demonstrate performancein excess of 250 years is required.Significant investment continues tobe made in the fatigue testing of

pressure and tensile armour materialsunder differing environmentalconditions enhancing the customer’sconfidence in the predictive lifetime ofa riser in very challenging conditions.

As increasing numbers of offshorefields are turning to “sour service”,where the oil is strongly composed ofcontaminants like hydrogen sulphide,a major materials test programmehas been undertaken to validate thepermeable characteristics of all ourpolymers used as an internal fluidbarrier for this application.




Business Area KPI Measure

Financial Delivery EBITDA (Group)(1) 136% increase on 2006

Project Offshore Gross Margin(2) 93% increase on 2006Management

Supply Chain Material Receipts(3) 99% on-time delivery

Manufacturing Throughput(4) 39% increase on 2006

Technology Patents lodged(5) 7 certificates of invention filed

Business Acquisition Offshore orders(6) 27% increase on 2006

Key Performance Indicators (KPIs)Wellstream implements aperformance management systemthroughout the business. At thestart of every year the criticalsuccess factors are reviewed andkey performance indicators are setfor the Group. The Board approvesthese KPI targets and monitors andassesses performance against these

throughout the year. These KPIs arecascaded throughout the businessand more detailed KPIs are alsocreated that align with geographicalcentres and business functions.

These KPIs drive the appropriatefocus in the Group and the top 6KPIs for 2007 were as follows;

(1) EBITDA is defined on page 30 in theFinancial Review.

(2) Offshore Gross Margin measures theprofitability of project production in theyear. It is calculated by deductingmaterial and transportation costs fromrevenue on a contract by contract basis.

(3) On-time material receipts are importantin ensuring minimal interruption toproduction. We measure any delay to theplanned production that results directlyfrom delayed material receipts and this iscalculated as a proportion of productionhours available.

(4) Throughput is measured in normalisedkilometres. It is a measure of capacityutilisation.

(5) The lodging of patents is importantbecause it allows for protection ofintellectual property. The filing of anapplication by our patent agent with theUK Patent Office (or patent offices inother jurisdictions) is an important stepand is therefore treated as a KPI.

(6) Offshore orders are the value of futurerevenue added to backlog on receipt of acustomer order. It is a measure of therate at which we win new business.



Risks and UncertaintiesSince Wellstream is a technologicallycomplex business operating in achallenging industry, risk management isa key facet of day-to-day management.



At an operational level there are strictprocesses in place to review risks anduncertainties during the bidding processand during engineering, procurement,manufacturing, testing and post-deliveryproject phases. Risk assessments areperformed on a project-by-projectbasis and the operations are reviewedmonthly through formal processes.

At the corporate level, the Executive Teamin Wellstream regularly performs a riskmapping exercise which is reviewedwith the Board and the Audit Committee.This includes an assessment ofoperational, financial, strategic,compliance and environmental risks.This risk mapping exercise is extensiveas is the tracking of mitigating actions.Key risks highlighted include:

Petrobras is a key customerof WellstreamPetrobras commands a significantproportion of Wellstream’s business. Thedemand for flexible pipe is progressivelydefined as part of a continuous dialoguebetween the two companies. Regularand open review meetings establishcapacity availability and Petrobras’offshore field development priorities.

Wellstream continues to diversify thecustomer base both in Brazil (whereinternational oil companies areincreasingly active) and internationally.

Senior Management and keypersonnelExperienced and qualified personnelare in high demand in the oil and gasindustry. It is important for Wellstream tomaintain a close focus on both retentionand effective recruitment of keypersonnel at a time of growth. Actions tosupport this include detailed successionplanning, regular remuneration reviews,industry benchmarking, improvedemployee welfare arrangements andcareful career development.

Single source vendors in thesupply chainWellstream’s supply chain is critical tothe operation and for certain materialtypes there are sole source vendors. Inaddition, for the materials that areimported into Brazil, the supply chain islong and time consuming. Thesechallenges are mitigated by having aclear supply chain strategy in place,careful maintenance of stockingprogrammes, constant vigilance ofvendor performance, the developmentof commercial risk and rewardarrangements and, where appropriate,the establishment of effective long termvendor frame agreements.



Customer concentration Wellstream’s business is founded ona relatively small number of high valuecustomers including Petrobras. Ifrequested project lead times fromthese customers change significantly,revenue and margin performancecould be put at risk. In order tomitigate this, Wellstream continues tobroaden its customer base, developnew relationships in selected regionsand apply the principle of focusedaccount management to itsstrategically targeted customer base.

Product mix During the sales and businessdevelopment process, Wellstreamstrives to influence product mix tomanufacturing friendly solutions but itis not always possible to achieve anoptimal outcome. Poor product mixcan affect throughput and hencerevenue and margin performance. To mitigate this exposure Wellstreamconstantly manages the “funnel” ofincoming work and encouragesstandardisation of its pipe structuresduring project planning phases. Inaddition it is always the aim to gainsufficient margins on projects that havemore challenging product scopes.

Volatility of the oil and gas industry The price of oil and gas and levels ofbusiness confidence across oil and gasmarkets are key drivers for Wellstream’sbusiness. The trends towards the useof deepwater, floating production andsubsea technologies are also important.A sustained and significant reduction inoil and gas prices and/or a reductionin business confidence could have anadverse impact on the level of customerspending. To mitigate this exposureWellstream strives to maintain in-depthmarket intelligence, to gather and useclient feedback and to plan capacity,throughput and its cost base so that anydownturn can be weathered effectively.

Seastream initiativeThe risk profile of offshore installationof flexible pipe is significantly differentto that of design and manufacturingactivity. Recognising that this is anewly developing business stream forWellstream, great care has been takento negotiate acceptable risk profileson projects as they are secured.





Corporate Social ResponsibilityLocal involvement is at the very heart ofWellstream’s social responsibility programme.



Corporate Social ResponsibilityWellstream is focussed on working inpartnership with all elements of ourcommunities - education, charities, localorganisations, support groups, businessand the public sector.

On a routine basis Wellstream activelyworks with clients on project specificHSE Performance Recognition Schemeswhere HSE ‘best practice’ is rewardedwith a charitable donation. In 2007,PetroSA’s Southern Gas Field project,in which Wellstream was involved,generated a donation to two SouthAfrican schools.

Local involvement is at the very heart ofWellstream’s social responsibilityprogramme; such involvement can beseen in Wellstream’s support of the localWalker Central Junior Football Club inNewcastle upon Tyne, UK to which in2007 Wellstream donated £10,000.

The Company has a specific budget forcommunity involvement activities.Of the budget set aside for charitablegiving, a proportion is given to charitieswith which the Company has formedpartnerships, such as St Oswald’sHospice (UK), Santa Clara Project (Brazil)and United Way (USA).

Many of our employees give generouslyof their money, time and energy andin support of their efforts; Wellstreamoperates a charitable giving policywhereby the Company matchesthe monies raised up to a set limit byany employee.

Ethical Trading PoliciesWellstream has a robust businessconduct policy that ensures theCompany trades legally, fairly, openly,honestly and with transparency in alldealings. The policy is highly visible and

governs the actions of all employees inthe conduct of Wellstream’s businessand in respect of the Company’sdealings with customers, suppliers,clients, contractors and intermediaries.The Company’s business conduct policycovers gifts and hospitality, internationalbusiness relationships, conflicts ofinterest, confidential information andthe reporting of misconduct.

The Company is committed to followinga stringent fraud and anti-corruptionpolicy to ensure all business isconducted in a legal, fair and honestmanner. This policy governs the actionsof all employees and is accessible to all;the Company will not tolerate fraud,corrupt, dishonest or illegal activityamongst employees, customers,suppliers or intermediaries.

Wellstream also operates under theguidance of a whistle blowing policy.The whistle blowing policy states thecourse of action an employee shouldtake if they have concerns. All policiesare available to view on the website.www.wellstream.com

OutlookLooking ahead, we will continue to applyourselves to maintain our strongthroughput and ensure we deliver againstour targets for investment in capacityexpansion. This investment will boosttotal capacity by some 40% in 2009.The long term industry fundamentalsremain strong and we continue to seegrowth opportunities across all aspectsof our business.

Gordon ChapmanChief Executive Officer1 April 2008


Financial Review

30 | Financial Review

OverviewRevenue for the year ended 31 December2007 increased by 81.2% to £266.8m(2006: £147.2m). Resulting Operatingprofit increased by 139.7% to £47.6m(2006: £19.8m) which generated profitbefore taxation of £41.7m (2006: £25.4m)and diluted earnings per share of 31.6p(2006: 34.6p).

The Company successfully completedits IPO on the London Stock Exchangeduring the year and its shares wereadmitted to trading on 1 May 2007. This and the consequent repayment ofpre IPO debt resulted in a number oftransactions of a substantially one-off ornon-recurring nature, a summary ofwhich is included below.

(1) EBITDA represents Operating profit before depreciation is charged.

(2) Prior to IPO, share options were issued to a non-executive director and these were exercised andconverted into shares at IPO. A charge of £4.1m, inclusive of employer’s taxes, was made in this regard.

(3) Foreign exchange gains on financing of £2.8m (2006: £17.0m) arose substantially on long term USDollar denominated debt that was converted to Sterling on 1 May 2007 as part of the IPO.

(4) Upon the bank refinancing and repayment of the Deep Discount Bonds, the associated fees, previouslycapitalised, of £2.7m were written off.

Operating Profit before Diluted DilutedEBITDA (1) profit Taxation EPS(p) EPS(p)

£000 £000 £000 2007 2006

Unadjusted measure 52,836 47,561 41,740 31.6 34.6

Non Exec options see (2) below 4,089 4,089 4,089 3.1 -

Exchange gains on financing see (3) below - - (2,755) (2.1) (23.2)

Repayment of DDBs see (4) below - - 2,716 2.1 -

Adjusted measure 56,925 51,650 45,790 34.7 11.4


RevenueRevenue for the year ended 31 December2007 totalled £266.8m (2006: £147.2m).

The Group’s Offshore businesscontributed the bulk of this growthending the year with revenue of £255.6m(2006: £139.4m). This result isunderpinned by the opening andsubsequent revenues from the facility inBrazil and strong underlying growthoriginating from existing UK operations.

The Onshore business also saw stronggrowth albeit from a lower base, recordingrevenue of £11.2m (2006: £7.8m).

EBITDAAdjusted EBITDA for the year ended 31 December 2007 totalled £56.9m(2006: £24.1m). The correspondingEBITDA margin in the period was 21.3%(2006: 16.4%), an incremental marginearned in the period of 27.2%. Thisincremental margin reflects increaseduse of installed capacity, offsetsomewhat by start-up inefficiencies inthe newly installed Brazilian capacity.

Financing CostsFinancing costs comprise net interestexpense of £8.6m (2006: £11.4m) andforeign exchange gains on financing of£2.8m (2006: £17.0m). The exchange gain on foreign currency denominatedbalances was primarily incurred in theperiod prior to IPO and relatessubstantially to US Dollar denominateddebt which was repaid on IPO.

Profit before TaxationProfit before Taxation of £41.7m (2006: £25.4m) includes items of asubstantially one-off or non-recurringnature totalling £4.1m (see table opposite).

TaxationThe Group effective rate of taxation inthe year was 30.5%. Corporate tax ratesin the UK and Brazil of 30% and 34%respectively and a favourable tax regimein the UK for research and developmentunderlie this rate. The full year rate ishigher than that anticipated in the Group’sInterim Report of 29.2% due to thesuccessful start-up in Brazil andconsequent increase in second halfprofits taxed at 34%. Cash tax paymentscommenced in the UK during 2007 asprior year losses have been exhausted.

EPSAdjusted diluted earnings per share for theyear ended 31 December 2007 was 34.7p(2006: 11.4p). Basic earnings per sharefor the year ended 31 December 2007was 31.8p (2006: 34.6p). Diluted earningsper share was 31.6p (2006: 34.6p).

DividendThe Company, in line with its Prospectus,has not proposed a dividend for 2007.The Prospectus also identifies that,assuming the Company has accumulatedsufficient distributable reserves, itsdirectors anticipate paying both an interimand final dividend for 2008.



32 | Financial Review

Operating Cash FlowCash flow from operations was£32.7m (2006: £0.2m). Working capitalin the period increased by £24.6m(2006: £23.7m). This increase reflects thelonger supply chain currently associatedwith our Brazilian operations and phasingof customer payments over the year end.Net interest paid of £3.1m (2006: £4.8m)and taxation paid of £4.5m (2006: £0.1m)resulted in a net cash increase fromoperating activities of £25.1m(2006: decrease £4.7m), which more thancovered the significant investment incapital equipment made in the period.

Capital ExpenditureCapital expenditure in the year ended31 December 2007 was £16.7m (2006: £14.0m). The most significantinvestment was in Brazil where the Grouphas created new capacity in a leaseholdfacility. The total investment in Brazil inthe past two years has been £17.9m ofwhich in excess of 90% was incurred inrespect of new plant and equipment. InNovember 2007 the Group announceda further £35m investment in newcapacity, which is expected to occurduring 2008 and early 2009.

Financing ActivitiesThe IPO generated net proceeds from thesale of new share capital of £66.8m which,along with draw-down on the Group’s£85m revolving facility, enabled therepayment of long-term debt and deepdiscounted bonds that existed pre-IPO.The net cash raised from financingactivities of £12.9m (2006: £2.8m), wasapplied to short-term debt leaving netcash at the period end of £0.8m (2006:£20.9m deficit).

Net DebtNet debt at 31 December 2007 was£46.7m (2006: £119.2m) which is currentlydenominated substantially in Sterling.Total debt available to the Group is£89.4m which, after allowing forperformance bonds, guarantees andcash balances held overseas, leavesthe Group with in excess of £30m ofavailable headroom.



TreasuryThe Group’s day-to-day cash requirementsand its capital investment programme arefinanced through an £85m revolvingcredit facility. Short-term fixed interestrate loans, normally over a period of 1-3months, form the significant part of thedrawn-down facility with the balancebeing carried at variable interest rates.The overall credit facility is planned toreduce periodically from November 2008until its expiry in May 2013.

Although a substantial part of the Group’srevenue and profit is earned outside theUK, subsidiaries generally trade in eitherlocal currency or Sterling. The Group istherefore not normally exposed tosignificant foreign exchange transactionalrisk. Occasionally the Group doesgenerate revenue in a third party currencyand, where this occurs, the potential riskis assessed against any natural hedgesthat exist within the Group before anyfinancial hedges are considered. TheGroup also has an exposure to foreigncurrency that arises upon the translationof overseas results into Sterling.

The Group does not currently hold anyfinancial instruments to hedge eithercurrency or interest rates.

Accounting PoliciesThe Group has updated its accountingpolicies in order to provide the mostrelevant and tailored information tostakeholders. Details are included onpage 63.

Going ConcernBased on normal business planningand control procedures, the directorshave a reasonable expectation that theCompany and the Group have adequateresources to continue in operationalexistence for the foreseeable future.For this reason, the directors continueto adopt the going concern basis inpreparing the accounts.

Chris GillFinance Director1 April 2008


John W KennedyChairman Mr Kennedy, aged 58, joined Wellstreamin 2003 as Chairman. Mr Kennedy hasover 30 years of experience, holdingexecutive positions in Halliburton,Brown & Root and Dresser Enterprises.In 1993, Mr Kennedy received the SloanFellowship, London Business Schooland also holds a M.Sc., B.E. and C.Eng.from University College Dublin.Mr. Kennedy is currently a director of theUnited Kingdom Atomic Energy Authority,Integra Group, Maxwell DrummondInternational Ltd, Hydrasun Holdings Ltd,Bifold Fluid Power Ltd, and also acts asan advisor and a consultant to severaloil field service companies.

Gordon Chapman Chief Executive OfficerMr Chapman, aged 57, originally joinedWellstream in 1991 and is now theCompany’s Chief Executive Officer havingled the management Buy-out in 2003.He has over 30 years of experience inthe oil field services sector, including15 years with Wellstream. Prior to joiningWellstream, Mr Chapman worked onpipeline projects in South America, India,the Caribbean, Nigeria and the NorthSea. He is a chartered civil engineerwith a degree in Civil Engineering fromSalford University.

Christopher Braithwaite Chief Operating OfficerMr Braithwaite, aged 51, joinedWellstream in August 2004 as ChiefOperating Officer. He has over 25 yearsof experience in project management,engineering and manufacturingbusinesses in companies includingHalliburton/Brown & Root and ABB.He has a B.Sc. (Hons) degree in CivilEngineering from the University ofSurrey and a M.Sc. degree in BusinessAdministration & Project Managementfrom Cranfield School of Management.He is chairman of Subsea NE anddirector of NOF Energy, both industrybodies.

Chris GillFinance DirectorMr Gill, aged 45, joined the Company asFinance Director on 7 January 2008.He qualified as a Chartered Accountantin 1988 with Ernst and Whinney andhas a B.Sc. in Mining Engineering fromNewcastle University. He has over 20 years of financialexperience across a diverse range ofbusinesses, most recently as FinanceDirector at the Noble Organisation anddomnick hunter group plc and prior tothat in Black and Decker Corp. He is anon-executive director of StadiumGroup plc and a board member of theNorth of England IndustrialDevelopment Board.

1. John W Kennedy2. Gordon Chapman3. Christopher Braithwaite4. Chris Gill5. Sir Graham Hearne6. Neil Gaskell7. Francisco Gros8. Nils Stoesser9. Patrick M Murray

34| Board of Directors

1 2 3 4

Wellstream Holdings PLCBoard of Directors



5 6 7 8 9

Sir Graham Hearne Senior Independent Non-Executive DirectorSir Graham, aged 70, joined Wellstreamin 2003 as an independent non-executive director. Sir Graham practicedlaw before taking a number of seniorexecutive positions, including ChiefExecutive of Enterprise Oil. Sir Grahamis currently non-executive Chairmanof Braemer Shipping Services GroupPLC, Catlin Group Limited and StraticEnergy Corporation. He is anon-executive director of N.M.Rothschild & Sons Ltd and RowanCompanies, Inc.

Neil Gaskell Independent Non-ExecutiveDirectorMr Gaskell, aged 59, joined Wellstreamin 2007 as an independent non-executive director. Mr. Gaskell has 25years of experience in seniormanagement roles at various Shellcompanies including from 2000 to2003 as Group Treasurer, responsiblefor all financing policies, funding andrisk management. Mr Gaskell iscurrently a non-executive director ofseveral companies including IntegraGroup and Aberdeen All AsiaInvestment Trust PLC and others inthe oil and gas industry. Mr Gaskellis a fellow of the Association ofChartered Certified Accountants andhas a B.A. in Philosophy andEconomics from the London Schoolof Economics.

