WELLSTREAMHOLDINGSPLC ANNUAL REPORT...

ANNUALREPORT&ACCOUNTS2008

WELLSTREAMHOLDINGSPLC

00/01

CONTENTS01 . . . . . . . . FINANCIAL HIGHLIGHTS

02 . . . . . . . WHO WE ARE

05 . . . . . . . CHAIRMAN’S STATEMENT

07 . . . . . . . CHIEF EXECUTIVE’S REVIEW

30 . . . . . . . FINANCIAL REVIEW

34 . . . . . . . BOARD OF DIRECTORS

37. . . . . . . . DIRECTORS’ REPORT

43 . . . . . . . CORPORATE GOVERNANCE REPORT

48 . . . . . . . AUDIT COMMITTEE REPORT

49 . . . . . . . DIRECTORS’ REMUNERATION REPORT

55. . . . . . . . STATEMENT OFDIRECTORS’ RESPONSIBILITIES

56. . . . . . . . INDEPENDENT AUDITORS’ REPORT TOTHE MEMBERS OF WELLSTREAM HOLDINGS PLC

58. . . . . . . . GROUP INCOME STATEMENT

58. . . . . . . . STATEMENTS OF RECOGNISEDINCOME AND EXPENSE

59. . . . . . . . BALANCE SHEETS

60 . . . . . . . CASH FLOW STATEMENTS

61 . . . . . . . . ACCOUNTING POLICIES

66 . . . . . . . NOTES TO THE ACCOUNTS

88. . . . . . . . SHAREHOLDER INFORMATION

89 . . . . . . . GLOSSARY

90 . . . . . . . NOTICE OF ANNUAL GENERAL MEETING

20072008

20072008

20072008

REVENUE UP 38.7%

PROFITBEFORE TA

XUP 85.6%

DILUTEDEPS UP 65.5%

£266.8m

£369.9m

£41.7m

£77.5m

31.6p

52.3p

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008FINANCIAL HIGHLIGHTS

FINANCIALHIGHLIGHTS

02/03

WHO WE ARE

WELLSTREAM IS A LEADINGDESIGNER AND MANUFACTUREROF BESPOKE FLEXIBLEPIPELINE PRODUCTS, SYSTEMSAND SOLUTIONS FOR FLUIDTRANSPORTATION IN THE OIL ANDGAS INDUSTRY. THE BUSINESS,FOUNDED IN 1983, SETS OUTTO PROVIDE “INNOVATIVE PIPESOLUTIONS FOR TOMORROW’SENERGY PRODUCTION”.

Wellstream is headquartered in Newcastleupon Tyne, UK with manufacturingfacilities in Newcastle upon Tyne UK,Niterói Brazil and Panama City USA andhas over 1,000 employees worldwide.

OFFSHOREWe manufacture flexible pipeline productswhich are used in many offshore fielddevelopments, but particularly wherefloating production vessels are involved.Wellstream’s flexible pipe systems aredesigned to transport all hydrocarbonproducts including oil and gas togetherwith injection fluids to and from theproduction vessel on the surface and thewellhead on the seabed. Applicationsinclude static flowlines which lie onthe seabed; dynamic risers which aresuspended in the water column betweenthe floating structure and the seabed;large diameter fluid transfer lines for thetransport of high volumes of stabilisedhydrocarbon production between fixedand floating structures and flexiblejumpers which are used as short couplingsboth on the seabed and on surfacemounted equipment.

Wellstream has qualified its offshorepipeline products to exacting industrystandards from 2 inch to 19 inch internaldiameter and water depths in excess of2000 metres and pressures up to 15,000pounds per square inch (psi). This enablesus to offer a comprehensive range ofpipelines to cover both shallow, deepand ultra-deepwater environments.Our technology strengths include R&D inmaterial sciences for polymers, metallurgyand welding; research in structuraldisciplines of analytical modelling and theapplication of the research to practicalsolutions for our customers’ needs. TheGroup filed 8 patents during 2008 andhas a further 41 patents that have eitherbeen granted or are in progress.

