The FCA has fined John Wood Group PLC (Wood Group) £12,993,700 for publishing inaccurate information in its financial results. Specifically, the fine was for breaching:
- Listing Rule 1.3.3R (misleading information must not be published) by failing to take reasonable care to ensure that its announcements were not misleading, false or deceptive and did not omit anything likely to affect the import of the information; and
- Listing Principle 1 (a listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations)
Following the poor performance of certain projects, the FCA found Wood Group's accounting judgements were inappropriately influenced by its desire to maintain previously stated financial results. Wood Group did not have adequate systems, controls or procedures to prevent this from happening.
This resulted in Wood Group publishing inaccurate information in its full-year 2022 and 2023 financial results and the half-year 2024 results. The company failed to take reasonable care to ensure that its announcements about those results were not false or misleading.
These issues came to light from November 2024 onwards. Wood Group's share price fell by 78% by April 2025 and its shares were suspended in May 2025.
The FCA opened its investigation into Wood Group in June 2025 and concluded it within nine months. The FCA says this shows that it is improving the pace of its enforcement investigations (compared with over eight years taken to conclude the Carillion enforcement action).
Wood Group accepted the findings and so qualified for a 30% reduction in its financial penalty. Without this discount, the FCA would have imposed a financial penalty of £18,562,500 on Wood Group.
Observations
The types of behaviours that led to the breaches included:
- failing to account for costs appropriately,
- attempting to recognise revenue inappropriately in dispensations,
- releasing project-related provisions and contingencies held against specific risks on certain projects to offset losses experienced on other projects,
- overstating cost savings and underestimating future costs to complete on projects,
- failing to write off unsupportable debit balances, and failing to provide auditors with sufficient information to fully assess certain accounting judgements.
These occurred in relation to certain fixed-price contracts that are often complex and require subjective accounting judgements to be made by a contractor throughout the lifecycle of the contract to recognise revenue and costs depending upon its progress against specific milestones. This includes taking into account the background and context of the contract, changes to scope, variations and/or claims where appropriate.
The subjective nature of accounting judgements and estimates that the contracts required meant that they were particularly susceptible to inappropriate influence. To balance that, a strong culture and robust control framework was required to ensure that accounting judgements were appropriately made and in compliance with applicable accounting standards. However, a culture of pressure to maintain financial performance prevailed, compounded by a lack of understanding of some of the company's accounting policies and the applicable accounting standards.
They occurred when the business was facing commercial challenges whilst wanting to improve investor confidence and maintain a strong financial position against the background of a potential acquisition of the company.
The cumulation of a culture of financial pressure, set against a factual background of projects requiring subjective accounting judgments to be made and compliance with certain accounting standards, with staff not being familiar with accounting policies and standards, and a failure to provide sufficient information to auditors is a familiar one. Indeed, the FCA observed that Wood Group should have learned from the notice issued by the FCA against Carillion that should have triggered Wood Group to consider whether similar risks might arise in its own business and whether corresponding action needed to be taken.
Will listed companies pay attention to the Wood Group final notice, and will it encourage them to adopt a compliant culture, systems and controls? Or put alternatively, will the fine actually be a sufficient deterrent to this type of behaviour – necessary to protect investors and market integrity?
Comparing the sanction to that of Carillion, one can observe the following. Neither firm derived any financial benefit from the breaches, so disgorgement in both cases was zero. The breaches of both firms were assessed to be at seriousness level 4 out of 5. However, they diverge on aggravating and mitigating factors. Whilst for Carillion there was no adjustment in this regard, Wood Group had its fine net-reduced at this step: although it did not take heed of previous final notices but was aware of the risk of such failings following an internal review, it showed significant co-operation with the FCA and implemented a remediation plan. The adjustment for deterrence was an increase in the financial penalty by a multiple of 10 for Carillion, but only a multiple of 5 for Wood Group. Wood Group also benefitted from a 30% settlement discount, which did not apply to Carillion. Ultimately, of course, Carillion was only subject to a public censure and not a financial penalty due to its financial position.
It remains to be seen whether listed companies will take heed and make sure they have in place the culture and controls expected by the FCA.