Francisco Gros Independent Non-ExecutiveDirectorFrancisco R. Gros, age 65, has beena director of the Company since 2007.Mr Gros is non-executive ViceChairman of OGX Petroleo e GasParticipacoes S.A., a company involvedin the exploration of oil and gasreserves in Brazil. Previously Mr Groswas President and Chief ExecutiveOfficer of Fosfertil from 2003 to 2007.In addition, Mr Gros was President andChief Executive Officer of PetróleoBrasileiro S.A. from January 2002 toDecember 2002, and President andChief Executive Officer of the BrazilianDevelopment Bank from 2000 toDecember 2001. Previously, Mr Groswas also a Managing Director ofMorgan Stanley from 1993 to 2000,and was Governor of the CentralBank on two occasions, in 1987 andfrom 1991 to 1992. Mr Gros is alsothe Chairman of the Board for WilsonSons Ltd. and serves on the Boards ofGlobex Utilidades S.A., EDP-Energiasdo Brasil S.A., Lojas Renner, Fosfertil,and Agco Corp. Mr Gros has a B.A.(cum laude) from the Woodrow WilsonSchool of Public and InternationalAffairs at Princeton University.

Nils Stoesser Non-Executive DirectorMr Stoesser, aged 33, joinedWellstream in 2003 as a non- executivedirector. He is a director of CandoverPartners Limited, which he joined in1999 from Arthur Andersen, where hequalified as a chartered accountant.Mr Stoesser also holds non-executivedirectorships with Qioptiq and LinosAG groups. Mr Stoesser has aM.Eng (Hons) degree in MechanicalEngineering from Newcastle uponTyne University.

Patrick M Murray Independent Non-ExecutiveDirector Patrick Murray, aged 65, joinedWellstream in July 2007 as anindependent non-executive director.Mr Murray has 25 years of experiencein senior management positions, mostrecently as Chairman of the Boardand CEO of Dresser, Inc. Mr Murrayholds a B.S. degree in Accounting anda Master of Business Administrationfrom Seton Hall University. Mr Murrayis on the Board of Directors of HarvestNatural Resources, Inc., PrecisionDrilling Corporation, Rancher EnergyCorp., the Maguire Energy Institute,the World Affairs Council ofDallas/Fort Worth, and the Board ofRegents of Seton Hall University.


36 | Directors’ Report

Directors’ ReportThe directors present their annual report on theaffairs of the Group, together with the financialstatements and independent auditors’ report, for the year ended 31 December 2007.

48723 MG Annual Report - Mid 17/4/08 11:42 Page 36

Principal activitiesThe principal activities of the Group continue to be the design and manufacture of bespoke flexiblepipeline products and systems for the oil and gas industry.

The subsidiary and associated undertakings principally affecting the profits or net assets of the Group inthe year are listed in note 13 to the financial statements.

The Company has operations in Newcastle UK, Panama City Florida USA, Niterói Brazil, Perth Australia,and offices in Rio de Janeiro Brazil, Houston USA and Calgary Canada, including a branch in PanamaCity USA.

Business reviewThe Chief Executive’s Review which contains key performance indicators, principal risks anduncertainties, business performance and strategy is set out on pages 4 - 29 and is included in theDirectors’ Report by reference.

Results and DividendsThe results for the year and amounts transferred to reserves are detailed on pages 60 - 62. In accordancewith the dividend policy set out in the Company’s Prospectus, the directors are not recommending thepayment of a dividend for the financial year ended 31 December 2007.

Articles of AssociationThe Company’s Articles may only be amended by special resolution at a general meeting of the shareholders.At the Annual General Meeting to be held on 19 May 2008, a resolution will be put to shareholdersproposing the adoption of new Articles of Association. An explanation of the principal proposed changescan be found in the Appendix to the Notice of Meeting.

Capital StructureThe Company’s authorised share capital as at 31 December 2007 was £1,500,000 divided into 150,000,000ordinary shares of £0.01 each. The Company’s issued share capital as at that date and at 1 April 2008was 99,579,750 ordinary shares of £0.01 each, each credited as fully paid.

The changes that took place to the share capital of the Company throughout the reporting period are setout below, divided between the periods before and after the Company’s shares were admitted to listingon the Official List of the UK Listing Authority and to trading on the London Stock Exchange on 1 May2007 (Admission).

Before Admission The authorised share capital of the Company as at 1 January 2007 was £28,043 divided into 78,000preferred ordinary shares of £0.01 each and 27,263 “A” ordinary shares of £1.00 each. 78,000 preferredordinary shares of £0.01 each were issued to various Candover shareholders and 20,000 “A” ordinaryshares of £1.00 each were issued to members of the management team of Wellstream.

On 27 March 2007 the authorised share capital of the Company was increased from £28,043 to £58,043by the creation of 30,000 redeemable non-voting shares of £1.00 each. Such shares were issued fullypaid on the same date to Candover Partners Limited.



38 | Directors’ Report continued

From and after AdmissionAt a meeting of the Board held on 25 April 2007 it was resolved that, with effect from and conditional uponAdmission, the Company would:

• issue 2,000 “A” ordinary shares of £1.00 each to Uberior Trading Limited, an indirect wholly ownedsubsidiary of HBOS, pursuant to the exercise in full of warrants issued by the Company to UberiorTrading Limited in connection with the Company’s financing arrangements;

• issue 1,523 “A” ordinary shares of £1.00 each to Sir Graham Hearne (a non-executive director), pursuantto the exercise in full of options issued by the Company to Sir Graham Hearne and;

• redeem the 30,000 redeemable non-voting shares of £1.00 each issued to Candover Partners Limitedon 27 March 2007.

Pursuant to a resolution passed by the shareholders of the Company at an extraordinary general meetingof the Company held on 25 April 2007, with effect from and conditional upon Admission:

• each issued and unissued “A” ordinary share of £1.00 each was subdivided into 100 “A” ordinary sharesof £0.01 each, resulting in a total of 2,352,300 “A” ordinary shares of £0.01 each in issue;

• the authorised share capital of the Company was increased from £58,043 (divided into 2,726,300 “A”ordinary shares of £0.01 each, 78,000 preferred ordinary shares of £0.01 each and 30,000 redeemablenon-voting shares of £1.00 each) to £135,263 by the creation of 7,722,000 preferred ordinary shares of£0.01 each;

• 99 bonus preferred ordinary shares of £0.01 each were issued to the holders of the preferred ordinaryshares of £0.01 each for each preferred ordinary share of £0.01 each held by members on the dayimmediately prior to Admission, such bonus issue funded by the capitalisation of amounts standing tothe credit of the Company’s share premium account, resulting in a total of 7,800,000 preferred ordinaryshares of £0.01 each in issue;

• the issued and unissued “A” ordinary shares of £0.01 each and the issued and unissued preferredordinary shares of £0.01 each were re-designated as ordinary shares of £0.01 each, resulting in a totalof 10,152,300 ordinary shares of £0.01 each in issue;

• the authorised share capital of the Company was increased from £135,263 (divided into 10,526,300ordinary shares of £0.01 each and 30,000 redeemable non-voting shares of £1.00 each) to £1,530,000by the creation of 139,473,700 ordinary shares of £0.01 each;

• 6.5 bonus ordinary shares of £0.01 each were issued to the holders of the ordinary shares of £0.01 eachfor each ordinary share of £0.01 each held at such time, such bonus issue funded by the capitalisationof amounts standing to the credit of the Company’s share premium account; and

• all the authorised redeemable non-voting shares of £1.00 each were cancelled.

Upon Admission, on 1 May 2007, the Company’s ordinary shares were admitted to the Official List of theUK Listing Authority and to trading on the London Stock Exchange. The global offer comprised 67,037,500ordinary shares of £0.01 each, of which 23,437,500 new ordinary shares of £0.01 each were issued by theCompany and 43,600,000 were sold by existing shareholders.

The changes to the authorised and issued share capital of the Company up to 31 December 2007 arealso set out in note 23 to the financial statements.

Resolutions relating to the Company’s share capital being proposed at the Annual General Meeting areset out in the Notice of Meeting. Further details are given in the accompanying letter from the Chairman.

The rights and obligations attaching to the Company’s ordinary shares are set out in the Company’s Articles,copies of which can be obtained from Companies House in the UK or by writing to the Company Secretary.



There are no restrictions on transfer or voting of securities in the Company and there are no agreementsknown to the Company which might result in such restrictions. There are no shareholders carrying specialrights with regard to control of the Company.

At an extraordinary general meeting of the Company on 25 April 2007, the Company was authorised, witheffect from and conditional upon Admission, to purchase up to 9,957,975 of its own shares at a pricebetween the nominal value and 105 per cent of the market price. The resolutions being proposed at theAnnual General Meeting include a resolution to renew this authority.

Significant Agreements - Change of ControlThe following significant commercial agreements contain certain termination and other rights for ourcounterparties upon a change of control of the Company.

All Petrobras contracts follow their standard terms and conditions which provide for rights on a change ofcontrol. The following are the current significant contracts;

• Flowlines and risers for Marlim Sul Module 2 in excess of £40m

• Water injection and gas lift flowlines for Marlim Leste in excess of £40m

• Flexible risers and flowlines for the Campos Basin in excess of £50m

All the Company’s share schemes have change of control provisions.

The Company’s banking arrangements, including the £85m revolving facility and the debenture, havechange of control provisions.

There are no agreements between the Company or directors or employees which provide forcompensation for loss of office or employment that occurs because of a takeover bid.



DirectorsThe directors, who served throughout the year and since except as noted, were as follows:

John Kennedy appointed 8 March 2003Executive Chairman and member of the Nomination CommitteeGordon Chapman appointed 13 January 2003Chief Executive Officer (CEO)Chris Braithwaite appointed 27 August 2004Chief Operating Officer (COO)Andrew Turk appointed 19 March 2003Finance Director (who left the Company on31 December 2007)Sir Graham Hearne appointed 18 July 2003Senior Independent non-executive Director, Chairman of the Nomination Committee andmember of the Audit and Remuneration CommitteesChris Gill appointed 7 January 2008Finance Director (FD)

Francisco Gros appointed 19 March 2007Independent non-executive director, Chairman of theRemuneration Committee and member of theNomination Committee

Neil Gaskell appointed 19 March 2007Independent non-executive director and Chairman ofthe Audit Committee

Pat Murray appointed 10 July 2007Independent non-executive director, member of theRemuneration and Audit Committees

Nils Stoesser appointed 13 January 2003Non-executive director and member of the Audit Committee

Marek Gumienny appointed 18 March 2003Non-executive director (resigned on 19 March 2007)

Election and re-election of directorsIn accordance with the Company’s Articles of Association, all of the Board will retire and offer themselves for election orre-election.

Three non-executive directors were appointed this year. Pat Murray appointed July 2007, Francisco Gros appointedMarch 2007 and Neil Gaskell appointed March 2007, all retire at the next Annual General Meeting and, being eligible,offer themselves for election. Sir Graham Hearne, Senior Independent non-executive Director and Nils Stoesser non-executive director who have both held office for more than three years retire in accordance with the requirements of theCompany’s Articles of Association and being eligible, offer themselves for re-election. The Board believes that all of thenon-executive directors offering themselves for election or re-election should be elected to their non-executive rolesbecause of the contribution they have made to the success of the Company and because their experience is valuablefor the future growth of the Company.

Chris Gill, who joined the Company on 7 January 2008 as Finance Director also retires and offers himself for election.

John Kennedy Chairman, Gordon Chapman CEO and Chris Braithwaite COO who have held office for more than threeyears, all retire in accordance with the Articles and being eligible offer themselves for re-election.

All directors who are due for election or re-election continue to perform effectively in terms of contribution, timecommitment and commitment to the relevant Committees of the Board.

The rules regarding the appointment and replacement of directors are set out in the Articles of the Company. Directorsare appointed by the Company by ordinary resolution at a general meeting of holders of ordinary shares or by theBoard on the recommendation of the Nomination Committee. The Corporate Governance Report sets out further detailson page 44.

Powers of the DirectorsThe directors are responsible for managing the business of the Company and may exercise all the powers of the Companysubject to the provisions of relevant statutes, any directions given by special resolution and the Company’s Memorandumand Articles. The Articles, for example, contain specific provisions and restrictions concerning the Company’s power toborrow money. Powers relating to the issuing of shares and power to purchase the Company’s own shares are also includedin the Articles (subject to relevant statutory provisions) and the resolutions being proposed at the Annual General Meeting,as set out in the Notice of Meeting, include resolutions to renew such authorities. The Corporate Governance Report setsout details of matters reserved to the Board on page 45.

For fuller biographies of all the directors please see pages 34 - 35



Directors’ interestsThe directors who held office at 31 December 2007 had the following interests in the shares anddebentures of Wellstream Holdings PLC:

Name of Director Beneficial Non-Beneficial Beneficial Non-Beneficial

John Kennedy* Ord 1p shares 4,078,125 - 5,000 Ord £1.00 shares -

Gordon Chapman Ord 1p shares 2,500,000 - 5,000 Ord £1.00 shares -

Chris Braithwaite Ord 1p shares 2,000,000 - 4,000 Ord £1.00 shares -

Andrew Turk Ord 1p shares 1,250,000 - 2,500 Ord £1.00 shares -

Sir Graham Hearne Ord 1p shares 692,250 - - - -

Neil Gaskell Ord 1p shares 28,125 - - - -

Descriptionof shares ordebentures

Descriptionof shares

31 December 2007 1st January 2007(1)

or subsequentdate ofappointment

*Held by Amko Energy SA.

No changes in the interests of directors took place between 31 December 2007 and the date of this report.

Note (1): The share capital of the Company since 31 December 2006 has been reorganised and the figuresare not comparable with their current holdings.

Directors’ share optionsNone of the directors currently hold share options in the Company except under the Performance SharePlan. Details of share option grants are included in the Directors’ Remuneration Report on page 56.

Directors’ indemnitiesThe directors have the benefit of qualifying third party indemnity provisions.

Supplier payment policyThe Company’s policy, which is also applied by the Group, is to settle terms of payment with supplierswhen agreeing the terms of each transaction, ensure that suppliers are made aware of the terms of paymentand abide by the terms of payment. Trade creditors of the Group at 31 December 2007 were equivalent to45 (2006: 50) days’ purchases, based on the average daily amount invoiced by suppliers during the year.

Charitable and political contributionsDuring the year the Group made charitable donations of £35,000 (2006: £5,000) principally to local charitiesserving the communities in which the Group operates.

No political donations were made or EU political expenditure incurred during the year.


Name of Holder Number of Shares Percentage Nature of Holding

Candover Shareholders 13,771,250 13.8% Direct

Legal and General Group PLC 7,735,046 7.7% Direct 3,552,970

Indirect 4,182,076

Janus Capital Management LLC 6,736,698 6.8% Direct

John Kennedy 4,078,125 4.1% Indirect

Aegon UK Group of Companies 3,879,951 3.9% Direct

Schroders PLC 3,847,025 3.9% Direct

Disabled employeesApplications for employment by disabled persons are always fully considered, bearing in mind theaptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort ismade to ensure that their employment with the Group continues and that appropriate training is arranged.It is the policy of the Group that the training, career development and promotion of disabled personsshould, as far as possible, be identical to that of other employees.

Employee consultationThe Group places considerable value on the involvement of its employees and has continued to keepthem informed on matters affecting them as employees and on the various factors affecting theperformance of the Group. This is achieved through formal and informal meetings. Employeerepresentatives are consulted regularly on a wide range of matters affecting their current and future interests.

Environment and social responsibilityThe Company recognises that it is part of the wider community and strives to act responsibly to promotethe interests of the community. Further details of the Company’s approach to these issues is given onpages 17 and 29 of the Chief Executive’s Review.

Employee share plansThe Company is keen to promote employee involvement in the success and growth of the Company.A Sharesave plan was implemented soon after IPO and was well received with over 75% of staff in the UKparticipating. It is open to all UK employees who can elect to save up to £250pm for 3 or 5 years and maythen use the accumulated capital and interest to buy shares at the discounted price fixed at the beginningof the savings period.

Performance Share PlanDuring the year a Performance Share Plan was set up as part of performance related pay. Executivedirectors and senior employees were granted nominal cost share options which vest over a three yearperiod when certain performance conditions set by the Remuneration Committee are met. Further detailsare given in the Directors’ Remuneration Report.

Neither scheme has issued any shares.

Research and developmentFurther details are provided in the Chief Executive’s Review on page 22.

Financial InstrumentsInformation about the use by the Company and its subsidiaries of financial instruments is given in note 22.

Substantial shareholdingsOn 26 March 2008 the Company had been notified, in accordance with the Disclosure and TransparencyRules, of the following interests in the ordinary share capital of the Company.



Special businessA resolution will be placed before the Annual General Meeting to amend the Articles of the Company totake account of the Companies Act 2006 requirements relating to conflicts of interests of the directors.An explanation of the resolutions is attached to the Notice of Meeting on page 94.

AuditorsEach of the persons who is a director at the date of this annual report confirms that:

• so far as the director is aware, there is no relevant audit information of which the Company’s auditorsare unaware; and

• the director has taken all the steps that he/she ought to have taken as a director in order to makehimself/herself aware of any relevant audit information and to establish that the Company’s auditors areaware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s234ZA of theCompanies Act 1985.

Deloitte & Touche LLP have expressed their willingness to continue in office as auditors and a resolutionto reappoint them will be proposed at the forthcoming Annual General Meeting.

Wellstream Holdings PLCBy order of the Board,

Rob LambCompany Secretary1 April 2008



44 | Corporate Governance Report

Corporate Governance ReportThe Company is committed to the principles ofcorporate governance contained in the CombinedCode on Corporate Governance issued by theFinancial Reporting Council in June 2006 (the Code),for which the Board is accountable to shareholders.

Statement of compliance with the Combined CodeThe Company’s shares were admitted to listing on the Official List of the UK Listing Authority and to tradingon the London Stock Exchange on 1 May 2007 (Admission). The Financial Services Authority requires listedcompanies to disclose how they have applied, and complied with, the provisions set out in section 1 of theCode. From Admission until September 2007, when the Company entered the FTSE 250, the Companywas “a smaller listed Company” for the purposes of the Combined Code and so certain provisions of theCombined Code did not apply. Subject to this since Admission the Company has complied fully with theprovisions set out in section 1 of the Code, except that one non-independent non-executive director remainsa member of the Audit Committee contrary to C.3.1 of the Combined Code in order to provide continuityfor the Committee after Admission. This corporate governance statement sets out details of how theCompany has applied the provisions of section 1 of the Code since Admission. The Board will carry out anevaluation of the effectiveness of the Board and of the effectiveness of the system of internal controls onan annual basis but as the Company has only recently listed neither was completed during 2007 contraryto A.6 and C.2.1 of the Combined Code.

The BoardBoard composition and independenceAt the date of this report, the Board of Wellstream Holdings PLC consists of the executive Chairman, threeexecutive directors and five non-executive directors. The roles of Chairman and Chief Executive Officerare separate and each has clearly defined responsibilities.

The Chairman’s main role is to lead the Board, ensuring its effectiveness in all aspects of its role and settingits agenda. The Chairman is also responsible for ensuring that the directors receive accurate, timely andclear information; a process that will be reviewed annually. The Chairman also ensures that the Companymaintains clear communication with shareholders, facilitates the effective contribution of non-executivedirectors in particular and ensures constructive relations between executive and non-executive directors.The Chairman devotes two days a week to the business of the Company in an executive role, assisting inframing and developing strategy. Following its review, the Nomination Committee is satisfied that theChairman is able to dedicate significant time to the business and that there has been no change in the levelof his commitments since Admission. The Chief Executive Officer is responsible for implementing Groupstrategy and for managing the Group.