Flowlines

RisersJumpers

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008WHO WE ARE & WHAT WE DO

Flexible pipelines have many advantagesover the traditional alternative steel rigidpipe. These include the ability to provide:

superior fatigue resistance which meansthey are often the only technical solutionfor connecting floating productionvessels to wells on the seabed inhighly dynamic marine environments

cost effective installation solutionsthrough reduced installation timesand utilisation of a wide range ofoffshore installation vessels

staged development, allowingcustomers to utilise early productiontechnologies which generate early cashflows and reduce development risk

reductions in project execution riskthrough parallel execution of majorelements of the project including drilling,construction of the production facilityand installation of the subsea facilities

reduced costs for future developmentsthrough re-use of existing flexiblepipelines

development of technically challengingfields where production fluids are highlycorrosive, at extreme temperature orpressure or where significant insulationis required to ensure the temperatureof the production fluid is maintained

subsea tie backs where the seabedis uneven, space is restricted or thefield layout is complex

These advantages are increasinglybeing recognised by our customersand are often a critical enabler forfield developments as water depthsincrease and reservoirs become moretechnically challenging to develop. In2008, Wellstream accounted for over30% of the world market for offshoreflexible pipeline products.

Customers include major oil & gascompanies such as Petrobras, Chevron,ExxonMobil and BHP Billiton; IndependentOil Companies such as Apache, Anadarko,Devon and Addax; as well as oil fieldservices companies such as Subsea 7and Saipem.

ONSHOREWellstream also manufactures innovativeflexible pipes for the onshore and shallowwater industry under the brand FlexSteel™.This includes oil and gas gathering lines,injection lines, water and fluid transferlines and pipe rehabilitation applications.Customers include EnCana, Husky,Hoover, Chevron and Burlington.Wellstream’s onshore business representsapproximately 4% of the Group’s sales.

Wellstream’s success is based on strongtechnology supported by continuousresearch and development, industry leadingengineering and manufacturing processesand a focus on working collaborativelywith customers and partners.

INNOVATIVE PIPESOLUTIONS FORTOMORROW'SENERGY PRODUCTION.

Structural CompositionCarcass (FlexbodyTM)Prevents collapse under externalhydrostatic pressure

Internal Pressure Sheath (FlexbarrierTM)Acts as the boundary for conveyed fluid

Interlocked Pressure Armour (FlexlokTM)Resists internal & external pressure in thehoop direction

Inner Layer & Outer Layer ofTensile Armour (FlextensileTM)Provides both hoop and axial strength

Insulating Layer (FlexinsulTM)Protects against heat loss

Outer Sheath (FlexshieldTM)Protects against seawater ingressand other mechanical damage

What is a Flexible PipeUnbonded flexible pipes consist of concentriclayers of metallic wires, tapes and extrudedpolymers designed to form a structure thataddresses the specific environmental requirementsand characteristics of the transported fluids.

FlexlokTM

Carbon Steel

FlexbodyTMAlloy Steel

FlexinsulTMSyntactic Foam

FlexshieldTM

Polymer

FlexbarrierTMPolymer

FlextensileTM

Carbon Steel

04/05

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008CHAIRMAN’S STATEMENT

CHAIRMAN’SSTATEMENTI AM PLEASED TO REPORT THATWELLSTREAM HAS CONTINUEDITS STRONG PERFORMANCEIN 2008; DELIVERING ANOTHERRECORD SET OF FINANCIALAND OPERATING RESULTSWITH REVENUE GROWTH 38.7%AHEAD OF THE PREVIOUS YEAR.

This was an outstanding performance,achieved against the backdrop ofcontinued expansion of our productioncapacity. Looking forward, thefundamentals of the sector remainattractive and our outlook for 2009remains one of continued growth.

FINANCIAL PERFORMANCEIn the 12 months to 31 December 2008,Revenue increased by 38.7% to £369.9m(2007: £266.8m), operating profit increasedby 70.3% to £81.0m (2007: £47.6m), anddiluted earnings per share reached 52.3pagainst 31.6p for 2007. We maintain astrong backlog which stood at £331.4mon 31 December 2008 (2007: £335.9m).

OFFSHORE PRODUCTIONThroughput in our manufacturing facilitiesincreased by over 25% in 2008 comparedwith the previous year; mainly due to thefast ramp-up of production at our Niteróifacility in Brazil. Records were set atboth plants with throughput reaching240 normalised km (nKm) in Newcastleupon Tyne and 128nKm in Niterói. TheGroup’s available production capacitywill be increased by 40% to 570nKmat the end of Q1 2009 when the currentexpansion plan is completed.