The Board aims to embody an appropriate balance of skills and experience to support the Company’sstrategy and performance and has consequently appointed experienced non-executive directors who bringto the Company a wealth of skills and knowledge of the oil and gas industry. The non-executive directorsrepresent the majority of the board. Of the five non-executive directors, Neil Gaskell, Francisco Gros, SirGraham Hearne and Pat Murray are considered to be independent non-executive directors.



The Board is satisfied that there are no relationships or circumstances which are likely to affect, or couldappear to affect, the judgement of these directors. Nils Stoesser, also a non-executive director, is notconsidered by the Board to be independent as he represents Candover Investments plc, a significantshareholder of the Company. Sir Graham Hearne is recognised as the Senior Independent non-executiveDirector and is available to shareholders should they have concerns that cannot be resolved throughnormal channels with the Chairman, Chief Executive Officer or Finance Director. The independent non-executive directors will meet annually without the Chairman present to review the performance of theChairman.

The non-executive directors are entitled to a fee for their services. They are not entitled to participate in anyof the Company’s share schemes and are not eligible to join the Company’s pension scheme. Other thantheir fees, no non-executive director received remuneration from the Company during the year other thanSir Graham Hearne who made a gain of £3,624,616 at Admission upon exercise of options over shares inthe Company granted by the Company before Admission in recognition of his contribution to the Company.The terms and conditions of appointment of the non-executive directors are available for inspection at theAnnual General Meeting or by any person during normal business hours at the Company’s registered office.

The role of the BoardThe Board approved at its meeting in April 2007 a schedule of matters specifically reserved for the Board’sattention. The types of decisions taken by the Board include the approval of the Company’s strategy andannual budget and financial statements, acquisitions or disposals, documents sent to the Company’sshareholders, changes in capital structure, dividends and matters relating to its committees. Operationaldecisions are delegated to the Company’s management.

The Board holds ultimate responsibility for the management and success of the Company, developingstrategy, scrutinising performance and maintaining internal controls and corporate governance.Responsibility for the day-to-day management of the Group is delegated to the Chief Executive Officer.Further, the Chief Operating Officer is responsible for managing the operating functions of the Group.

All directors are to be appointed via the recommendation of the Nomination Committee chaired by theSenior Independent non-executive Director, Sir Graham Hearne. Directors must retire and offer themselvesfor re-election by shareholders every three years in accordance with the Articles of the Company.

All directors joining the Company benefit from a tailored induction process familiarising them with theCompany and updating their existing skills based on reports to the Board, factory visits and briefings fromadvisers. The Board intends to conduct annual performance appraisals of the effectiveness of the Board.No evaluation was carried out in the period from Admission to 31 December 2007.

The Board holds meetings on a regular basis, at least five per year and additionally for specific purposes asand when required. There were eight Board meetings in the period from Admission to 31 December 2007.Five meetings are scheduled in 2008. The number of meetings of the Board and of its committees heldduring the year is given below, together with the attendance details of each director or Committee member:

Board Audit Committee Remuneration Committee Nomination Committee 14 5 5 3

John Kennedy 13 1 1 3

Gordon Chapman 13 1

Chris Braithwaite 12

Andrew Turk 11 1

Sir Graham Hearne 13 4 4 3

Francisco Gros 10 4 3

Neil Gaskell 10 4

Nils Stoesser 13 5 1

Pat Murray 6 2 4

Marek Gumienny 2 1

Number of meetings during theyear ended 31 December 2007


46 | Corporate Governance Report continued

Committees of the BoardThe Board formally delegates certain of its responsibilities to committees by way of written terms of reference. The termsof reference for the Board’s committees were posted to the Company’s website on 10 December 2007. Details of eachcommittee, its membership and its terms of reference are summarised below.

Audit CommitteePrior to 19 March 2007, the Committee comprised John Kennedy, Andrew Turk, Marek Gumienny and Nils Stoesser. On 19 March 2007 the Board approved new terms of reference for the Committee and appointed Neil Gaskell as chairmantogether with Sir Graham Hearne in replacement for John Kennedy and Andrew Turk. Marek Gumienny also resigned on19 March 2007. On 10 July 2007, Pat Murray was appointed as an additional member. The current members of theCommittee therefore are Neil Gaskell (chairman of the Committee), Sir Graham Hearne, Pat Murray and Nils Stoesser.All members of the Committee are financially literate non-executive directors and a majority are considered independent.Neil Gaskell is considered to have “recent and relevant financial experience”.

The Committee met five times in the year, principally to review and approve the financial statements, approve its termsof reference, review the appointment of the auditors and review matters relating to risk control. Further details about theCommittee are included in the Audit Committee Report on page 49.

Remuneration CommitteeFrom Admission to 10 July 2007, the Committee comprised Francisco Gros (chairman of the Committee) and Sir GrahamHearne, both independent non-executive directors who were appointed on 19 March 2007. Pat Murray, an independentnon-executive director, was appointed to the Committee on 10 July 2007. Pre IPO, the Committee members wereJohn Kennedy, Marek Gumienny, Nils Stoesser and Gordon Chapman. They ceased to be members of the Committee19 March 2007.

The Committee met five times during the year. Its principal activity is to review and make recommendations on theremuneration of the executive directors. During the year the Committee approved its terms of reference and approvedthe setting up of the Company’s share plans and bonus arrangements based on performance targets agreed by theCommittee. Further details about the Committee and details of the remuneration of directors are included in theDirectors’ Remuneration Report on page 51.

Nomination CommitteeThe Nomination Committee is responsible for appointments to the Board and reviewing the Board’s evaluation processes.This includes the re-appointment of non-executive directors at the conclusion of their specified terms of office and there-election by shareholders of any director under the retirement by rotation provisions of the Company’s Articles ofAssociation. The Committee also considers plans that are in place for succession planning, appointments of seniormanagement and reviews the balance of skills and experience within the Company.

The Committee was appointed by the Board on 19 March 2007 and comprises Sir Graham Hearne (chairman of theCommittee), John Kennedy and Francisco Gros. A majority of the Committee are independent non-executive directors.

The Committee met three times during the period from Admission to 31 December 2007. It reviewed and approved theappointment of Pat Murray and Chris Gill as well as a senior staff appointment.


Accountability and AuditInternal control The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness.Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectivesand can only provide reasonable and not absolute assurance against material misstatement or loss.

To be in compliance with provision C.2.1 of the Combined Code the Board should perform a specific reviewof the effectiveness of internal controls for the purpose of the Annual Report. It has not formally completedthis review but will do so in future years. In so doing, the Board will receive a report from the AuditCommittee which addresses the results of its review of the risk assessment process to the Board. The Boardwill then evaluate the effectiveness of the system of internal control.

The key procedures, which the directors have established with a view to providing effective internal control,are as follows:

Indication of business risksPrior to the Company’s shares being admitted to listing on the Official List of the UK Listings Authority andto trading on the London Stock Exchange, a comprehensive risk review was undertaken. During theperiod since the Admission, the Company has supplemented the processes used to identify and managekey risks to the business by establishing an internal audit function and instituting a formal process ofrecording key business risks. These activities enhance those that are already an integral part of thebusiness’ internal control environment such as Strategic Planning, the appointment of Senior Managers,the regular reporting of performance and control over capital expenditure and evaluation of acquisitions.

The process by which key business risks are recorded and reported against was formalised in the fourthquarter of 2007, it will be monitored and maintained by an executive director who is responsible at Boardlevel for these matters. Regular reviews and periodic updates with senior executives and management arecarried out. This process considers the significant risks facing the Group including those risks arising fromsocial, environmental and ethical issues and undertakes risk audits. In identifying significant risks to whichthe Group is exposed, it reviews the results of any relevant internal audit work and agrees mitigating actions,when possible.

Quality and integrity of personnelThe integrity and competence of personnel is ensured through high recruitment standards and subsequenttraining courses. High quality personnel are seen as an essential part of the control environment.

Management StructureThe Board has overall responsibility for the Group. Each executive director has been given responsibilityfor specific aspects of the Group’s affairs. A clearly defined organisation structure exists within whichindividual responsibilities are identified and can be monitored. The management of the Group as a whole isdelegated to the Chief Executive Officer and the executive directors. The conduct of individual businessesis delegated to the local executive management teams. These teams are accountable for the conduct andperformance of their businesses within the agreed business strategy. They have full authority to act subjectto the reserved powers and sanctioning limits laid down by the Board and to Group policies and guidelines.



48 | Corporate Governance Report continued

Internal AuditThe Group established an internal audit function in September 2007. It has an agreed programme ofactivities to review compliance with procedures and assess the integrity of the control environment.Internal audit acts as a service to the business by assisting with the continuous improvement of controlsand procedures. Actions are agreed in response to its recommendations and these are followed up bythe Audit Committee to ensure that satisfactory control is maintained.

Budgetary ProcessA comprehensive budgeting system is in place, with annual budgets for all operating subsidiaries. Thecombined budget is subject to consideration and approval by the Board. Management informationsystems provide the directors with relevant and timely information required to monitor financial performance.

Investment appraisalBudgetary approval and defined authorisation levels regulate capital expenditure. As part of the budgetaryprocess the Board considers proposals for research and development programmes.

Whistle Blowing PolicyThe Company has in place a whistle blowing policy by which concerns may be reported and investigatedconfidentially.

Through these processes the Board believes it had an appropriate system of internal controls in placethroughout the period and that the enhanced control environment established during 2007 will allowcompliance with provision C.2.1 of the Combined Code in 2008.

Relations with shareholdersDialogue with institutional shareholdersMost shareholder contact is with the Chief Executive Officer and Finance Director, however the Chairmanand the Senior Independent non-executive Director and other directors as appropriate maintain contactwith major shareholders to understand their issues and concerns and are available for discussion withshareholders.

Constructive use of the AGMThe Annual General Meeting is to be held on 19 May 2008, and shareholders are encouraged to attendand to raise areas of interest or concern to directors.

Regular reports are made to the Board concerning shareholder’s views and market expectations. Investorroad shows have been carried out to brief analysts and shareholders on the Company’s activities andinformation is regularly posted to the website.


Audit Committee ReportSummary of the role of the Audit Committee

OverviewThe Audit Committee arrangements that were in place prior to the IPO were revised in March 2007 to reflectthose appropriate for a publicly quoted company. New Terms of Reference were approved and the executivedirectors who had been members were replaced by two independent non-executive directors among whomNeil Gaskell was appointed as Chairman. During the remainder of 2007, the Audit Committee ensured thatsteps were taken to establish the appropriate arrangements including all those required to meet therequirements of the Combined Code on Corporate Governance except that the composition of the Committeeincluded Nils Stoesser who is a non-independent non-executive director because the Committee wishedto benefit from his extensive prior experience on the Company’s Audit Committee. This report describeshow the Audit Committee has carried out its work and discharged its responsibilities.

As reported in the Corporate Governance Report in this Annual Report, the Company joined the main Listof the London Stock Exchange on 1 May 2007 when the Audit Committee comprised two independentnon-executive directors and one non-independent non-executive director. A further independent non-executivedirector joined the Committee in July 2007. The names and qualifications of the members of Committeeare given in the Corporate Governance Report on page 46 and in the directors’ biographies on pages 34 -35. The Committee met five times during the year of which three meetings were after Admission andattendance is indicated in the table on page 45. The Audit Committee invites the Group Finance Director,the Internal Auditor, and senior representatives of the external auditors to attend all of its meetings. Othersenior management are invited to attend as required for the Committee to discharge its duties.

Summary of the role of the Audit CommitteeThe Audit Committee’s role is to assist the Board’s oversight of:

• the integrity of the Company’s financial statements

• the Company’s compliance with applicable legal and regulatory requirements

• the external auditor’s qualifications and independence

• the performance of the Company’s internal audit function, and of the external auditors

• the adequacy of the Company’s financial disclosure, and

• the effectiveness of the Company’s risk management and internal control systems.

During the year the principal activities of the Committee have been to:

• approve new Terms of Reference which are publicly available on the investor relations section of theCompany’s website www.wellstream.com which will be reviewed annually in future

• approve the terms of the external auditor’s appointment, audit plan and remuneration for 2007

• authorise and oversee the establishment of an Internal Audit department which started operation inSeptember 2007 with a programme of work approved by the Committee

• considered the output from the group-wide process used to identify, evaluate and mitigate risks andagreed with management an enhanced group risk management process

• review the unaudited interim report for the first half of 2007, issued in September 2007 and monitoredcompliance with IFRS reporting standards.



50 | Audit Committee Report continued

The Audit Committee evaluates and makes recommendations to the Board about the appropriateness ofthe accounting policies and practices, areas of judgement, compliance with Accounting Standards, stockexchange and legal requirements and the results of the external audit. It reviews the unaudited half yearlyand the annual financial statements and makes recommendations on specific actions or decisions(including formal adoption of the financial statements and reports) that the Board should consider in orderto maintain the integrity of the financial statements. From time to time the Committee may also reviewother statements released to the stock exchange, shareholders and the financial community.

The Audit Committee manages the relationship with external auditors on behalf of the Board. It proposesto the Board the appointment, compensation and retention of the external auditors and oversees theirwork, reviews and monitors their independence, objectivity and performance.

The Audit Committee has also established and monitors the implementation of policies related to allnon-audit services that the external auditors provide. The Committee noted that non-audit fees excludingAdmission-related fees were £328,000 compared with £172,000 audit and other fees pursuant to legislation.While this total exceeds that which the Committee would prefer to target, £170,000 of the non-audit feesrelated to remuneration consultancy advice generated prior to and as a result of the IPO. In addition, IPO-related fees amounted to £1,050,000. The Committee concluded that the independence of the externalauditors continues to be maintained.

The Audit Committee reviews and assesses the remit of the internal audit function. It monitors and discusseswhether the risk management and internal control system is effective, including any significant mattersarising from the audits which are discussed with, as appropriate, the Internal Auditor, management or theexternal auditors, Deloitte & Touche LLP. It monitors the qualifications, expertise, resources and independenceof the Internal Auditor and will assess each year the Internal Auditor’s performance and effectiveness.

The Audit Committee reports its findings to the Board, identifying any matters in respect of which itconsiders that action or improvement is needed, and makes recommendations as to the steps to be taken.

The Committee is responsible for monitoring the implementation of the Group’s Whistleblowing Policyenabling employees to submit concerns confidentially or anonymously, and to ensure independentinvestigation with follow-up action where suitable. A copy of this policy may be viewed on the Company’swebsite www.wellstream.com.

The Committee is satisfied with the results of its activities regarding the external audit and recommend tothe Board that the external auditors are re-appointed. The Committee has concluded it has acted inaccordance with its Terms of Reference and ensured the independence and objectivity of the externalauditors. The Chairman of the Audit Committee will be available at the Annual General Meeting to answerany questions about the work of the Committee.

Neil GaskellChairman of the Audit Committee1 April 2008


Directors’ Remuneration ReportIntroductionThis report has been prepared in accordance with Schedule 7A to the Companies Act 1985 (“the Act”).The report also meets the relevant requirements of the Listing Rules of the Financial Services Authorityand describes how the Board has applied the principles relating to directors’ remuneration. As requiredby the Act, a resolution to approve the report will be proposed at the Annual General Meeting of theCompany at which the financial statements will be approved.

The Act requires the auditors to report to the Company’s members on certain parts of the Directors’Remuneration Report and to state whether in their opinion those parts of the report have been properlyprepared in accordance with the Companies Act 1985. The report has therefore been divided intoseparate sections for audited and unaudited information.

Unaudited informationRemuneration CommitteeThe Company has established a Remuneration Committee which is constituted in accordance with therecommendations of the Combined Code. The members of the Committee since Admission were ChairmanFrancisco Gros and Sir Graham Hearne; and Pat Murray who was appointed on 10 July 2007. They are allindependent non-executive directors. Pre IPO, the Committee members were John Kennedy, Marek Gumienny,Nils Stoesser and Gordon Chapman. They ceased to be members of the Committee on 19 March 2007.

None of the Committee has any personal financial interest (other than as shareholders), conflicts ofinterests arising from cross-directorships or day-to-day involvement in running the business. The Committeemakes recommendations to the Board. No director plays a part in any discussion about his or her ownremuneration. Sir Graham Hearne was awarded share options pre IPO, details of which are given on page 55.

The Committee appointed Deloitte & Touche LLP executive remuneration consulting team to provideadvice on market practice and current trends in directors’ remuneration and benchmarking data. Deloitte& Touche LLP are the Company’s auditors. The Audit Committee has considered the independence of theauditors in relation to the provision of non-audit services to the Company and has concluded that there isno conflict with its policy set out further in the Audit Committee Report.

The Board approved the Committee’s Terms of Reference on 19 March 2007 and a revision approved on14 September 2007. The Terms of Reference are available to view on the Company’s websitewww.wellstream.com

Remuneration policy for the executive directorsExecutive remuneration packages are designed to attract, motivate and retain directors of the high calibreneeded to maintain the Group’s position as a market leader and to reward them for achieving appropriatelevels of performance and for enhancing value to shareholders. The performance measurement of theexecutive directors and key members of senior management and the determination of their annualremuneration package are undertaken by the Committee.

There are five main elements of the remuneration package for executive directors and senior management:

• basic annual salary

• benefits-in-kind

• annual bonus payments which cannot exceed 100% of basic salary

• Performance Share Plan awards, and

• pension arrangements.

Executive directors are entitled to accept appointments outside the Company providing that theChairman’s permission is sought.



52 | Directors’ Remuneration Report continued

Basic salaryAn executive director’s basic salary is reviewed by the Committee prior to the beginning of each year andwhen an individual changes position or responsibility. In deciding appropriate levels, the Committeeconsiders the Group as a whole and relies on objective research which gives up-to-date information.Benchmarking data was reviewed which included an all sector analysis of the FTSE 250, other publishedsurvey data and comparator groups within the Company’s sector. Executive directors’ contracts of servicewhich include details of remuneration will be available for inspection at the Annual General Meeting.

Benefits-in-kindThe executive directors receive certain benefits-in-kind, principally a car and private medical insurance.

Annual bonus paymentsThe Committee establishes the objectives that must be met for each financial year if a cash bonus is to bepaid. In setting appropriate bonus parameters the Committee refers to market practice. Bonus targets for2007 were based on a combination of EBIT and Backlog targets. The maximum performance-related bonusthat can be paid is 100% of basic annual salary for the CEO and 80% of basic salary for the COO and FD.Maximum bonus payments for the year ended 31 December 2007 were paid as all targets were exceeded.

Performance Share PlanFollowing approval at the Extraordinary General Meeting on 11 April 2007, the Company established anew Performance Share Plan (PSP). This plan was designed to align the interests of shareholders anddirectors by means of performance targets. The Committee has responsibility for supervising the schemeand the grant of awards subject to performance conditions under its terms.

The performance criterion that must be met requires the Company’s earnings per share exceed certaintargets set by the Remuneration Committee over a three year period. Thereafter the option may be exercisedfor the remaining part of its five year life without further test.

The Performance Share Plan rules permit a maximum of 200% of salary to be available for an award inexceptional circumstances at the discretion of the Committee.

Save As You Earn Share Scheme (SAYE)The Company also operates an SAYE scheme where options may be granted at up to a 20% discount tomarket value at date of grant. The executive directors are not eligible to participate in this scheme.

Pension arrangementsA sum is paid to money purchase (defined contribution) arrangements for the executive directors and lifecover is also provided.


Performance graphThe following graph shows the Company’s performance, measured by total shareholder return, comparedwith the performance of the FTSE Mid 250 (excluding investment trusts) Index also measured by totalshareholder return. The graph is based on average monthly data from the first month post IPO from 1 June 2007 to 31 December 2007.

Wellstream is in the FTSE 250 Index.

Directors’ ContractsIt is the Company’s policy that executive directors should have contracts with an indefinite term providingfor a maximum of one year’s notice by either party.

Pat Murray, Francisco Gros and Neil Gaskell being all non-executive directors appointed this year are proposedfor election at the Annual General Meeting. Sir Graham Hearne and Nils Stoesser, non-executive directorsretire in accordance with the Articles of Association and being eligible, offer themselves for re-election.No non-executive director has a service contract. Chris Gill Finance Director, who joined the Company on7 January 2008 is proposed for election at the Annual General Meeting in May. He has a service contractwhich contains one year’s notice period. John Kennedy Chairman has a fixed term three year contract.In view of the IPO and the requirements of the Articles all directors will resign and submit themselves forelection or re-election at the Annual General Meeting. All of the contracts are available for inspection beforeand during the Annual General Meeting.

The details of the executive directors’ contracts are summarised in the table below:

1/6/07 1/7/07 1/8/07 1/9/07 1/10/07 1/11/07 1/12/07 31/12/07

WellstreamFTSE Mid 250 EXC Investment Trusts

Name of director Date of contract Notice period

John Kennedy 11 April 2007 12 months

Gordon Chapman 11 April 2007 12 months

Chris Braithwaite 11 April 2007 12 months

Andrew Turk 11 April 2007 12 months

Chris Gill 7 January 2008 12 months

300

250

200

150

100

50

0



Non-executive directorsAll non-executive directors have specific terms of engagement and their remuneration is determined by theBoard within the limits set by the Articles of Association and based on independent surveys of fees paid tonon-executive directors of similar companies. The basic fee paid to Sir Graham Hearne is £60,000 pa asthe Senior Independent non-executive Director. Each of the other non-executive directors is paid a fee of£50,000 pa. Marek Gumienny who resigned in March 2007 was paid fees pro-rata at the rate of $30,000 pa.

The non-executive directors receive further fees for additional work performed for the Company in respectof chairing of the Remuneration Committee, Nomination Committee and Audit Committee. The additionalfees paid during the year were at a rate of £5,000 pa for chairing of a committee. Non-executivedirectors cannot participate in any of the Company’s share schemes and are not eligible to join the Company’spension scheme.

Audited informationAggregate directors’ remuneration

The total amounts for directors’ remuneration were as follows:

2007 2006£ £

Emoluments 1,810,236 1,184,854

Compensation for loss of office 230,000 -

Gains on exercise of share options 3,624,616 -

Money purchase pension contributions 90,173 52,517

5,755,025 1,237,371



Directors’ emoluments and compensation

Fees/Basic Benefits Annual Compensation 2007 2006salary in kind bonuses for loss total total

of officeName of director £ £ £ £ £ £

Executive

John Kennedy 181,221 - - - 181,221 143,664Gordon Chapman 295,667 6,308 330,000 - 631,975 434,755Chris Braithwaite 229,667 2,741 184,000 - 416,408 327,759Andrew Turk(1) 201,515 6,864 160,000 230,000 598,379 229,654

Non Executive

Sir Graham Hearne 50,065 - - - 50,065 16,341Pat Murray 25,000 - - - 25,000 -Neil Gaskell 55,000 - - - 55,000 -Nils Stoesser 38,319 - - - 38,319 16,341Francisco Gros 38,769 - - - 38,769 -Marek Gumienny 5,100 - - - 5,100 16,341

Aggregate emoluments 1,120,323 15,913 674,000 230,000 2,040,236 1,184,854

Fees to third parties - - - - - -

Note(1) Andrew Turk was paid compensation for loss of office, being one year’s salary and one third of his

Performance Share Plan award.

Chairman’s awardJohn Kennedy (Chairman) is paid a fee of £200,000 per annum and is eligible to receive an annualdiscretionary allocation of shares over a three year period from the date of Admission. At the discretion ofthe Remuneration Committee, he may be awarded each year a number of Wellstream shares calculatedby dividing up to £250,000 by the share price on Admission (£3.20). For each annual award, 80% isissued to him on or within 30 days of the anniversary of the date of Admission (1 May) of the relevant year.The remaining 20% of the first and second awards, and all of the third award, are to be issued to him onor within 30 days of the third anniversary of the date of Admission (1 May 2010) provided he remains inemployment with the Company at that date. If his employment terminates prior to that date, theRemuneration Committee may determine the amount of deferred allocation to be issued to him, if any.John Kennedy is not a member of any Wellstream pension scheme.

Sir Graham Hearne received share options pre-Admission over 1,523 A ordinary shares of £1.00 each withan exercise price of £1.00 each. These options were exercised on Admission and a gain made of £3,624,616.


Name ofDirector

Value as atdate ofAdmission

No of shares80% of award

Vesting onAnniversary of Admission

Balance ofaward

Vesting datefor balance of award

Vestingcriterion

John Kennedy

£3.20 pershare

62,500 1 May 2008 15,625 1 May 2010 Remaining inservice atrelevant vestingdate


2007 2006

Gordon Chapman 50,667 20,267

Chris Braithwaite 21,666 19,000

Andrew Turk 17,840 13,250

Total 90,173 52,517

ApprovalThis report was approved by the Board of Directors on 1 April 2008 and signed on its behalf by:

Francisco GrosChairman of the Remuneration Committee1 April 2008

Directors’ pension entitlementsThe Company paid a contribution to the pension arrangements of the executive directors, Gordon Chapman,Chris Braithwaite and Andrew Turk as follows:


Directors’ Performance Share Plan

No of shares Value at date Performance Vesting Lapsed Exercise30 August 2007 period criteria price

Gordon Chapman 79,327 £5.20 1 Jan 2007 - Exceed - 1p per shareper share 31 Dec 2009 EPS

targets

Chris Braithwaite 44,230 £5.20 1 Jan 2007 - Exceed - 1p per shareper share 31 Dec 2009 EPS

targets

Andrew Turk 38,461 £5.20 1 Jan 2007 - Exceed 25,641 1p per shareper share 31 Dec 2009 EPS

targets


Statement of Directors’ Responsibilities The directors are responsible for preparing theAnnual Report and the financial statements.

Statement of Directors’ Responsibilities The directors are responsible for preparing the Annual Report and the financial statements. The directorsare required to prepare financial statements for the Group in accordance with International FinancialReporting Standards (IFRS) and have also elected to prepare financial statements for the Company inaccordance with IFRS. Company law requires the directors to prepare such financial statements inaccordance with IFRS, the Companies Act 1985 and Article 4 of the IAS Regulation.

International Accounting Standard 1 requires that financial statements present fairly for each financial yearthe Company’s financial position, financial performance and cash flows. This requires the faithfulrepresentation of the effects of transactions, other events and conditions in accordance with thedefinitions and recognition criteria for assets, liabilities, income and expenses set out in the InternationalAccounting Standards Board’s “Framework for the preparation and Presentation of Financial Statements”.In virtually all circumstances, a fair presentation will be achieved by compliance with all applicableInternational Financial Reporting Standards. Directors are also required to:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that provides relevant, reliable,comparable and understandable information; and

• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient toenable users to understand the impact of particular transactions, other events and conditions on theentity’s financial position and financial performance.

The directors are responsible for keeping proper accounting records which disclose with reasonableaccuracy at any time the financial position of the Company, for safeguarding the assets, for takingreasonable steps for the prevention and detection of fraud and other irregularities and for the preparationof a Directors’ Report and Directors’ Remuneration Report which comply with the requirements of theCompanies Act 1985.

The directors are responsible for the maintenance and integrity of the company website. Legislation in theUnited Kingdom governing the preparation and dissemination of financial statements differs fromlegislation in other jurisdictions.



58 | Independent auditors’ report to the members of Wellstream Holdings PLC

Independent auditors’ report to the members of Wellstream Holdings PLCWe have audited the group and parent company financial statements (the “financial statements”) ofWellstream Holdings PLC for the year ended 31 December 2007 which comprise the Group IncomeStatement, the Group and Parent Company Statements of Recognised Income and Expense, the Groupand Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, and therelated notes 1 to 30. These financial statements have been prepared under the accounting policies setout therein. We have also audited the information in the Directors’ Remuneration Report that is describedas having been audited.

This report is made solely to the company’s members, as a body, in accordance with section 235 of theCompanies Act 1985. Our audit work has been undertaken so that we might state to the company’smembers those matters we are required to state to them in an auditors’ report and for no other purpose.To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than thecompany and the company’s members as a body, for our audit work, for this report, or for the opinionswe have formed.

Respective responsibilities of directors and auditorsThe directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and thefinancial statements in accordance with applicable law and International Financial Reporting Standards(IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report tobe audited in accordance with relevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and whetherthe financial statements and the part of the Directors’ Remuneration Report to be audited have beenproperly prepared in accordance with the Companies Act 1985 and, as regards the group financialstatements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the informationgiven in the Directors’ Report is consistent with the financial statements. The information given in theDirectors’ Report includes that specific information presented in the Chief Executive’s Review that is crossreferred from the Business Review section of the Directors’ Report.

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if wehave not received all the information and explanations we require for our audit, or if information specifiedby law regarding directors’ remuneration and other transactions is not disclosed.

We review whether the Corporate Governance Statement reflects the company’s compliance with the nineprovisions of the 2006 Combined Code specified for our review by the Listing Rules of the FinancialServices Authority, and we report if it does not. We are not required to consider whether the board’sstatements on internal control cover all risks and controls, or form an opinion on the effectiveness of thegroup’s corporate governance procedures or its risk and control procedures.

We read the other information contained in the Annual Report as described in the contents section andconsider whether it is consistent with the audited financial statements. We consider the implications for ourreport if we become aware of any apparent misstatements or material inconsistencies with the financialstatements. Our responsibilities do not extend to any further information outside the Annual Report.


Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issuedby the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant tothe amounts and disclosures in the financial statements and the part of the Directors’ RemunerationReport to be audited. It also includes an assessment of the significant estimates and judgments made bythe directors in the preparation of the financial statements, and of whether the accounting policies areappropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which weconsidered necessary in order to provide us with sufficient evidence to give reasonable assurance thatthe financial statements and the part of the Directors’ Remuneration Report to be audited are free frommaterial misstatement, whether caused by fraud or other irregularity or error. In forming our opinion wealso evaluated the overall adequacy of the presentation of information in the financial statements and thepart of the Directors’ Remuneration Report to be audited.

OpinionIn our opinion:• the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the

European Union, of the state of the group’s affairs as at 31 December 2007 and of its profit for the yearthen ended;

• the parent company financial statements give a true and fair view, in accordance with IFRSs asadopted by the European Union as applied in accordance with the provisions of the Companies Act1985, of the state of the parent company’s affairs as at 31 December 2007;

• the financial statements and the part of the Directors’ Remuneration Report to be audited have beenproperly prepared in accordance with the Companies Act 1985 and, as regards the group financialstatements, Article 4 of the IAS Regulation; and

• the information given in the Directors’ Report is consistent with the financial statements.

Deloitte & Touche LLPChartered Accountants and Registered Auditors Newcastle upon Tyne1 April 2008




60 | Group Income Statement

Group Income Statement

For the year ended 31 December 2007

Notes 2007 2006£000 £000

Revenue 4,5 266,810 147,221Cost of sales (187,382) (105,850)

Gross profit 79,428 41,371

Administrative expenses (32,963) (22,763)Other operating income 1,096 1,237

Operating profit 6,7 47,561 19,845

Foreign exchange gains on financing 8 2,755 17,002Finance income 9 1,115 402Finance expenses 10 (9,691) (11,817)

Profit before tax 41,740 25,432

Income tax expense 11 (12,727) (23)

Profit for the year (all attributable to equity holders of the parent) 29,013 25,409

Basic earnings per ordinary share 12 31.8 34.6

Diluted earnings per ordinary share 12 31.6 34.6

All results are derived from continuing operations.

Statements of Recognised Income and ExpenseFor the year ended 31 December 2007

Group Company

2007 2006 2007 2006£000 £000 £000 £000

Exchange differences on translation of foreign operations 7,578 (1,887) - -

Net income/(expense) recognised directly in equity 7,578 (1,887) - -

Profit/(loss) for the year 29,013 25,409 (4,133) (21)

Total recognised income/(expense) (all attributable to equity holders of the parent) 36,591 23,522 (4,133) (21)

As permitted by Section 230 of the Companies Act 1985, the income statement of the parent Company is not presentedas part of these accounts. The parent Company’s result for the year was a £4,133,000 loss (2006 - £21,000 loss).

48723 MG Annual Report - End 17/4/08 11:37 Page 60

Balance Sheets | 61

Balance Sheets

As at 31 December 2007Group Company

Notes 2007 2006 2007 2006£000 £000 £000 £000

Non-current assetsInvestments 13 - - 794 1Goodwill 14 39,107 39,107 - -Property, plant and equipment 15 59,350 45,298 - -

98,457 84,405 794 1

Current assetsInventories 16 29,247 15,050 - - Trade and other receivables 17 136,307 65,023 67,250 1,001Cash and cash equivalents 5,904 726 - - Derivative financial instruments 22 - 434 - -

171,458 81,233 67,250 1,001

Total assets 269,915 165,638 68,044 1,002

Current liabilitiesTrade and other payables 20 (106,728) (51,153) - - Current tax liabilities (1,030) (23) - (21)Interest bearing loans and borrowings 21 (5,148) (25,674) - -

(112,906) (76,850) - (21)

Net current assets 58,552 4,383 67,250 980

Non-current liabilitiesInterest bearing loans and borrowings 21 (47,439) (94,261) - - Deferred tax liabilities 19 (6,782) - - -

(54,221) (94,261) - -

Total liabilities (167,127) (171,111) - (21)

Net assets/(liabilities) 102,788 (5,473) 68,044 981

Shareholders’ equityShare capital 23,25 996 21 996 21Share premium account 25 66,697 943 66,697 943Translation reserve 25 7,351 (227) - - Capital redemption reserve 25 30 - 30 - Share based payment reserve 25 - - 793 -Retained earnings/(losses) 25 27,714 (6,210) (472) 17

Total equity/(deficit) 25 102,788 (5,473) 68,044 981

These financial statements were approved by the Board of directors and authorised for issue on 1 April 2008.

Signed on behalf of the Board of directors

Gordon Chapman Chris GillDirector Director


62 | Cash Flow Statements

Cash Flow Statements

For the year ended 31 December 2007

Group Company

2007 2006 2007 2006£000 £000 £000 £000

Profit/(loss) for the year 29,013 25,409 (4,133) (21)Share based payments 4,467 - 3,674 - Depreciation of property, plant and equipment 5,275 4,231 - - Gain on disposal of property, plant and equipment (29) (237) - - Finance income (1,115) (402) - - Finance expenses 9,691 11,817 - - Tax 12,727 23 (5) 21 Foreign exchange gains on financing (2,755) (17,002) - - (Increase)/decrease in inventories (13,246) 2,811 - -Increase in receivables (65,696) (43,898) (66,244) - Increase in payables 54,332 17,403 - -

Cash from operations 32,664 155 (66,708) -

Income taxes paid (4,464) (32) (21) -Interest received 1,115 402 - - Interest paid (4,229) (5,234) - -

Net cash increase/(decrease) from operating activities 25,086 (4,709) (66,729) -

Investing activitiesPurchases of property, plant and equipment (16,744) (14,038) - - Proceeds on disposal of property, plant and equipment 38 403 - -

Net cash used in investing activities (16,706) (13,635) - -

Financing activitiesGross proceeds of new debt 62,526 9,672 - - Repayments of debt (115,304) (6,713) - -

Net (repayment)/proceeds on new financing (52,778) 2,959 - - Proceeds on issue of share capital 75,063 - 75,063 -Redemption of own shares (30) - (30) - Costs of issuing equity (8,304) - (8,304) - Debt refinancing costs (1,088) (190) - -

Net cash increase from financing activities 12,863 2,769 66,729 -

Net increase/(decrease) in cash and cash equivalents 21,243 (15,575) - - Foreign exchange movements on translation of cash balances 374 2,902 - - Cash and cash equivalents at beginning of year (20,861) (8,188) - -

Cash and cash equivalents at end of year 756 (20,861) - -

Cash and cash equivalents and bank overdrafts at end of year comprise:Cash and cash equivalents 5,904 726 - - Bank overdrafts (5,148) (21,587) - -

756 (20,861) - -



Accounting Policies

1 General informationWellstream Holdings PLC (“the Company”) is a Company incorporated in England and Wales under the Companies Act1985 and is domiciled in the United Kingdom. The Group comprises Wellstream Holdings PLC and its subsidiaries. Thenature of the Group’s operations and its principal activities are set out in note 4 and within the directors’ report.

The Company listed on the London Stock Exchange on 1 May 2007 and there is now a wider spread of investors, andstakeholders generally. Consequently, the directors have reconsidered the wording of the Group’s accounting policiesin order to provide the most relevant and tailored information to stakeholders. It should be noted that the Group’saccounting policies are consistent with the prior year, with the exception of the adoption of new and revised standards.

2 Adoption of new and revised standardsIn the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annualreporting periods beginning on or after 1 January 2007, and the related amendment to IAS 1 Presentation of FinancialStatements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosuresprovided in these financial statements regarding the Group’s financial instruments and management of capital (see note22). Four Interpretations issued by the International Financial Reporting Interpretations Committee are effective for thecurrent period. These are: IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting inHyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of Embedded Derivatives; and IFRIC 10Interim Financial Reporting and Impairment. The adoption of these Interpretations has not led to any changes in theGroup’s accounting policies.

In addition, the Group has elected to adopt the following in advance of the effective date:

• IFRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009)

• IFRIC 11 IFRS 2: Group and treasury share transactions (effective for accounting periods beginning on or after1 March 2007)

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports aboutcomponents of the Group that are regularly reviewed by the Board to allocate resources to the segments and to assesstheir performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required the Group to identify twosets of segments (business and geographical), using a risks and rewards approach, with the Group’s system of internalfinancial reporting to key management personnel serving only as the starting point for the identification of suchsegments. As a result, following the adoption of IFRS 8 Operating Segments, the identification of the Group’s reportablesegments (note 5) has changed.

IFRIC 11 IFRS2: Group and treasury share transactions provides guidance on applying IFRS 2 to Group share basedpayment transactions where the parent company grants rights to its equity instruments to employees of its subsidiary.The guidance requires the subsidiary to measure the services received using the requirements for equity-settledtransactions in IFRS 2, and to recognise a corresponding increase in equity as a contribution from the parent. As this isthe first period in which share based payment transactions have occurred, this has not required a change inaccounting policy.