CONTRACT AWARDSThe most noteworthy award for 2008 hasbeen the Petrobras Framework Agreement.This agreement, worth in excess of£600 million, spans 4 years and equatesto approximately 700nKm of risers andflowlines. At the year end we wereawarded two major contracts underthis agreement. These contracts have avalue of some £90 million, and cover thesupply of flexible risers and flowlines forthe Cachalote and Barracuda projects.

Wellstream’s continuing innovation intechnology led directly to the award oftwo significant projects in 2008. The firstis to develop a flexible riser for the initialproduction from the Petrobras Sub-SaltTupi field and the second is to supplyan ultra high pressure riser for AnadarkoPetroleum’s Caesar Tonga developmentin the Gulf of Mexico. These applicationseach represent a step change for theindustry and demonstrate our ability toprovide solutions for increasingly complexdeepwater developments.

SEASTREAM JVSeastream, our 50:50 joint venturewith Sea Trucks Group, continues to bewell received by customers, enhancingWellstream’s product offering to provideflexible pipeline products on an installedbasis. Seastream's first contract,worth £100 million, for the supply andinstallation of flexible flowlines on BHPBilliton’s Pyrenees project is progressingon schedule and is set to move to itsoffshore installation phase in 2009.Seastream also completed a contractfor Devon Energy on their Polvo project,off the coast of Brazil during 2008.

OUTLOOKMarket indications for 2009 are thatNational and International Oil Companiesare generally maintaining their upstreamspending levels, with a continuingemphasis on deep water projects, whilesmaller independent operators aredeferring or curtailing major capitalexpenditures. Overall the fundamentalsfor our business remain attractive.

The Group’s order book in Brazil continuesto be strong with over £150 million of ordersalready secured under the PetrobrasFramework Agreement. For the Group as awhole, our order book represents over 70%of anticipated 2009 revenue. Our focuson cost reduction and improved efficiencyhas been maintained and our margins insterling terms remain satisfactory.

Finally, I pay tribute to the professionalism ofour staff, whose hard work and dedicationhave helped bring about these recordbreaking results.

John KennedyChairman

LOOKING FORWARD,THE FUNDAMENTALSOF THE SECTOR REMAINATTRACTIVE AND OUROUTLOOK FOR 2009REMAINS ONE OFCONTINUED GROWTH.

06/07

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008CHIEF EXECUTIVE’S REVIEW

CHIEFEXECUTIVE’SREVIEWI AM DELIGHTED TO DELIVERMY SECOND CHIEF EXECUTIVE’SREVIEW FOR WELLSTREAMAS A LISTED PUBLIC COMPANY.

I am pleased to report that, following aremarkable year for the Group in 2007, thisyear has been outstanding, with recordfinancial and operational performancebeing achieved in 2008.

Significant highlights include the continuedstrong performance from the Newcastleupon Tyne operation, the rapid increasein throughput at our Niterói plant in Brazilin its first full year of operation and theaward of a number of strategicallysignificant projects, including a 4 yearframework agreement with Petrobras.

Our investment in world-class productionfacilities, designed to meet the needsof our customers as they develop evermore technically demanding deepwateroperations has continued, and we areon schedule to add 40% to our totalproduction capacity early in 2009.

We have also made encouragingprogress in our installation businessthrough our Seastream JV. The executionof the Pyrenees project for BHP Billitonis on target and on budget. We investedin the acquisition of our own flexible pipeinstallation equipment which providesus with greater opportunity to controlthe installed cost of our products andis key to our growth strategy.

Footnote(a) Revenue Backlog is the aggregate of revenuethat has not been recognised in the accounts from contractsthat have been entered into and from contracts that thedirectors are confident will be entered into and revenue thatthe directors are confident will arise in the next year fromthe Petrobras Framework Agreement. Further revenue fromthe Framework Agreement and orders from customers inthe form of limited or non-binding commitments are notincluded in revenue backlog.

Image left: Laboratory testing of binding tape.

FINANCIAL HIGHLIGHTS 2008 2007 CHANGE

REVENUE £369.9m £266.8m 38.7%OPERATING PROFIT £81.0m £47.6m 70.3%BACKLOG (a) £331.4m £335.9m -1.3%

THIS YEAR HAS BEENOUTSTANDING, WITHRECORD FINANCIALAND OPERATIONALPERFORMANCE BEINGACHIEVED IN 2008.

08/09

IN SERVICE 54%

ON

ORD

ER13

%TENDERING 10%

INPLANNING

23%

MARKETOVERVIEW

CHIEF EXECUTIVE’S REVIEW:

Source: International Maritime Associates Inc

OFFSHOREMARKET OVERVIEW2008 saw oil prices move from recordhighs in July of USD145 per barrel tolows of USD30 per barrel in December –a level not seen since December 2003.Despite this unprecedented fall inprices, the fundamentals of the industryhave remained largely unchanged forWellstream. Oil and Gas remains theworld’s dominant energy source, andaccessible resources onshore and inshallow water are diminishing. Oilcompanies are therefore continuingto focus on exploring and developingdeepwater utilising subsea and floatingproduction technologies. Flexible pipelinesare a critical element of the majority ofthese developments; connecting thewellheads on the seabed to the surfacevia flexible flowlines and risers. Thus,the increased and projected futuredependence of these floating facilitiesin combination with subsea completionshas been one of the drivers for rapidgrowth in Wellstream’s business.

Capital expenditure on the floatingproduction systems for deepwater hasincreased from approximately USD8bnin 2004 to USD13bn in 2008. This isforecast to reach over USD20bn by2012. The number of floating systemsbeing constructed, in tendering or in theirdesign phase has also reached recordlevels during 2008, with approximately200 projects under consideration –equal to the number of vessels alreadyin service.

This increasing use of floating productiontogether with the fact that the subseasector remains one of the fastest growingsub-segments of the oil and gas industry,bodes well for the future.

Despite the fall in oil prices, currentindications are that national oil companiesand major operators are generallymaintaining spending levels in order to‘invest through the cycle’ in order to offsetthe accelerating production decline ratesin existing production fields. The recentannouncement from Petrobras advisingof a projected increase in Exploration &Production spending over the next 5 yearsfrom USD 65 billion to USD 105 billionindicates the confidence of our customersin the underlying potential of the sector.

FLOATING PRODUCTIONFACILITIES IN-SERVICE,ON-ORDER, TENDERINGOR IN PLANNING


ONSHOREMARKET OVERVIEWAlthough the onshore market in NorthAmerica has been particularly impacted bythe fall in oil and gas prices, the numberof active rigs operating in North Americaduring 2008 was relatively consistent,averaging 2,190. Activity levels peaked inSeptember with 2,370 rigs working andthe year ended with December averaging2,075. This combined with our focuson commercialisation of our unique 6 inchonshore spoolable product has meantthat the market for Wellstream’s onshoreproducts has remained robust. In additionas independent oil companies have begunto focus on reducing exploration andproduction costs they have becomemore willing to consider alternative costeffective development technologiessuch as Wellstream’s FlexSteel product.This has enabled Wellstream to increasemarket share despite challengingmarket conditions.

The growth in the opportunity for FlexSteelin the refurbishment of existing onshorepipeline infrastructure has also continued.This is being driven by increasedawareness by customers of the significantbenefits that FlexSteel offers in terms ofreduced installation cost.

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Source: International Maritime Associates Inc

FLOATING PRODUCTIONFACILITIES IN PLANNING

10/11


DESPITE CHANGES INGLOBAL ECONOMICCONDITIONS, THEFUNDAMENTALSDRIVING THE DEMANDFOR WELLSTREAM’SPRODUCTS HAVEREMAINED INTACT.

DESPITE CHANGES IN GLOBALECONOMIC CONDITIONS, THEFUNDAMENTALS DRIVING THEDEMAND FOR WELLSTREAM’SPRODUCTS HAVE REMAINEDINTACT.

Wellstream’s strategy continues to beone of building a leadership position as asupplier of bespoke engineered flexiblepipeline products for the hydrocarbonindustry around the world. This leadershipposition is being built through superiorcustomer relationships, innovation,technology, engineering, manufacturingand project delivery excellence.