At the date of authorisation of these financial statements the following standards and interpretations, were in issue butnot yet effective:

• IFRIC 12 Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008)

• IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction(effective for accounting periods beginning on or after 1 January 2008)

• IFRS 2 Share Based Payment: Vesting Conditions and Cancellations (effective 1 January 2009)

• IFRS 3 Business Combinations (revised January 2008; effective 1 July 2009)

• IAS 27 Consolidated and Separate Financial Statements (amended January 2008; effective 1 July 2009)

• IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008)

• IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009)

Notes to the Accounts | 63


The directors anticipate that, with the exception of IAS 23 (Revised) Borrowing Costs, the adoption of these standardsand interpretations in future periods will not have a material impact on the financial statements of the Group. IAS 23(Revised) Borrowing Costs requires that all eligible borrowing costs incurred in respect of qualifying assets arecapitalised as part of the cost of those assets. It is currently Group policy to expense all such borrowing costs asincurred and therefore the adoption of IAS 23 (Revised) may require a change in accounting policy. However, thischange in accounting policy would not be retrospective and so would not impact on previously reported results. Theimpact of this future change in accounting policy on the Group’s financial statements is not reasonably estimable, as thenature of future borrowings, and the existence of qualifying assets is not yet known.

3 Significant accounting policiesThe consolidated financial information has been prepared under the historical cost convention, except for therevaluation of certain financial instruments, in accordance with International Financial Reporting Standards (“IFRSs”)and the Companies Act 1985 as applicable to companies reporting under IFRSs. The financial statements have beenprepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EUIAS Regulation.

Basis of consolidationThe consolidated financial information includes the results, cash flows and assets and liabilities of Wellstream HoldingsPLC (the Company) and the enterprises under its control (its subsidiaries). Control is defined as the ability to govern thefinancial and operating policies of an investee enterprise so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statementfrom the effective date of acquisition or up to the effective date of disposal. Adjustments are made, where necessary, tothe financial statements of subsidiaries to bring their accounting policies into line with Group policies. All intra-Grouptransactions, balances, income and expenses are eliminated on consolidation.

Jointly controlled entities are those entities over which the Group has joint control established by contractualagreement. The consolidated financial statements include the Group’s proportionate share of the entities’ assets,liabilities, income and expenses with items of similar nature on a line by line basis, from the date that joint controlcommences, until the date that joint control ceases.

GoodwillOn the acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises where the fairvalue of the consideration given exceeds the fair value of the net assets acquired. Goodwill is recognised as an asset atcost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed forimpairment at least annually, with impairments being recognised immediately in the income statement. Goodwill isallocated to cash generating units for the purpose of impairment testing. An impairment loss recognised for goodwill isnot reversed in a subsequent period.

On the disposal of a business, goodwill relating to that business remaining on the balance sheet is included in thedetermination of the profit or loss on disposal.

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAPamounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Property, plant and equipmentProperty, plant and equipment is shown at historical cost, net of accumulated depreciation and any provision forimpairment. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asseton a straight-line basis over its expected useful life as follows:

• Leasehold improvements - between 15 and 30 years

• Freehold buildings - 30 years

• Plant and equipment - between 3 and 15 years

Freehold land is not depreciated.

Property, plant and equipment is impaired if its recoverable amount falls below its carrying value. Impairment losses are chargedto the income statement immediately. A reversal of an impairment loss is recognised immediately in the income statement.


64 | Notes to the Accounts continued


Assets under construction represent buildings and plant pending installation, and are stated at cost less accumulatedimpairment losses. Costs include construction and other directly attributable costs. No provision for depreciation ismade until such time when the assets are completed and ready for use.

InventoriesInventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, whereapplicable, direct labour costs and overheads that have been incurred in bringing the inventories to their currentlocation and condition. Cost is calculated using the average cost method. Net realisable value represents the estimatedselling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Cash and cash equivalentsCash and cash equivalents comprise cash-in-hand and bank overdrafts, where there is right of offset. Bank overdraftsare presented as current liabilities to the extent that there is no right of offset with cash balances.

The directors have reconsidered the classification of interest received within the cash flow statement. As a result interestreceived is now classified within operating activities as it represents interest received on operational working capital. Asa result of this change in accounting policy, the comparatives have been restated accordingly.

Operating profitOperating profit is stated before exchange gains on financing, finance income and finance expenses.

Recognition of revenue and costs under construction contractsThe Group follows the generally accepted practice of accounting for construction contracts. Under this method, revenueand costs are recognised according to the stage of completion reached in the contract by reference to the extent towhich obligations identified at the commencement of the contract are considered to have been met. These obligationsmay be contractual or non-contractual. Variations in contract work and incentive payments are included to the extentthat they have been formally agreed with the customer.

Profit is only recognised where the outcome of a contract can be reliably estimated. Typically, for pipe manufacturecontracts, this means that profit is recognised on a stage of completion basis. For installation contracts, profit isrecognised in accordance with the risk profile of the contract as assessed by management. The pattern of revenuerecognition for installation contracts will depend on individual contract circumstances and terms.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extentthat it is probable that contract costs incurred will be recovered. Contract costs are recognised as expenses in theperiod in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, theexpected loss is recognised as an expense immediately.

Recognition of revenue other than under construction contractsRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable forgoods and services provided in the normal course of business, net of trade discounts, VAT and other sales relatedtaxes. With the exception of goods sold under construction contracts, sales of goods are recognised when goods aredelivered and title has passed.

Research and developmentExpenditure on research activities is charged as an expense in the period in which it is incurred. Development costswhich are expected to generate probable future economic benefits are capitalised in accordance with IAS 38 IntangibleAssets and amortised on a straight-line basis over their useful economic lives. All other development expenditure ischarged to the income statement.

Borrowing costsBorrowing costs are recognised as an expense in the period in which they are incurred.

Government grantsGovernment grants are recognised as income over the periods necessary to match them with the related costs.

LeasingOperating lease rentals are charged to the income statement on a straight line basis over the term of the lease.

TaxationThe charge for taxation is based on the result for the year and takes into account current and deferred taxation. Thecharge is recognised in the income statement except to the extent that it relates to items recognised in equity, in whichcase it is recognised in equity.

Notes to the Accounts continued | 65


The current tax charge is based on the taxable profit for the year. Taxable profit differs from profit as reported in theincome statement because it excludes items of income or expenses that are taxable or deductible in other years and itfurther excludes items that are never taxable or deductible.

Deferred taxation is provided for all temporary differences between the carrying amounts of assets and liabilities in thefinancial statements and the corresponding tax bases. The amount of deferred tax provided is based on the expectedmanner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted orsubstantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available againstwhich the asset can be utilised. Deferred tax assets are reviewed at each balance sheet date and reduced to the extentthat it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets againstcurrent tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intendsto settle its current tax assets and liabilities on a net basis.

Retirement benefitsThe Group operates a defined contribution scheme for eligible employees. The pension costs are charged to theincome statement as they become payable. The assets of the scheme are held separately from those of the Group inindependently administered funds. The amount charged against profits represents the contributions payable to theschemes in respect of the accounting period.

Foreign currenciesThe financial statements for each of the Group’s subsidiaries are prepared using their functional currency. The functionalcurrency is the currency of the primary economic environment in which an entity operates.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’sfunctional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies areretranslated at the rates prevailing on the balance sheet date.

On consolidation, assets and liabilities of overseas subsidiaries and associates are translated into sterling at the marketrates ruling at the balance sheet date. Trading results are translated at the average rates for the period. Exchangedifferences arising on the consolidation of the investment in overseas subsidiaries and joint ventures, together withthose on foreign currency loans accounted for as net investment hedges, are taken to equity.

On the disposal of a business, the cumulative exchange differences previously recognised in the foreign currencytranslation reserve relating to that business are transferred to the income statement as part of the gain or loss on disposal.

Financial guarantee contract liabilitiesFinancial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at thehigher of:

• the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, ContingentLiabilities and Contingent Assets; and

• the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with therevenue recognition policies set out above.

Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a partyto the contractual provisions of the instrument.

Loans and receivablesTrade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in anactive market are classified as loans and receivables. Loans and receivables are measured at amortised cost, using theeffective interest method, less any impairment. Finance income is recognised by applying the effective interest rate,except for short-term receivables when the recognition of interest would be immaterial.




Bank borrowingsInterest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Financecharges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on anaccruals basis to the income statement using the effective interest method and are added to the carrying amount of theinstrument to the extent that they are not settled in the period in which they arise.

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

Equity instrumentsEquity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments and hedge accountingThe Group’s activities expose it to the financial risks of changes in foreign currency exchange rates and interest rates.The Group uses derivative financial instruments, principally foreign currency and interest rate swaps and caps, toreduce its exposure to exchange rate and interest rate movements. The Group does not enter into derivatives forspeculative or trading purposes. The use of financial derivatives is governed by the Group’s policies approved by theBoard of directors.

Under IFRSs, derivative financial instruments are recognised as assets and liabilities measured at their fair values at thebalance sheet date. The Group has chosen not to use hedge accounting to date and therefore changes in the fair valueof any derivative instruments are recognised in the income statement as they arise.

Share based payments In accordance with IFRS 2 Share Based Payments, the fair value of equity settled share options granted is recognisedas an employee expense with a corresponding increase in equity.

The fair value is measured at the date of grant and the charge is only amended if vesting does not take place due tonon-market conditions not being met. The fair value determined at the grant date of the equity-settled share basedpayments is expensed over the vesting period, based on the Group’s estimate of awards that will eventually vest. Fairvalue is measured using the Black-Scholes option pricing model.

With respect to share based payments, a deferred tax asset is recognised on the relevant tax base. The tax base is thencompared to the cumulative share based payment expense recognised in the income statement. Deferred tax arising onthe excess of the tax base over the cumulative share based payment expense recognised in the income statement hasbeen recognised directly in equity outside the SORIE as share based payments are considered to be transactions withshareholders.

Where the Company grants options over its own shares to the employees of its subsidiaries it recognises, in its ownfinancial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity based paymentcharge recognised in the consolidated financial statements with the corresponding credit being recognised in equity.

Key estimates and judgements in applying the Group’s accounting policiesManagement considers the key estimates and judgements made in the financial statements to be as follows:

• Recognition of revenue and costs under construction contracts

Revenue and costs under construction contracts are recognised by reference to the stage of completion of the contractactivity at the balance sheet date, where the outcome of the contract can be estimated reliably. Stage of completion isdetermined by reference to the extent to which obligations identified at the commencement of the contract areconsidered to have been met. Where the outcome of a construction contract cannot be estimated reliably, contractrevenue is recognised to the extent that it is probable that contract costs incurred will be recovered.

The determination of whether the outcome of the contract can be estimated reliably, the stage of completion of contractactivity and the probability that contract costs incurred will be recovered can be inherently difficult to estimate andrequire management judgement. The amounts recognised in the income statement in respect of construction contractsare regularly reviewed in light of the most current information available.

• Share based payments

Share based payment charges are calculated based upon the fair value of equity settled options granted to employeesof the Group. The fair value is calculated using the Black-Scholes option pricing model. These calculations require theuse of estimates (note 24).



Notes to the Accounts

4 Revenue

An analysis of the Group’s revenue is as follows:

2007 2006£000 £000

Revenue from construction contracts 255,637 139,438Revenue from the sale of other product 11,173 7,783

266,810 147,221Other operating income 1,096 1,237Finance income (see note 9) 1,115 402

269,021 148,860

5 Operating segments

Operating segmentsThe Group has adopted IFRS 8 Operating Segments in advance of its effective date, with effect from 1 January 2007.IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group thatare regularly reviewed by the Board to allocate resources to the segments and to assess their performance. In contrast,the predecessor Standard (IAS 14 Segment Reporting) required the Group to identify two sets of segments (businessand geographical), using a risks and rewards approach, with the Group’s system of internal financial reporting to keymanagement personnel serving only as the starting point for the identification of such segments. As a result, followingthe adoption of IFRS 8, the identification of the Group’s reportable segments has changed.

The Group’s reportable segments under IFRS 8 Operating Segments are therefore as follows:

Offshore - The design, production and installation of flexible unbonded pipelines for use in the offshore oil and gas industry.Onshore - The design and production of flexible unbonded pipelines for use in the onshore oil and gas industry.

Segment revenues and resultsThe following is an analysis of the Group’s revenue and results by reportable segment in 2007:

ConsolidatedOnshore Offshore year ended

2007 2007 2007£000 £000 £000

RevenueExternal sales 11,173 255,637 266,810

ResultEBITDA (217) 53,053 52,836

Depreciation (5,275)

Operating profit 47,561





5 Operating segments (continued)

The following is an analysis of the Group’s revenue and results by reportable segment in 2006:Consolidated

Onshore Offshore year ended2006 2006 2006£000 £000 £000

RevenueExternal sales 7,783 139,438 147,221

ResultEBITDA (3,342) 27,418 24,076

Depreciation (4,231)

Operating profit 19,845

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3.Figures reported to the Board, as presented above, are based on the financial information used to produce the entity’sfinancial statements.

Segment assets

2007 2006£000 £000

Onshore 10,689 7,704 Offshore 259,226 157,934

Segment assets 269,915 165,638Unallocated assets - -

Consolidated assets 269,915 165,638

For the purposes of monitoring segment performance and allocating resources between segments, the Board monitorsthe tangible, intangible and financial assets attributable to each segment. Inter-segmental funding has been excludedfrom the segment assets disclosure. Goodwill has been allocated entirely to the Offshore segment. Assets used jointlyby reportable segments are allocated on the basis of the revenues earned by individual reportable segments.

Segment liabilities 2007 2006£000 £000

Onshore 1,704 1,341 Offshore 158,641 169,770

Segment liabilities 160,345 171,111Deferred tax liabilities 6,782 -

Consolidated liabilities 167,127 171,111

For the purposes of monitoring segment performance and allocating resources between segments, the Board monitorsthe external liabilities attributable to each segment, and therefore inter-segmental funding is excluded from the segmentliabilities disclosure.


5 Operating segments (continued)

Geographic informationRevenue from external customers:

2007 2006£000 £000

UK 3,894 15,458 Rest of world 262,916 131,763

266,810 147,221

Included in revenues from external customers derived from outside of the UK is £216,692,000 (2006 - £80,017,000)derived from customers in Brazil and £24,671,000 (2006 - £1,571,000) derived from customers in the USA.

Non-current assets by location (excluding goodwill):2007 2006£000 £000

UK 36,522 32,728 Rest of world 22,828 12,570

59,350 45,298

Included in non-current assets located outside of the UK is £19,950,000 (2006 - £11,540,000) at net book value of assetslocated in Brazil.

Information about major customersIncluded in offshore revenues is an amount of £136,999,000 (2006 - £76,346,000) arising from sales to the Group'slargest customer, and an amount of £72,521,000 (2006 - £nil) to the Group's second largest customer.

6 Operating profit

Operating profit for the year has been arrived at after charging / (crediting):2007 2006£000 £000

Net foreign exchange gains (2,257) (325)Research and development 3,187 2,321Depreciation of property, plant and equipment 5,275 4,231Gain on disposal of fixed assets (29) (237)Inventory impairment 505 439Write back of credit balances (261) (1,456)Cost of inventories (raw materials) 137,898 77,207Staff costs (all) 39,978 25,174

Net foreign exchange gains on trading items represent the effect of movements in exchange rates on foreign currencydenominated working capital and other trading items during the year.

The write back of credit balances represents a reduction of £261,000 (2006 - £1,456,000) in accruals against warrantyand other claims which in the view of the directors are no longer required.





6 Operating profit (continued)

An analysis of amounts payable by the Group to the Company’s auditors, Deloitte & Touche LLP, and their associates isprovided below:

2007 2006£000 £000

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 65 20

Fees payable to the Company’s auditor and their associates for other services:The audit of the Company’s subsidiaries, pursuant to legislation 70 66

Total audit fees 135 86

Other services pursuant to legislation 37 -Tax services 158 129Remuneration services 170 42Corporate finance services 1,050 500Other services - 20

Total non-audit fees 1,415 691

1,550 777

Fees payable to Deloitte & Touche LLP and their associates for non-audit services to the Company are not required tobe disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis.

7 Staff costs

Group Company

2007 2006 2007 2006£000 £000 £000 £000

Staff costs during the year (including directors)

Wages and salaries 30,867 21,726 - -Social security costs 3,870 2,476 465 -Other pension costs 774 972 - -Share based payments 4,467 - 3,674 -

39,978 25,174 4,139 -

The share based payment expense of £4,467,000 is net of employer’s National Insurance contributions and consists of£3,624,000 relating to the granting of share options to Sir Graham Hearne on 19 March 2007, £793,000 relating to theGroup’s employee share schemes, and £50,000 in relation to the exercise of warrants.

Social security costs include National Insurance payable in relation to share based payment expenses in addition toEmployer’s National Insurance contributions on wages and salaries.


7 Staff costs (continued)

Group Company

2007 2006 2007 2006No. No. No. No.

Average number of persons employedAdministration 235 166 - -Sales 21 27 - -Manufacturing 562 486 - -

818 679 - -

Details of directors’ remuneration are given in the Directors’ Remuneration Report on pages 51 to 56.

8 Foreign exchange gains on financing

2007 2006£000 £000

Foreign exchange gains on financial liabilities held at amortised cost 2,755 17,002

Exchange gains on financing reflects the change in value of the US dollar denominated bank debt and deep discount bonds.

9 Finance income2007 2006£000 £000

Interest income on loans and receivablesInterest on bank deposits 1,115 402

10 Finance expenses 2007 2006£000 £000

Interest expense on financial liabilities held at amortised costInterest on bank overdrafts and loans 4,650 5,531Accretion of discount of deep discount bonds 1,783 5,451Amortisation of arrangement fees 344 677

6,777 11,659

Write off of arrangement fees on extinguishing of related debt 2,718 -Bank charges 224 268Fair value gains on interest rate swaps (28) (110)

9,691 11,817

Deep discount bonds, bank loans, and overdrafts were fully repaid during the year and replaced with new facilities.Arrangement fees relating to those facilities repaid were expensed during the year.

During the year the Group made net losses of £6,740,000 (2006 - £5,343,000 gain) on financial liabilities held atamortised cost.





11 Income tax expense

2007 2006£000 £000

Current taxCurrent tax charge 5,273 23Adjustments in respect of prior years 198 -

5,471 23Deferred taxOrigination and reversal of temporary differences 7,441 -Adjustments in respect of prior years (185) -

7,256 -

Total income tax in the income statement 12,727 23

UK corporation tax is calculated at 30% of the estimated assessable profit/(loss) for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

2007 2007 2006 2006% £000 % £000

Reconciliation of effective tax rateProfit before tax 41,740 25,432

Tax calculated at UK corporation tax rate 30.00% 12,522 30.00% 7,630

Non deductible expenses 0.58% 242 0.95% 242Research and development tax relief -0.56% (236) - -Effect on deferred tax balances due to change inincome tax rate from 30% to 28% -0.97% (403) - -Effect of higher tax rates in overseas jurisdictions 1.63% 682 - -Effect of utilisation of tax losses and tax offset not recognised -0.22% (93) -30.86% (7,849)Adjustments in respect of prior years 0.03% 13 - -

Effective tax rate and income tax expense for the year 30.49% 12,727 0.09% 23

Income Deferred Total TotalTax Tax

2007 2007 2007 2006£000 £000 £000 £000

Tax recognised directly in equityRelating to share based payments - 474 474 -

The UK Government has announced its intention to phase out and withdraw from 2011 capital allowances on qualifyingbuildings and that the necessary legislation will be enacted in the forthcoming Finance Act. This proposal, whenenacted, will lead to an increase in the deferred tax provision required for accelerated tax depreciation in the region of£1,500,000 and will give rise to a one off deferred tax charge for this amount in the year ending 31 December 2008.