The business will continue to delivergrowth organically and through alliancesand acquisitions as opportunities arise.Currently, Wellstream is:

Adding capacity in Newcastle upon Tyne,UK to reach 300nKm/pa in 2009 from270nKm in 2008

Increasing capacity in Niterói, Brazilto reach 270nKm/pa in 2009 from150nKm in 2008

Continuing to grow productionof onshore pipeline products

Developing the Seastream JV focusedon the installation of flexible pipelinesand risers to support Wellstream’sstrategic intent to control the installedcost of flexible pipe and by so doingcreating the best value proposition toour end customers

Developing and acquiring our owninstallation equipment to providethe differentiated technology inthe installation process

Focusing Research and Developmenteffort on high temperature, high pressuretechnologies with testing programmesto increase the water depth capabilityof the product

STRATEGYFOR GROWTH


12/13

UKThe strong Group performance in 2008was underpinned by the Newcastle uponTyne operation. Capacity was increasedthrough 2008 to 270nKm/pa by year endand will reach 300nKm/pa by the end ofQ1 2009. Once again, the UK operationachieved a new annual record withthroughput for the year totalling 240nKm.The efficiency gains were hampered mid-year due to delays in return of shippingreels from customers. Mitigating actionswere taken and disruption was minimised.

We were very pleased to celebrate 10 yearsof association with the city of Newcastleupon Tyne in August when a large numberof staff and friends gathered at the Sageconcert building in the centre of the city.

BRAZIL2008 saw the first full year of operationof the new plant in Niterói which hadbeen commissioned in May 2007. Asa result, throughput in Brazil increasedfrom 52nKm in 2007 to 127nKm in 2008.The plant ramped up to 24/7 working,operating on a four shift system andsignificantly outperforming againstour original plan. We expect to build onthis progress in 2009 as the expansionprogramme is completed and the capacityof the plant is increased further from150nKm/pa to 270nKm/pa.

Also worthy of note is the load-out andbase operational support given to DevonEnergy’s Polvo Project which was the firstinstallation contract performed bySeastream in Brazil. Operations andlogistics support was also provided fromNiterói to the Chevron Corporation duringinstallation of the Frade project.

With two offshore plants now inoperation, opportunities to optimiseproduction scheduling between the plantshave been maximised in order to offersignificant benefits to customers in termsof product designs, contractingarrangements and delivery times.

MAJOR PROJECTSTwenty two projects were being workedon in 2008 including seven major projectsfor Petrobras. The Brazil projects rangedin value from circa £10m to £40m withmanufacturing undertaken both in Braziland in the UK.

Also significant in 2008 was the pipemanufacturing element of the BHPBilliton Pyrenees project (Australia) andthe Addax Okwori project (West Africa).

The last delivery of pipe for the ChevronFrade project in Brazil was made inJuly 2008. In all some 138km of pipeswere delivered.

CAPACITY EXPANSIONIn November 2007 we announcedcapacity expansions in both Niteróiand Newcastle upon Tyne with a totalplanned capital investment of £35m.This will take total production capacityto 570nKm/pa. At the end of 2008 theproject was over 85% complete andon track for Q1 2009 completion.

2008 SAW THE FIRSTFULL YEAR OF OPERATIONOF THE NEW PLANT INNITERÓI WHICH HADBEEN COMMISSIONEDIN MAY 2007.

STRATEGYFOR GROWTH



Image above: Newcastle upon Tyne.Image top right: Niterói, Brazil.Image bottom right: Celebration of 10 years’ association with Newcastle upon Tyne.

14/15

Wellstream’s success is based on strongtechnology supported by continuousResearch and Development, excellentcustomer relationships and a focus onworking collaboratively with customersand partners. Our research programmegenerates cutting edge solutions neededfor the next generation of pipe designas new oil fields are found in everdeeper water.

Wellstream employs industry leadingR&D experts in the areas of MaterialsEngineering Testing Services, AnalyticalModelling and Engineering Design. Eachsubsea oilfield has distinct characteristicswhich require bespoke engineeredsolutions for each application. The flexiblepipe needs to absorb the motion of thesea from a floating production platformconnected to fixed wellheads on the seafloor via risers and flowlines. The pipe isrequired to withstand internal pressures ofup to 15,000 psi as well as large externalpressure fatigue and tensile loads as aresult of operating in water depths over2000 metres.

The qualifying conditions which must bemet and the technology required to bringa flexible pipe to market involves manyyears of development and represents aconsiderable hurdle in commercialisationof each design. Flexible pipe is a highlycomplex structure incorporating notonly mechanical design and productperformance, but also materials scienceand materials engineering behaviour, allof which need to be applied to meet thecurrent and future needs of the market.