12 Earnings per share

Basic earnings per ordinary share is calculated by dividing earnings by the weighted average number of ordinary sharesin issue during the year.

Diluted earnings per ordinary share uses the same figure as the basic calculation except that the weighted averagenumber of shares has been adjusted to reflect the dilutive effect of the outstanding share options allocated underemployee share schemes where the market value exceeds the option price. It is assumed that all dilutive potentialordinary shares are converted at the beginning of the accounting period. Diluted earnings per ordinary share iscalculated by dividing earnings by the diluted average number of ordinary shares.

Reconciliations of the earnings and the weighted average number of shares used in the calculations are outlined below:

Basic and diluted earnings per shareThe calculation of the basic and diluted earnings per share is based on the following data:

Earnings Weighted Earnings Weighted average number average number

of ordinary shares of ordinary shares

2007 2007 2006 2006£000 No. £000 No.

For basic earnings per share 29,013 91,291,391 25,409 73,500,000

Options and awards - 538,546 - -

For diluted earnings per share 29,013 91,829,937 25,409 73,500,000

Basic earnings per share (p) 31.8 34.6

Diluted earnings per share (p) 31.6 34.6

Adjusted diluted earnings per share2007 2006

Adjusted earnings (£000) 31,828 8,407

Diluted weighted average number of shares 91,829,937 73,500,000

Adjusted diluted earnings per share (p) 34.7 11.4

Adjusted EPS is discussed further in the Financial Review on pages 30 to 33.

All ordinary shares had the same entitlement to share in profit for all periods presented. The weighted average numberof ordinary shares outstanding for all periods presented has been adjusted for certain bonus issues andredesignations described in note 23 that have changed the number of ordinary shares outstanding without acorresponding change in resources.

All redeemable non-voting shares were issued and redeemed during the period and hence no separate earnings pershare figure has been presented. At 1 January 2006 the Company had 2,000 warrants in issue for contingently issuableshares, and on 19 March 2007 it granted options for contingently issuable shares as described in note 23. These areboth excluded from the calculation of diluted earnings per share in 2006 as the related conditions were not met until1 May 2007 at which date the shares were issued.

The difference between the weighted average number of ordinary shares for the purposes of basic and diluted earningsper share is due to the dilutive effect of the Company’s Performance Share Plan, Save As You Earn scheme andChairman’s award.





13 Investments in subsidiaries and jointly controlled entities

Group

Subsidiary undertakings

The principal subsidiary undertakings of the Wellstream Group and the Company are summarised below:

Country of Activity Proportion of incorporation ordinary shares

held

Wellstream Finance Limited Great Britain Dormant 100%Wellstream International Limited* Great Britain Sales and manufacturing 100%Wellstream do Brazil Industria e Servicos Ltda* Brazil Sales and manufacturing 100%Wellstream Canada Limited* Canada Sales and installation 100%Wellstream Australia Pty Limited* Australia Sales 100%Wellstream (Trustee) Limited* Great Britain Trustee to employee benefit trust 100%

*Investments held indirectly

Jointly controlled entityCountry of incorporation Percentage of shares owned

directly by Wellstream Australia Pty Ltd

Seastream JV Australia Pty Limited Australia 50%

Aggregated amounts relating to share of jointly controlled entity2007£000

Non-current assets 159Current assets 3,611Current liabilities (3,717)Non-current liabilities -

Net assets 53

Income 854

Expenses (801)

Wellstream Holdings PLC has put in place a joint and several guarantee of financial support, limited to the Group’s shareof Seastream Australia Pty Limited’s liabilities, should the company find itself unable to pay liabilities as they fall due.

Company

Subsidiary undertakings2007 2006£000 £000

CostAt 1 January 1 1 Additions (note 7) 793 -

At 31 December 794 1


14 Goodwill

Group 2007 2006£000 £000

Cost and net book value at 1 January and 31 December 39,107 39,107

Accumulated amortisation is £nil at 1 January 2007 and 31 December 2007.

Existing goodwill relates entirely to the initial purchase of the offshore business and has been allocated to thatbusiness, which is considered to be a single cash generating unit. Upon further acquisitions goodwill acquired in abusiness will be allocated to the cash generating units that expect to benefit from that business acquired.

The basis on which the recoverable amount has been determined is the value in use.

The Group calculates the value in use of each cash generating unit by applying an appropriate discount rate basedon the Group’s borrowing profile, which was 10% at 31 December 2007. This discount rate is applied to the pre-taxcash flows within the latest approved forecast and this is compared to the carrying value of its net assets in order totest for impairment. No impairment of goodwill is evident for the year ended 31 December 2007.

15 Property, plant and equipment

Assets in the Leasehold Freehold land Plant and Totalcourse of improvements and buildings equipment

construction£000 £000 £000 £000 £000

Cost

At 1 January 2006 - 144 15,570 30,837 46,551Additions 12,573 - 177 1,288 14,038Exchange differences (254) (13) - (814) (1,081)Disposals - - - (216) (216)

At 1 January 2007 12,319 131 15,747 31,095 59,292Additions 2,225 232 191 14,096 16,744Transfers (12,319) - - 12,319 - Exchange differences - 20 - 2,684 2,704Disposals - (26) - (25) (51)

At 31 December 2007 2,225 357 15,938 60,169 78,689

Depreciation

At 1 January 2006 - 33 1,706 8,208 9,947Charge for year - 23 602 3,606 4,231Exchange differences - (4) - (129) (133)Eliminated on disposals - - - (51) (51)

At 1 January 2007 - 52 2,308 11,634 13,994 Charge for year - 48 623 4,604 5,275Exchange differences - 2 - 110 112Eliminated on disposals - (21) - (21) (42)

At 31 December 2007 - 81 2,931 16,327 19,339

Net book valueAt 31 December 2007 2,225 276 13,007 43,842 59,350

At 31 December 2006 12,319 79 13,439 19,461 45,298

The Company holds no property, plant or equipment.





16 Inventories

2007 2006£000 £000

Raw materials 22,049 7,944Work in progress 4,449 5,138Finished goods 2,749 1,968

29,247 15,050

17 Trade and other receivables

Group 2007 2006£000 £000

Trade receivables 81,970 15,962Impairment provision - (102)

81,970 15,860

Amounts due from contract customers (note 18) 32,600 40,257Prepayments 5,804 4,063Other receivables 15,933 4,843

136,307 65,023

2007 2006£000 £000

Movement in allowance for doubtful debtsBalance at the beginning of the period 102 - Impairment losses recognised - 102Amounts recovered in the year (102) -

- 102

2007 2006£000 £000

Ageing of past due but not impaired receivables1-30 days past due 4,924 9,182 31-90 days past due 1,447 92291 days and more 541 99

6,912 10,203

The Group has not provided for these as they are considered recoverable.

Company 2007 2006£000 £000

Amounts due from subsidiary undertaking 67,245 1,001Corporation tax receivable 5 -

67,250 1,001

The above amount of £67,245,000 is owed by Wellstream International Limited to Wellstream Holdings PLC and is non-interest bearing with no fixed repayment terms.

The directors consider that the carrying amount of trade and other receivables approximates their fair value.Trade and other receivables are predominantly non-interest bearing.


18 Construction contracts in progress at the balance sheet date

Group 2007 2006£000 £000

Amounts due from contract customers included in trade and other receivables (note 17) 32,600 40,257

Amounts due to contract customers included in trade and other payables (note 20) (57,314) (29,981)

(24,714) 10,276

Contract costs incurred plus recognised profits less recognised losses to date 83,646 83,373Less progress billings (108,360) (73,097)

(24,714) 10,276

At 31 December 2007 retentions held by customers for contract work amounted to £3,573,000 (2006 - £972,000).

Retentions held by customers for contract work are due for settlement after more than one year; all other tradereceivables arising from construction contracts are all due for settlement within one year.

19 Deferred tax

The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereonduring the current and prior reporting periods:

Accelerated tax Share based Goodwill Other timing Tax Totaldepreciation payments differences losses

£000 £000 £000 £000 £000 £000

At 1 January 2006 2,128 - 854 97 (3,079) -

Charge/(credit) to income 296 - 489 (97) (688) -

At 31 December 2006 2,424 - 1,343 - (3,767) -

Charge/(credit) to income 85 (222) 367 3,259 3,767 7,256Credit to equity - (474) - - - (474)

At 31 December 2007 2,509 (696) 1,710 3,259 - 6,782

At the balance sheet date the aggregate amount of temporary differences associated with foreign exchange translationdifferences arising from overseas subsidiary companies for which deferred tax liabilities have not been recognised is£7,351,000 (2006 - temporary differences of £227,000 in respect of which a deferred tax asset was not recognised). Noliability has been recognised in respect of these differences because the Group is in a position to control the reversal ofthe temporary differences and it is probable that such differences will not reverse in the foreseeable future.

20 Trade and other payables

Group 2007 2006£000 £000

Trade payables 16,778 10,642Accruals and deferred income 25,704 9,647Amounts due to contract customers (note 18) 57,314 29,981Other tax and social security 764 883Other payables 6,168 -

106,728 51,153

Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for credit purchases is 45 days (2006 - 50 days).The directors consider that the carrying amount of trade and other payables approximates their fair value.





21 Interest bearing loans and borrowings

The carrying value and fair value of the Group’s short-term and long-term borrowings are as follows:

Group Company

Current liabilities 2007 2006 2007 2006£000 £000 £000 £000

Secured borrowings held at amortised cost

Bank loans - 4,087 - -

Bank overdrafts 5,148 21,587 - -

5,148 25,674 - -

Group Company

Non-current liabilities 2007 2006 2007 2006£000 £000 £000 £000

Secured borrowings held at amortised cost

Bank loans 44,000 40,975 - - Less: Unamortised costs (961) (1,653) - -

43,039 39,322 - -

Rio State Government loan 4,400 - - -

Deep discount bonds - 56,212 - - Less: Unamortised costs - (1,273) - -

- 54,939 - -

47,439 94,261 - -

Analysis of repayments

Group

2007 2006£000 £000

Bank overdraftsWithin one year 5,148 21,587

Bank loansWithin one year - 4,087 In the second year - 4,087 In third to fifth years 31,500 22,481 After five years 12,500 14,407

44,000 45,062 Less: amounts due within one year - (4,087)Less: unamortised costs (961) (1,653)

Amount due after more than one year 43,039 39,322


21 Interest bearing loans and borrowings (continued)Group

2007 2006£000 £000

Rio State Government loanIn third to fifth years 1,137 - After five years 3,263 -

4,400 -

Group

2007 2006£000 £000

Deep discount bondsAfter five years - 56,212Less unamortised cost - (1,273)

- 54,939

With respect to interest bearing borrowings, fair value approximates to book value:Fair Value

2007 2006Group £000 £000

Bank overdrafts 5,148 21,587Bank loans 43,039 43,409Rio State Government Loan 4,400 - Deep discount bonds - 53,106

52,587 118,102

Principal features of the Group’s borrowings are as follows:

Bank Loans and overdraft

On 1 May 2007 the Group completed a refinancing of all its long term US Dollar denominated debt with an £85,000,000Revolving Credit Facility. The facility will reduce to £nil over a six year period from 1 May 2007 to 1 May 2013, withstaged reductions in the size of the facility occurring six monthly from 1 November 2008.

Although the overdraft forms part of the revolving credit facility, this element is repayable on demand. Such a demandfor repayment would result in a corresponding increase in the level of long term borrowings available, subject to thestaged reductions in the overall size of the facility.

Interest on drawn funds is charged at a margin of between 1.00% and 2.25% above LIBOR, by reference to the Group’scapital structure. The average effective interest rate for the year was 7.56% in respect of term borrowings, and 7.08% inrespect of overdrafts.

Borrowings under the Revolving Credit Facility are secured by fixed and floating charges over the net assets ofWellstream International Limited and a share pledge over that portion of Wellstream do Brazil Industrial e Servicos Ltdathat is not secured under the Rio State Government loan (see below).

At 31 December 2007 the Group had available £26,027,000 (2006 - £nil) of undrawn committed borrowing facilities.

Rio State Government loan

This facility is provided by the State Government of Rio de Janeiro and has a maximum value of £21,280,000. The loanis drawn down progressively on a monthly basis. The value of the monthly draw down is calculated as the lesser of 9%of gross monthly revenue or 70% of the ICMS tax payable on sales in the month.

Interest on the Rio State Government loan is charged at 6.0%. The average effective interest rate for the year was 6.0%.

Borrowings under the Rio State Government loan are secured by fixed and floating charges over certain items of plantand equipment with a carrying value of £4,368,000.





22 Financial instruments

Group

Categories of financial instruments:2007 2006£000 £000

Financial AssetsFair value through profit or loss (FVPL) - 434Loans and receivables 96,858 19,069

Financial LiabilitiesAmortised cost 158,551 170,205

Capital risk managementThe Group manages its capital to ensure that entities in the Group will be able to continue as a going concern whilemaximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of theGroup consists of debt, which includes the borrowings disclosed in note 21, cash and cash equivalents and equityattributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in note 25.

Financial risk management objectivesThe Board monitors and manages the financial risks relating to the operations of the Group. These risks include marketrisk, credit risk and liquidity risk.

Where appropriate, the Group seeks to minimise the effects of these risks by using derivative financial instruments tohedge these risk exposures. The use of financial derivatives is approved by the Finance Director and any such financialderivatives are reported to the Board of directors. The Group does not enter into or trade financial instruments, includingderivative financial instruments, for speculative purposes.

Market risk The Group’s activities expose its financial instruments to risks of changes in foreign currency exchange rates andinterest rates.

Foreign currency risk managementThe Group undertakes the bulk of its business in Sterling or in the local currency of its overseas operations. Tradecarried out in any other currency is by exception and as such any exposure to transactional currency risk can be easilyidentified. In such circumstances natural hedges are first sought and if significant residual exposure exists, it is hedgedusing derivative financial instruments. There were no such contracts in existence at the year end.

The Group has significant foreign currency denominated monetary assets and monetary liabilities by virtue of itsoverseas operations. At the reporting date they were as follows:

Liabilities Assets

2007 2006 2007 2006£000 £000 £000 £000

Brazilian Real 15,108 2,981 59,127 2,112

US Dollar 6,481 128,695 13,423 27,213


22 Financial instruments (continued)

Foreign currency sensitivity analysisThe Group is mainly exposed to the Brazilian Real and US Dollar.

The following table details the Group’s sensitivity to a 10% increase and decrease in Sterling against the relevant foreigncurrencies, being management’s reasonable assessment of the possible change in foreign exchange rates. Thesensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translationat the period end for a 10% change in foreign currency rates.

A positive number below indicates an increase in profit or equity where Sterling strengthens 10% against the relevantcurrency. For a 10% weakening of Sterling against the relevant currency, there would be an equal and opposite impacton the profit and other equity, and the balances below would be negative.

Real impact US Dollar impact

2007 2006 2007 2006£000 £000 £000 £000

Recognised in equity (15,597) 363 (1,382) 19,862

The Group’s sensitivity to changes in the value of Sterling against the US Dollar has decreased during the currentperiod mainly due to the settling of US dollar denominated debt. The increase in the scale of operations in Brazil duringthe year has increased the Group's exposure to changes in the value of the Brazilian Real.

Foreign exchange gains and losses on foreign currency denominated monetary items arise primarily on consolidationand therefore are shown as recognised in equity in the table above.

Interest rate risk management and sensitivity analysisThe Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates.At the period end fixed interest rate loans represented 90% of total borrowings and were for periods of less than threemonths.

The Group had no interest rate swaps at the year end.

If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group’s profit for the yearended 31 December 2007 would decrease/increase by £298,000 (2006: decrease/ increase by £297,000).

Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to theGroup. The Group contracts all of its significant business in such a way that it receives regular stage payments from itscustomers that are appropriate to the stage of completion of the contract. This payment profile is approved by seniormanagement in advance of accepting the contract and is monitored subsequent to acceptance at regular intervals.This approach and the Group’s customer profile which consists largely of national and international oil companies withwell established and substantial credit histories, significantly mitigates the risk of financial loss from default.

At 31 December 2007 and 31 December 2006 there was credit risk associated with the concentration of the offshorebusiness into a number of large contracts with a limited number of customers and counterparties. Information aboutthese major customers and their geographic profile is included in note 5. No significant unrecovered receivables havearisen as a result of this risk.

The directors consider that the carrying amount of trade and other receivables approximates their fair value. Trade andother receivables are predominantly non-interest bearing.

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses,represents the Group’s maximum exposure to credit risk without taking account of the value of collateral obtained.





22 Financial instruments (continued)

Liquidity risk management

The Group was contractually obliged to make repayments of principal and payments of interest at 31 December asdetailed below:

Within one 1-2 years 2-5 years More than Totalyear or on 5 years

demand£000 £000 £000 £000 £000

2007Bank overdrafts 5,512 - - - 5,512Bank borrowings* 3,142 3,142 39,198 12,798 58,280Rio State Government loan 196 196 1,724 3,850 5,966

8,850 3,338 40,922 16,648 69,758

Within one 1-2 years 2-5 years More than Totalyear or on 5 years

demand£000 £000 £000 £000 £000

2006Bank overdrafts 23,115 - - - 23,115 Bank borrowings 7,077 6,754 29,206 17,249 60,286 Deep discount bonds - - - 100,481 100,481

30,192 6,754 29,206 117,730 183,882

*With respect to bank borrowings under the revolving credit facility, the timing of repayments assumes capital is repaidat the latest possible date, determined by staged reductions in the overall size of the facility. The facility offers theflexibility of repaying borrowings at one month’s notice.

Ultimate responsibility for liquidity risk management rests with the Board of directors. Liquidity risk arising from thematurity profile of financial assets is detailed in the credit risk section above.

The Group has access to financing facilities; the total unused amount at the balance sheet date is £31,382,000, being£26,027,000 of undrawn committed borrowing facilities in the UK and £5,355,000 of cash held overseas. The Groupexpects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.

Company 2007 2006£000 £000

Loans and receivablesIntercompany receivables (note 17) 67,245 1,001

The Company has no financial assets or liabilities other than the intercompany balance with Wellstream International Limited.Where applicable the Company complies with Group policies and risk management procedures as outlined above.