Wellstream’s materials engineering teamare specialists in bridging the link betweennew R&D and its real world practicalapplications required by the customerand our analytical modelling team arehighly specialised in predictive modellingwhich saves considerable cost and timein the evaluation of complex structuresunder operating loads. Some of the mostimportant and lengthy work is carriedout to meet the rigorous safety factorsapplied by the oil and gas industry byuse of specially designed test rigs whichsimulate offshore service conditions.

The combined intellectual capital in theR&D team has been gained over manyyears of experience and is a significantresource to customers.

In addition to developing technologyin-house, using Wellstream’s state-of-the-art technology centre, the research anddevelopment team work closely with anumber of Universities in the UK andoverseas in order to undertake commercialdevelopments and “blue sky” research.During 2008, Wellstream filed 8 patentsto add to our growing portfolio of 41patents, granted or in progress.

SPECIAL FOCUS:TECHNOLOGY



The 2007 Annual Report described thecompletion of a high pressure 540 bar(7830 psi) development programme. Thiswork has continued with a programmefocused on extreme high operatingpressures now targeted at 1,034 bar(15,000 psi).

The following gives an example of someof the work that is typically undertakenduring a product development programme.

MODELLING AND TESTINGAll of the loads on the riser structureneed to be modelled and tested againstthe service conditions for a 25 yearservice life. Typically, this will include:-

a burst test to determine structuralcapacity of the pipe

a collapse test to determine thecapacity of the pipe to withstandexternal hydrostatic pressure

a test to apply bending andtwisting loads

a 6 to 12 month test programmeto determine fatigue endurance.

MODELLINGINTERFACE PRESSURESPrior to manufacture of any pipe, thetechnology teams will computer modelthe pipe to see how the interface pressuresof each layer impact on the performanceof the structure. One of the physical effectsthat we model is the way in which polymermigrates into the gaps in the steel wirelayer under high pressure conditions.

It is impossible to carry out full-scaletesting for every chemical or environmentalcondition that the carbon steel wiresmay be exposed to. For this reason,considerable investment is made in thelaboratory, generating corrosion fatiguedata points to be used by the designers.

For deepwater applications it is importantto ensure we have sufficient safety marginsagainst the design conditions but alsofor extreme loading conditions to providecustomers with confidence in the reliabilityof the pipe structure.

COLLAPSE MODEThe collapse mode is important indeepwater environments because itpredicts the amount of external pressurea pipe can withstand.

END FITTINGThe pipe structure is not the only importantarea in product development. The endfitting which terminates each of thestructural layers of the pipe is vital as oneof the key areas of design consideration.It is the critical interface between thepipeline and the subsea and topsideinfrastructure and is manufactured andassembled to exacting tolerances.

TECHNOLOGICAL LEADFlexible pipe is a product in whichapplied technology is crucial to secure itsperformance and reliability. Wellstream’stechnological lead is supported byexperts who are leaders in their field.The move to even greater water depths,higher temperatures and higher pressurerequires that Wellstream continues todevelop more innovative technologicalsolutions to meet the future needs ofour customers.

DURING 2008, WELLSTREAMFILED 8 PATENTS TO ADD TOOUR GROWING PORTFOLIOOF 41 PATENTS, GRANTEDOR IN PROGRESS.

Images (left to right): Full scale testrig of dynamic testing of deepwaterrisers; Test chamber used to examine“polymer creep”; Full-scale axialtension test (image courtesy Oil States);Testing high strength binding tape.

16/17


SUPPLIER RELATIONSAND SUPPLY CHAINMANAGEMENT

RAW MATERIALS SUPPLYREMAINS A CRITICALCOMPONENT OF WELLSTREAM’SOPERATIONS. THE SUPPLY CHAINSTRATEGY IS UNDERCONTINUOUS REVIEW AND NOWTAKES INTO ACCOUNT THEPOTENTIAL IMPLICATIONSRESULTING FROM THE GLOBALECONOMIC DOWNTURN.

There is greater emphasis on vendorrisk, advanced planning and scheduling,management of stock turns, constantmonitoring and evaluation of vendorperformance, the development ofcommercial risk and reward arrangementsand where appropriate, the establishmentof long term vendor frame agreements.All suppliers are qualified to Wellstreamstandards and continuously evaluatedthrough an audit based approved vendorrating system, managed and administeredindependently by our HSEQ function.