23 Share capitalAuthorised Authorised Issued Issued

No. £ No. £A Ordinary shares of £1.00 eachAt 1 January 2006 and 1 January 2007 27,263 27,263 20,000 20,000Exercise of warrants - - 2,000 2,000Exercise of options - - 1,523 1,523Redesignation as A Ordinary shares of £0.01 each 2,699,037 - 2,328,777 -Redesignation as Ordinary shares of £0.01 each (2,726,300) (27,263) (2,352,300) (23,523)

At 31 December 2007 - - - -

Preferred Ordinary shares of £0.01 eachAt 1 January 2006 and 1 January 2007 78,000 780 78,000 780Increase in share capital 7,722,000 77,220 - -99 for 1 bonus issue - - 7,722,000 77,220Redesignation as Ordinary shares of £0.01 each (7,800,000) (78,000) (7,800,000) (78,000)

At 31 December 2007 - - - -

Ordinary shares of £0.01 eachAt 1 January 2006 and 1 January 2007 - - - -Redesignation of A Ordinary and Preferred Ordinary shares 10,526,300 105,263 10,152,300 101,523Increase in share capital 139,473,700 1,394,737 - -6.5 for 1 bonus issue - - 65,989,950 659,900Issue of shares - - 23,437,500 234,375

At 31 December 2007 150,000,000 1,500,000 99,579,750 995,798

Redeemable non-voting shares of £1.00 eachAt 1 January 2006 and 1 January 2007 - - - -Increase in share capital 30,000 30,000 - -Issue of shares - - 30,000 30,000Redemption and cancellation (30,000) (30,000) (30,000) (30,000)

At 31 December 2007 - - - -

All issued share capital is called-up, allotted and fully paid.

All changes affecting the Company’s authorised or issued A Ordinary Shares, Preferred Ordinary Shares, and OrdinaryShares during the period were effective from, and Conditional upon, the Company’s admission to the Official List of theUKLA which occurred on 1 May 2007.

Redeemable non-voting shares were issued on 27 March 2007 and redeemed at par on 11 June 2007. They carried norights to vote or entitlement to dividend but ranked pari passu with Ordinary shares on winding up.

On 8 March 2003 the Company issued 2,000 warrants over its A Ordinary Shares. These warrants could be exercised ata price of £1 per share within 15 days of any sale, listing, or asset sale of the Company, and all such warrants wereexercised and the resulting shares then issued on 1 May 2007.

The Ordinary Shares, A Ordinary Shares and Preferred Ordinary Shares ranked pari passu except that, as furtherdefined in the Company’s articles of association, the holders of the Preferred Ordinary Shares were entitled to receive aPreferred Dividend after a certain date and in certain circumstances the holders of the Preferred Ordinary Shares wereentitled to exercise such multiple of votes which is equal to 95.01 per cent of the Preferred Ordinary Shares and theA Ordinary Shares taken as a whole.

Share optionsAt 31 December 2007 the outstanding options to purchase ordinary shares in Wellstream Holdings PLC in accordancewith the terms of the applicable schemes are as detailed in note 24.





24 Share based payments

As at 31 December 2007, the following material share based payment arrangements existed:

Type of arrangement Performance Save As You Earn Save As You Earn Chairman’s AwardShare Plan scheme (5 year) scheme (3 year)

Timing of grant 30-Aug-07 29-May-07 29-May-07 1-May-07

1 year - 62,5002 year - 62,500

Number of options granted in 2007 479,341 302,353 408,275 3 year - 109,375

1 year - 3112 year - 301

Fair value per share for 2007 grant (p) 564 137 124 3 year - 293

Method of settlement Equity Equity Equity Equity

Contractual life 3 years 5 years 3 years 1, 2 or 3 years

Vesting conditions See note (i) See note (ii) See note (ii) See note (iii)

Notes:(i) Options granted by invitation at an exercise price of £0.01. Options are exercisable at the end of a three year

incentive plan, with vesting subject to performance conditions based on aggregate earnings per share over a 3 yearperiod from 1 January 2007. Participants are not entitled to dividends in the period prior to exercise of the options.

(ii) Options granted at a 10% discount to the market price at the date of invitation. Options are exercisable at the end of athree or five year sharesave contract. Participants are not entitled to dividends in the period prior to exercise of the options.

(iii) Where three fair values are given for the Chairman’s award the first relates to an award which may vest in 2008, thesecond to an award which may vest in 2009 and the third to an award which may vest in 2010.

Further details on the operation of share based payment arrangements can be found in the Directors’ Remuneration Report.

Details of movements for equity-settled share option schemes during the year ended 31 December 2007 were as follows:

Outstanding at start of the year - - - -

Granted during the year 479,341 1 302,353 339 408,275 339 234,375 nil

Exercised during the year - - - -

Forfeited/Lapsed during the year (25,640) - (2,619) -

Outstanding at end of year 453,701 1 302,353 339 405,656 339 234,375 nil

Exercisable at end of year - - - -

Number ofoptions

Weightedaverage

excerciseprice (p)

Number ofoptions

Weightedaverage

excerciseprice (p)

Number ofoptions

Weightedaverage

excerciseprice (p)

Number ofshares

Weightedaverage

excerciseprice (p)

PerformanceShare

PlanChairman’s

Award

Save AsYou Earnscheme (3 year)

Save AsYou Earnscheme (5 year)


24 Share based payments (continued)

Assumptions used in the Black-Scholes models to determine the fair value of share options at grant date were as follows:

Performance Save As You Earn Save As You Earn Chairman’s AwardShare Plan scheme (5 year) scheme (3 year)

Grant date 30-Aug-07 29-May-07 29-May-07 1-May-07Share price at date of grant (p) 618 423 423 377Exercise price (p) 1 339 339 nil-costVolatility 30.00% 30.00% 30.00% 30.00%Average expected term to exercise(minimum months) 36 61 37 12, 24, 36Date of vesting 30-Aug-10 30-Jun-12 30-Jun-10 1-May-08,

1-May-09and 1-May-10

Risk free rate (%) 4.50% 4.50% 4.50% 4.50%Assumed long term dividend yield(%) 3.00% 3.00% 3.00% 3.00%

Shares of the Company became listed for the first time on admission to the London Stock Exchange on 1 May 2007. The directors therefore do not consider the Company’s historic share price volatility to be a suitable basis on which to set an expectation for the purpose of option valuations. Therefore the expected share price volatility was determined by referenceto historic volatilities in the share prices of a selection of UK companies operating in the same industry as the Group.

The average expected term to exercise used in the models has been adjusted, based on management's best estimatefor the effects of exercise restrictions, behavioural conditions and forfeiture.

The risk free rate has been determined by reference to yields on UK government gilts.

Prior to IPO share options were issued to Sir Graham Hearne, a non-executive director. These were exercised andconverted into shares at IPO, giving rise to a share based payment expense of £3,624,000 in the year. The weightedaverage share price at exercise of these share options was 320p.

25 Statement of changes in equity

Share Capital Share Translation Capital Retained Totalpremium reserve redemption earnings

reserve£000 £000 £000 £000 £000 £000

GroupAt 1 January 2006 21 943 1,660 - (31,619) (28,995)Profit for the year - - - - 25,409 25,409Exchange difference on translationof overseas operations - - (1,887) - - (1,887)

At 1 January 2007 21 943 (227) - (6,210) (5,473)Profit for the year - - - - 29,013 29,013Bonus issues 737 (737) - - - -Issue of share capital 264 74,766 - - - 75,030Write off of expenses on new issue - (8,304) - - - (8,304)Redemption of own shares (30) - - 30 (30) (30)Share options exercised 2 29 - - 3,624 3,655Exercise of warrants 2 - - - 50 52Exchange difference on translationof overseas operations - - 7,578 - - 7,578Charge in relation to share optionsand tax thereon - - - - 1,267 1,267

At 31 December 2007 996 66,697 7,351 30 27,714 102,788





25 Statement of changes in equity (continued)

Share Share Capital Share based Retained TotalCapital premium redemption payment earnings

reserve reserve£000 £000 £000 £000 £000 £000

CompanyAt 1 January 2006 21 943 - - 38 1,002Loss for the year - - - - (21) (21)

At 1 January 2007 21 943 - - 17 981Loss for the year - - - - (4,133) (4,133)Share based payment charge - IFRIC 8 - - - 793 - 793Bonus issues 737 (737) - - - -Issue of share capital 264 74,766 - - - 75,030Write off of expenses on new issue - (8,304) - - - (8,304)Redemption of own shares (30) - 30 - (30) (30)Share options exercised 2 29 - - 3,624 3,655Exercise of warrants 2 - - - 50 52

At 31 December 2007 996 66,697 30 793 (472) 68,044

26 Commitments

Group

Operating lease commitmentsThe Group has entered into commercial leases on certain properties, motor vehicles and items of machinery. The leaseshave various terms, escalation clauses, purchase options and renewal rights.

Lease commitments include a property lease incepted on 1 January 2006. This lease relates to the factory in Brazil, forwhich there is an initial lease term of 10 years, which may be extended for a further 10 years at the Group’s option with arevised rental based on the prevailing market value. The terms of the lease include a base rental, included in the tablebelow, and a contingent element to be calculated by reference to Group revenue.

Future minimum lease payments under non-cancellable operating leases comprise:

2007 2006£000 £000

Within one year 7,279 3,154 In the second to fifth years inclusive 23,359 11,240 After five years 18,131 11,464

48,769 25,858

Capital and other financial commitments2007 2006£000 £000

Contracts placed for future capital expenditure not provided in the financial statements 6,024 6,000Purchase commitments - -

6,024 6,000

Company

The commitments of the Company were £nil (2006 - £nil).


27 Contingent liabilities

At 31 December 2007 the Group had granted guarantees and performance bonds to third parties totalling £10,374,000(2006 - £4,676,000). Of this total £8,404,000 (2006 - £nil) was in respect of Seastream Australia Pty Limited, the jointlycontrolled entity in which the Group has a 50% holding.

Performance bonds are entered into in the normal course of operations and require the Group to make payments tothird parties in the event that the Group does not satisfy its obligations under the terms of any related contracts.

The Group has put in place a joint and several guarantee of financial support, limited to the Group’s share of SeastreamAustralia Pty Limited’s liabilities, should the jointly controlled entity find itself unable to pay liabilities as they fall due.

The Company is liable, jointly and severally with other members of the Group under guarantees given to the Group’sbankers in respect of overdrawn balances on certain Group bank accounts and in respect of other overdrafts, loans andguarantees given by the banks to or on behalf of other Group undertakings. At 31 December 2007 there were bankoverdrafts of £5,148,000 (2006 - £21,587,000) and loans of £48,400,000 (2006 - £101,274,000).

28 Pension costs

Contributions are made to personal money purchase pension plans for eligible employees.

The pension charge for the directors for the year was £90,000 (2006 - £53,000). The charge for the personal pensionplans for all other employees was £684,000 (2006 - £919,000).

29 Ultimate parent company and controlling party

As at 31 December 2006 the majority shareholders in Wellstream Holdings PLC, and hence the Company’s ultimatecontrolling party were Candover Partners Limited and its associates (“Candover”), who together controlled 79.59%(2005: 79.59%; 2004: 81.67%) of the allotted share capital of the Company.

Candover was also the sole holder of the deep discount bonds disclosed within note 21. The amount due tobondholders at 31 December 2007 was £nil (2006 - £56,212,000) and the amount of interest accruing during the yearwas £1,783,000 (2006 - £5,451,000).

On 5 April 2007 the Company was re-registered as Wellstream Holdings PLC. In April 2007 Wellstream Holdings PLCissued a Prospectus for the Global Offer of new shares and some existing shares in the Company. The result was thatWellstream Holdings PLC became listed on the London Stock Exchange on 1 May 2007. Upon this flotation, CandoverPartners Limited ceased to be deemed the ultimate controlling party of the Company.

At 31 December 2007 there is no controlling party.

30 Related party transactions

GroupTransactions between fellow subsidiaries which are related parties have been eliminated on consolidation and arenot disclosed.

Transactions with key management personnelThe directors believe that the Board of directors is the Group’s key management personnel as defined by IAS 24“Related party transactions”. Compensation paid to the Company’s Board of directors is disclosed in the Directors’Remuneration Report.

During the year ended 31 December 2007, and since, neither any director nor any other executive officer, nor anyassociate of any director or any other executive officer, was indebted to the Group.

During the year the Group incurred a share based payment charge of £4,042,000 (2006 - £nil) in respect of shareoptions granted to key management personnel.

Other than as disclosed above, the Group has not been, and is not now, a party to any material transaction, orproposed transactions, in which any member of the key management personnel (including directors, any spouse orrelative of the directors, or any relative of such spouse), had or was to have a direct or indirect material interest.





30 Related party transactions (continued)

Transactions with Candover, the Group’s former ultimate controlling partyThe deep discount bonds disclosed in note 21 were all held by Candover. Other transactions between the Companyand Candover are set out below:

2007 2006 2007 2006£000 £000 £000 £000

Directors’ fees 43 38 - -

2007 2006£000 £000

Transactions with jointly controlled entityAmounts invoiced to and owed by jointly controlledentity in respect of corporate administration fees: 687 -

Group guarantees in respect of the jointly controlled entity are disclosed in note 27.

Company 2007 2006£000 £000

Amounts due from subsidiary undertaking 67,245 1,001

During the year the Company made cash advances of £66,244,000 (2006 - £nil) to Wellstream International Limited.

During the year the Company incurred a share based payment charge of £3,624,000 (2006 - £nil) in respect of shareoptions granted to Sir Graham Hearne, a non-executive director.

Goods and servicesprovided

Amounts owing fromrelated party


90 | Historical Results

Historical ResultsIFRS

2007 2006 2005 2004£000 £000 £000 £000

Income statementRevenue 266,810 147,221 90,109 50,069

Operating profit/(loss) 47,561 19,845 5,354 (9,735)Foreign exchange gains/(losses) on financing 2,755 17,002 (14,258) 6,010Finance income 1,115 402 1 2Finance expenses (9,691) (11,817) (10,551) (7,993)

Profit/(loss) before tax 41,740 25,432 (19,454) (11,716)Tax (12,727) (23) (289) (229)

Profit/(loss) for the year (all attributable 29,013 25,409 (19,743) (11,945)to equity holders of the parent)

Balance sheetAssetsNon-current assets 98,457 84,405 75,711 77,358Current assets 171,458 81,233 55,356 23,326

LiabilitiesCurrent liabilities (112,906) (76,850) (61,736) (25,404)Non-current liabilities (54,221) (94,261) (98,326) (85,648)

Net assets/(liabilities) 102,788 (5,473) (28,995) (10,368)

Equity

Total equity/(deficit) 102,788 (5,473) (28,995) (10,368)

The amounts disclosed above relate to the year ended 31 December 2004 and subsequent years. Earlier years werereported under UK GAAP and it is not practical to restate amounts to International Financial Reporting Standards (IFRSs)for periods prior to the date of transition to IFRSs.


Payment of dividendsAs stated in the Prospectus there will no paymentof a dividend for 2007.

Officers and AdvisersCompany Secretary & Registered OfficeRob LambWellstream Holdings PLCWellstream House, Wincomblee RoadWalker Riverside, Newcastle upon TyneNE6 3PF, UKTel: +44 (0)191 295 9000Company Number 4601199

AuditorsDeloitte & Touche LLPGainsborough House34-40 Grey StreetNewcastle upon TyneNE1 6AETel: +44 (0)191 261 4111

Investor Relations ManagerJason NunnWellstream Holdings PLCBennet House, 54 St James StreetLondon, SW1A 1JT, UKTel: +44 (0)20 7318 1986

Legal Advisors to the CompanyClifford Chance LLP10 Upper Bank Street, Canary WharfLondon, E14 5JJTel: +44 (0)20 7006 1000

RegistrarEquinitiAspect HouseSpencer RoadLancing, BN99 6DATel: +44 (0)871 384 2030

Corporate and Financial PRTulchan Communications6th Floor, Kildare House, 3 Dorset RiseLondon, EC4Y 8ENTel: +44 (0)20 7353 4200

BrokersCredit SuisseOne Cabot SquareCanary WharfLondon, E14 4QJTel: +44 (0)20 7888 8888

Annual General Meeting 19 May 2008 Interim results to be announced around end of August 2008.

Website www.wellstream.comOur shares are traded under the London Stock Exchange ticker WSM. All announcements and pressreleases are listed on our website under investor relations.

The Company’s share register is open to the public by law. If you receive unsolicited mail you can limitwhat you receive by registering with the Mailing Preference Society Freepost 22 London W1E 7EZ.

Shareholder information

Shareholder information | 91


92 | Glossary

Glossary

Continuous Improvement Programme -Wellstream’s programme to improve efficiencyand production at its manufacturing facilities

Deepwater - Water depths greater than 500 metres

EBITDA - Earnings before interest, tax,depreciation and amortisation

E&P - Exploration and production

Flexbarrier - Polymer fluid barrier layer of flexibleoffshore pipe

FlexSteel™ - A specially designed flexible pipefor use in onshore applications

Flowlines - Static pipelines used to carry fluidson the sea bed

Fluid transfer lines - Large diameter dynamicpipelines often hanging in a large “U” bend in thewater column connecting to two structures whichare often dynamic

FPSO - Floating Production, Storage andOffloading; a converted or custom-built ship-shaped floater, employed to process oil and gasfor temporary storage of oil prior to transhipment

HSE - Health, Safety and Environmental

HSEQ - Health, Safety, Environmental and Quality

ID - Internal diameter

ISO 14001 - A global certification administeredby the International Organisation for Standardisationconfirming low environmental impact

ISO 9001 - A global certification administered bythe International Organisation for Standardisationconfirming efficient and effective productionprocesses

km - Kilometres

nkm - A normalised km is based on the workcentre hours required to produce a standardeight inch ID offshore pipe or a standard fourinch ID onshore pipe. A relative time factor isapplied to other pipes, where applicable, toconvert actual production lengths andcomposition into normalised km

OHSAS 18001 - An international occupationalhealth and safety management systemspecification

PA12 - A new grade of nylon polymer developedjointly by Wellstream International Limited andDegussa, using Degussa’s trademarked productVESTAMID_ LX9020

Reels - Devices around which lengthycontinuous items such as cables or flexible pipesare wrapped for transportation or storage

Revenue Backlog - Is the aggregate of revenuethat has not yet been recognised in the accountsfrom contracts that have been entered into andfrom contracts that the directors are confident willbe entered into

Riser - A pipe or assembly of pipes used totransfer produced fluids from the seabed to thesurface facilities or to transfer injection fluids,control fluids or lift gas from the surface facilitiesand the seabed. Risers can be flexible or hybridsof flexible and rigid pipe


Notice of AGM | 93

Annual General Meetingto be held at 3pm on 19 May 2008

The Notice of Annual General Meeting of the Company to be held at 3pm onMonday, 19 May 2008, at Credit Suisse, One Cabot Square, Canary Wharf,London E14 4QJ, is set out on pages 93 to 100.

The action to be taken by Shareholders is set out on page 95.

This Document Is Important And Requires YourImmediate Attention.

If you are in any doubt as to what action you should take, you are recommendedto consult immediately your stockbroker, bank manager, solicitor, accountant orother independent financial advisor duly authorised under the FinancialServices and Markets Act 2000 if you are resident in the United Kingdom or, ifyou reside elsewhere, another appropriately authorised financial advisor.If you have sold or otherwise transferred all your ordinary shares in WellstreamHoldings PLC (the “Company”) please forward this document, together with theaccompanying documents to the purchaser or transferee of your ordinaryshares or to the bank, stockbroker or other agent through whom the sale ortransfer was effected, for transmission to the purchaser or transferee.


94 | Notice of AGM continued

Wellstream Holdings PLCWellstream House Wincomblee Road

Walker Riverside Newcastle upon Tyne

NE6 3PFTel: +44 (0)191 295 9000

Fax: +44 (0)191 295 9001

Letter from the Chairman

16 April 2008

Dear Shareholder

2008 Annual General MeetingIt is my great pleasure to be writing to you enclosing the Notice convening the first Annual GeneralMeeting of the Company, to be held at 3pm on Monday, 19 May 2008 at Credit Suisse, One CabotSquare, Canary Wharf, London E14 4QJ. The Notice details the business to be considered at the meetingand is set out on pages 96 to 98 of this document. The purpose of this letter is to explain certain elementsof that business to you. A summary of the action to be taken by Shareholders is set out at the end of thisletter, on page 95.

This year, as well as the ordinary business usually dealt with at an Annual General Meeting (“AGM”), thereare four additional items of special business (Resolutions 12 to 15). The ordinary business includesmotions to re-elect individually all of the directors. Under the Company’s Articles of Association, a directorof the Company appointed by the board may only hold office until the next following AGM, unlessreappointed at that AGM. Further, a director appointed more than three years prior to an AGM must alsoretire from office at that AGM. Those directors who were appointed by the board in 2007 will be proposedfor election at the AGM (see Resolutions 3 to 6). All the remaining directors were appointed more than threeyears prior to the AGM and so will also be proposed for re-election at the AGM (see Resolutions 7 to 10).Short biographical details of each director appear on pages 34 and 35 of the Annual Report. Havingconsidered the performance of and contribution made by each of the directors, the board remainssatisfied that the performance of each director continues to be effective and to demonstrate commitmentto the role and, as such, recommends their re-election.

On 8 April 2008, Candover, a major shareholder, sold its shares in the Company, as announced to theLondon Stock Exchange. Consequently Nils Stoesser, their representative on the Board, resigned as anon-executive director on 8 April 2008. Because this was after the date of the Annual Report (1 April) butbefore the date of this letter to you, references in the Annual Report do not reflect the fact of the sharesale or Nils Stoesser’s resignation. I would like to thank Nils for his very valuable contribution and supportover the years. We appreciated his counsel and wish him well for the future.

The four additional items of special business for consideration at the AGM, of which resolutions 13, 14 and15 will be proposed as special resolutions, are explained in this letter:

Resolutions 12 and 13 - directors’ power to allot shares and dis-application of pre-emption rightsResolution 12 will be proposed to continue the directors’ authority to allot ordinary shares up to anaggregate nominal amount of £331,900, being slightly under one-third of the Company’s issued ordinaryshare capital on 16 April 2008. This authority will expire at the earlier of the end of the next AGM or20 August 2009, unless renewed at the AGM in 2009. The directors do not intend to exercise the authority,however they do consider it prudent to maintain the flexibility that this authority provides.

If shares are being issued for cash, the Companies Act 1985 says that they must in the first instance beoffered to existing Shareholders in proportion to their holdings. Resolution 13 will be proposed tocontinue the directors’ power to allot new ordinary shares for cash otherwise than in proportion to existingholdings. In the case of allotments other than for rights issues or other pre-emptive offers, the authority islimited to shares representing an aggregate nominal amount of £49,789.88, amounting to 5% of theCompany’s issued ordinary share capital. This power will expire at the earlier of the end of the next AGMor 20 August 2009, unless renewed at the AGM in 2009.


Notice of AGM continued | 95

Resolution 14 - Power to purchase sharesResolution 14 will be proposed to enable the Company to purchase in the market up to a maximum of9,957,975 ordinary shares (representing 10 per cent of the Company’s issued ordinary share capital on16 April 2008) for cancellation at a minimum price of £0.01 per share and a maximum price of not morethan 5 per cent above the average of the middle market quotations for an ordinary share as derived fromThe London Stock Exchange Daily Official List for the five business days immediately preceding the dayon which that ordinary share is purchased. This authority will lapse on the earlier of the end of the nextAGM or 20 August 2009, unless renewed at the AGM in 2009.

The directors would not expect to purchase ordinary shares in the market unless, in the light of marketconditions prevailing at the time, they considered that to do so would enhance earnings per share andwould be in the best interests of Shareholders generally. Further, the directors expect that if any ordinaryshares were to be purchased, such shares would be cancelled. Any purchases made by the Companywill be announced no later than 7.30am on the business day following the transaction.

Resolution 15 - Adoption of new Articles of AssociationResolution 15 will be proposed to adopt new Articles of Association in order to update the Company’scurrent Articles of Association primarily to take account of changes in English company law broughtabout by the Companies Act 2006. The principal changes introduced in the new Articles of Associationare summarised in the Appendix on pages 99 to 100 of this document. Other changes, which are of aminor, technical or clarificatory nature and also some more minor changes which merely reflect changesbrought in by the Companies Act 2006 have not been noted in the Appendix.

Copies of the proposed new Articles of Association (marked to show the proposed amendments) areavailable for inspection at the Company’s registered office, Wellstream House, Wincomblee Road, WalkerRiverside, Newcastle upon Tyne, NE6 3PF, and at Clifford Chance LLP, 10 Upper Bank Street, CanaryWharf, London E14 5JJ, during usual business hours on any weekday (public holidays excluded) from thedate of this notice until the close of the AGM and a copy will also be available for inspection at CreditSuisse, One Cabot Square, Canary Wharf, London E14 4QJ from 2.45pm on Monday 19 May 2008 untilthe end of the meeting.

Action to be taken by ShareholdersAccompanying this document are the Annual Report and Accounts 2007 and a Form of Proxy.

You are asked to complete and sign the Form of Proxy and return it to the Company’s registrars, Equiniti,at Aspect House, Spencer Road, Lancing BN99 6ZR by 3pm on Thursday 15 May 2008.

A map showing how to get to Credit Suisse, One Cabot Square, Canary Wharf, London E14 4QJ has alsobeen included.

RecommendationThe directors consider that all the resolutions to be proposed at the Annual General Meeting are inthe best interests of the Company and recommend you to vote in favour of them, as the directorsintend to do in respect of their own beneficial holdings.

John W. KennedyChairman



NOTICE IS HEREBY GIVEN that the FIRST ANNUAL GENERAL MEETING of the Company will be held atCredit Suisse, One Cabot Square, Canary Wharf, London E14 4QJ on Monday, 19 May 2008 at 3pm.Resolutions 13 to 15 will be proposed as Special Resolutions and the remainder as Ordinary Resolutions.Pursuant to the Company’s Articles of Association, items 1 to 11 are Ordinary Business and items 12 to15 are deemed Special Business.

Resolution 1To receive the Company’s annual accounts for the financial year ended 31 December 2007, together withthe Directors’ Report, the Directors’ Remuneration Report and the auditors’ report on those accounts andon the auditable part of the Directors’ Remuneration Report.

Resolution 2To reappoint Deloitte & Touche LLP as auditors to hold office from the conclusion of this meeting until theconclusion of the next general meeting of the Company at which accounts are laid and to authorise thedirectors to fix their remuneration.

Resolution 3To elect Mr Neil Gaskell as a director of the Company.

Resolution 4To elect Mr Christopher Gill as a director of the Company.

Resolution 5To elect Mr Francisco Gros as a director of the Company.

Resolution 6To elect Mr Patrick Murray as a director of the Company.

Resolution 7To re-elect Mr Christopher Braithwaite as a director of the Company.

Resolution 8To re-elect Mr Gordon Chapman as a director of the Company.

Resolution 9To re-elect Sir Graham Hearne as a director of the Company.

Resolution 10To re-elect Mr John Kennedy as a director of the Company.

Resolution 11To approve the Directors’ Remuneration Report for the financial year ended 31 December 2007.

Resolution 12THAT in substitution for all existing authorities the directors be generally and unconditionally authorised inaccordance with section 80 of the Companies Act 1985 to exercise all the powers of the Company to allotrelevant securities (within the meaning of that section) up to an aggregate nominal amount of £331,900for a period expiring on the date of the next Annual General Meeting of the Company after the passing ofthis resolution or, if earlier, 20 August 2009, but the Company may before such expiry make an offer oragreement which would or might require relevant securities to be allotted after expiry of this authority andthe directors may allot relevant securities in pursuance of that offer or agreement as if the authorityconferred by this resolution had not expired.



Resolution 13THAT, in substitution for all existing powers and subject to the passing of resolution 12, the directors begenerally empowered pursuant to section 95 of the Companies Act 1985 (the "Act") to allot equitysecurities (within the meaning of section 94(2) of the Act) for cash pursuant to the general authorityconferred by resolution 12 as if section 89(1) of the Act did not apply to the allotment, provided that thepower conferred by this resolution:

(A) will expire on the date of the next Annual General Meeting of the Company after the passing of thisresolution or, if earlier, 20 August 2009, but the Company may before such expiry make an offer oragreement which would or might require equity securities to be allotted after expiry of this powerand the directors may allot equity securities in pursuance of that offer or agreement as if the powerconferred by this resolution had not expired; and

(B) is limited to:

(i) allotments of equity securities in connection with a rights issue; and

(ii) allotments of equity securities for cash otherwise than pursuant to paragraph (B)(i)up to an aggregate nominal amount of £49,789.88.

For the purpose of this resolution 13, "rights issue" means an offer of equity securities, open foracceptance for a period fixed by the directors, to holders of ordinary shares made in proportion (as nearlyas may be) to their respective existing holdings of ordinary shares but subject to the directors having aright to make such exclusions or other arrangements in connection with the offer as they deem necessaryor expedient:

(a) to deal with equity securities representing fractional entitlements; and

(b) to deal with legal or practical problems arising in any overseas territory or by virtue of shares beingrepresented by depositary receipts, the requirements of any regulatory body or stock exchange, orany other matter whatsoever.

The power conferred on the directors by this resolution 13 shall also apply to a sale of treasury shares,which is an allotment of equity securities by virtue of section 94(3A) of the Act, but with the omission ofthe words “pursuant to the general authority conferred by resolution 12”.

Resolution 14THAT the Company be generally and unconditionally authorised to make one or more market purchases(within the meaning of section 163(3) of the Companies Act 1985) of ordinary shares of £0.01 each in thecapital of the Company (“ordinary shares”) provided that:

(a) the maximum aggregate number of ordinary shares authorised to be purchased is 9,957,975(representing 10 per cent of the issued ordinary share capital);

(b) the minimum price which may be paid for an ordinary share is £0.01;

(c) the maximum price which may be paid for an ordinary share is an amount equal to 105 per cent ofthe average of the middle market quotations for an ordinary share as derived from The LondonStock Exchange Daily Official List for the five business days immediately preceding the day onwhich that ordinary share is purchased;

(d) this authority expires the date of the next Annual General Meeting of the Company after thepassing of this resolution or, if earlier, 20 August 2009; and

the Company may make a contract to purchase ordinary shares under this authority before the expiry ofthe authority which will or may be executed wholly or partly after the expiry of the authority, and may makea purchase of ordinary shares in pursuance of any such contract.



Resolution 15THAT the form of the Articles of Association produced to the meeting and initialled by the Chairman forthe purposes of identification be and are hereby adopted as the new Articles of Association of theCompany in substitution for and to the exclusion of all existing Articles of Association of the Company.

By order of the BoardRob LambCompany Secretary16 April 2008Registered Office:Wellstream House Wincomblee Road Walker RiversideNewcastle upon Tyne NE6 3PFRegistered in England and Wales No. 4601199

NOTES

1. A member of the Company is entitled to appoint a proxy to exercise all or any of his rights to attend,speak and vote at a general meeting of the Company. A member may appoint more than one proxy,provided that each proxy is appointed to exercise the rights attached to different shares.

2. A person who is not a member of the Company, but has been nominated by a member of theCompany (the “relevant member”) to enjoy information rights (the “nominated person”), does nothave a right to appoint any proxies under note 1 above. A nominated person may have a rightunder an agreement with the relevant member to be appointed or to have somebody elseappointed as a proxy for the meeting. If a nominated person does not have such a right, or hassuch a right and does not wish to exercise it, he may have a right under an agreement with therelevant member to give instructions as to the exercise of voting rights.

3. To be effective, the instrument appointing a proxy and any authority under which it is executed (ora notarially certified copy of such authority) must be deposited at the Company’s registrars,Equiniti, at Aspect House, Spencer Road, Lancing BN99 6ZR by 3pm on Saturday 17 May 2008.A form of proxy is enclosed with this Notice. Delivery or receipt of an appointment of proxy doesnot prevent a member attending and voting in person at the meeting.

4. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only thosemembers entered on the relevant register of members of the Company as at 6pm on 17 May 2008shall be entitled to attend or vote at the meeting in respect of the number of shares registered in theirname at that time. Changes to entries on the relevant register of members after 6pm on 17 May 2008shall be disregarded in determining the rights of any person to attend or vote at the meeting.

5. The register referred to in note 4 means the issuer register of members and the operator register ofmembers maintained in accordance with Regulation 20 of the Uncertificated Securities Regulations2001.

6. Copies of the letters of appointment for the non-executive directors of the Company and a copy ofthe Articles of Association of the Company (marked to show the proposed amendments) will beavailable for inspection at the Company’s registered office, Wellstream House, Wincomblee Road,Walker Riverside, Newcastle upon Tyne, NE6 3PF, and at Clifford Chance LLP, 10 Upper BankStreet, London E14 5JJ, during usual business hours on any weekday (public holidays excluded)from the date of this Notice until the close of the AGM and will also be available for inspection atCredit Suisse, One Cabot Square, Canary Wharf, London E14 4QJ from 2.45pm on Monday19 May 2008 until the end of the meeting.



7. At 15 April 2008 (being the last business day prior to the publication of this Notice) the issuedshare capital of the Company consists of 99,579,750 ordinary shares, carrying one vote each.Therefore, the total voting rights in the Company as at 15 April 2008 are 99,579,750.

8. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put inplace at the meeting so that: (i) if a corporate Shareholder has appointed the Chairman of themeeting as its corporate representative with instructions to vote on a poll in accordance with thedirections of all of the other corporate representatives for that Shareholder at the meeting, then ona poll those corporate representatives will give voting directions to the Chairman and the Chairmanwill vote (or withhold a vote) as corporate representative in accordance with those directions; and(ii) if more than one corporate representative for the same corporate Shareholder attends themeeting but the corporate Shareholder has not appointed the Chairman of the meeting as itscorporate representative, a designated corporate representative will be nominated, from thosecorporate representatives who attend, who will vote on a poll and the other corporaterepresentatives will give voting directions to that designated corporate representative. CorporateShareholders are referred to the guidance issued by the Institute of Chartered Secretaries andAdministrators on proxies and corporate representatives (www.icsa.org.uk) for further details of thisprocedure. The guidance includes a sample form of representation letter if the Chairman is beingappointed as described in (i) above.

Appendix

Explanatory Notes on Principal Changes to the Company’s Articles of Association

1. Articles which duplicate statutory provisionsProvisions in the current Articles of Association, which replicate provisions contained in the CompaniesAct 2006, are in the main amended to bring them into line with the Companies Act 2006. Certainexamples of such provisions include provisions as to the form of resolutions, the variation of class rightsand provisions regarding the period of notice required to convene general meetings. The main changesproposed to reflect this approach are detailed below.

2. Form of resolutionThe current Articles of Association contain a provision that, where for any purpose an ordinary resolutionis required, a special or extraordinary resolution is also effective. This provision is being amended as theconcept of extraordinary resolutions has not been retained under the Companies Act 2006.

3. Variation of class rightsThe current Articles of Association contain provisions regarding the variation of class rights. Theproceedings and specific quorum requirements for a meeting convened to vary class rights are containedin the Companies Act 2006. The relevant provisions have therefore been amended in the new Articles ofAssociation.

4. Convening extraordinary and annual general meetingsThe provisions in the current Articles of Association dealing with the convening of general meetings andthe length of notice required to convene general meetings are being amended to conform to newprovisions in the Companies Act 2006. In particular a general meeting to consider a special resolution canbe convened on 14 days’ notice, whereas previously 21 days’ notice was required.

5. Votes of membersUnder the Companies Act 2006 proxies are entitled to vote on a show of hands whereas under the currentArticles of Association proxies are only entitled to vote on a poll. The time limits for the appointment ortermination of a proxy appointment have been altered by the Companies Act 2006 so that the articlescannot provide that they should be received more than 48 hours before the meeting or in the case of apoll taken more than 48 hours after the meeting, more than 24 hours before the time for the taking of apoll, with weekends and bank holidays being permitted to be excluded for this purpose. Multiple proxiesmay be appointed provided that each proxy is appointed to exercise the rights attached to a differentshare held by the Shareholder. Multiple corporate representatives may also be appointed in accordancewith the Companies Act 2006. The new Articles of Association reflect all of these new provisions.


100 | Notice of AGM

6. Conflicts of interestThe Companies Act 2006 sets out directors’ general duties which largely codify the existing law but withsome changes. Under the Companies Act 2006, from 1 October 2008 a director must avoid a situationwhere he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with theCompany’s interests. The requirement is very broad and could apply, for example, if a director becomes adirector of another company or a trustee of another organisation. The Companies Act 2006 allows directorsof public companies to authorise conflicts and potential conflicts where appropriate, provided that thearticles of association contain a provision to this effect. The Companies Act 2006 also allows the articles ofassociation to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach ofduty. The new Articles of Association give the directors authority to approve such situations and to includeother provisions to allow conflicts of interest to be dealt with in a similar way to the current position.

There are safeguards that will apply when directors decide whether to authorise a conflict or potentialconflict. Firstly, only directors who have no interest in the matter being considered will be able to take therelevant decision and, secondly, in taking the decision the directors must act in a way they consider, ingood faith, will be most likely to promote the Company’s success. The directors will be able to imposelimits or conditions when giving authorisation if they think this is appropriate.

It is also proposed that the new Articles of Association should contain provisions relating to confidentialinformation, attendance at board meetings and availability of board papers to protect a director being inbreach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only applywhere the position giving rise to the potential conflict has previously been authorised by the directors.

It is the Board’s intention to report annually on the Company’s procedures for ensuring that the Board’spowers to authorise conflicts are operated effectively.

7. Directors’ indemnities and loans to fund expenditureThe Companies Act 2006 has in some areas widened the scope of the powers of a company to indemnifydirectors and to fund expenditure incurred in connection with certain actions against directors. In addition,the existing exemption allowing a company to provide money for the purpose of funding a directors’defence in court proceedings now expressly covers regulatory proceedings and applies to associatedcompanies.

8. GeneralGenerally the opportunity has been taken to bring clearer language into the new Articles of Associationand in some areas to conform the language of the new Articles of Association.


Documents

Wellstream Holdings PLC Annual Report & Accounts 2007 · 2008-09-03 · Wellstream Holdings PLC Annual Report & Accounts 2007 | 1 Financial Highlights Revenue Backlog is the aggregate