Carbon steels, alloy steels, high gradepolymers, end fittings and ancillaries aresourced globally for Wellstream’s threemajor operations. There have been nomajor interruptions to the supply chainthroughout 2008 and Wellstream continuesto extend material solutions and the vendorbase. 2008 has seen the continueddevelopment of Brazilian local content inthe supply chain to support the Niteróifacility. This has led to reduction inshipping needs and added value byreducing risk and cost.

The Group recognises that our corporatesocial responsibility extends to how webehave towards our suppliers, and thisis recognised in our systems of work.The Supply Chain and HSEQ functionswork closely with suppliers to assessand monitor their HSE competenciesand to share learning for mutual benefit.

Strategically, we continue to minimiseand ultimately eliminate any single sourceaspects of our supply base. As with allsupply chains, inherent risks remain butthese are identified and managed by theWellstream supply chain team.

2008 HAS SEENTHE CONTINUEDDEVELOPMENT OFBRAZILIAN LOCALCONTENT IN THESUPPLY CHAINTO SUPPORT THENITERÓI FACILITY.


18/19

WELLSTREAM CONTINUESTO PROMOTE STRONG,COLLABORATIVE RELATIONSHIPSWITH ITS CUSTOMERS WHICHHAS RESULTED IN A NUMBER OFSIGNIFICANT PROJECT AWARDSDURING THE YEAR.

The most noteworthy of these has beenthe Petrobras Framework Agreement.This agreement, worth in excess of£600m, spans 4 years and equates toapproximately 700nKm of risers andflowlines. Towards the end of 2008, theGroup was awarded two major contractsunder this agreement. These contractshave a value of some £90m, and coverthe supply of flexible risers and flowlinesfor the Cachalote and Barracuda projects.These awards will contribute significantlyto production in Niterói during 2009and are a tangible demonstration of thecollaborative relationship that Wellstreamenjoys with its largest customer.

Wellstream’s continuing innovation intechnology led directly to the award oftwo significant projects in 2008. The first,to develop a flexible riser for the initialproduction from the Petrobras Sub-SaltTupi field and the second, to supply anultra high pressure riser for AnadarkoPetroleum’s Caesar Tonga developmentin the Gulf of Mexico. These applicationseach represent a step change for theindustry and demonstrate our abilityto provide solutions for increasinglycomplex deepwater developments.

Other major awards during the yearincluded the flowlines and risers for theMaersk Oil Dumbarton project for theNorth Sea.

The Group achieved awards whichtranslated into a closing backlogat 31 December 2008 of £331.4m(31 December 2007 – £335.9m).

Wellstream has a clearly defined QualityPolicy which was re-issued in 2008 to allemployees. The Policy is aligned withbest practice in quality management andwith the management system standardISO 9001:2000 and API Spec Q1 whichprovides the framework and arrangementsfor attaining excellent business performanceand ultimately achieving high levels ofcustomer service and quality.

Customer satisfaction is measured thougha comprehensive feedback questionnaireissued at the end of individual projects.The feedback received is collated andactions implemented to address anyissues raised, by means of the QualityManagement System. The Group’soperations are regularly audited by Lloydsas part of ISO 9001:2000 accreditationand by customers as part of normalbusiness activities.

SEASTREAM AND THEPYRENEES PROJECTSeastream, our 50:50 joint venturewith Sea Trucks Group, continues to bewell received by customers, enhancingWellstream’s product offering by providingflexible pipeline products on an installedbasis. Seastream won its first contract,worth £100m, with BHP Billiton in July2007. This contract, for the supply andinstallation of flexible flowlines to thePyrenees FPSO, is progressing onschedule with engineering completeand all major sub-contracts in place.Attention is now substantially focusedon the mobilisation of the constructionvessel Jascon 25 in Singapore.

CUSTOMERSCHIEF EXECUTIVE’S REVIEW:


The vessel has completed successfulsea trials and loading out of the majorequipment for the project. The recentlycompleted flexible pipelay equipmentowned by Wellstream will be installedonboard the Jascon 25 later in theinstallation campaign. On arrival Seastreamwill commence work with the mooringand turret installation followed by themanifolds and installation of theWellstream flowlines and risers.

Early 2008 also saw the successfulcompletion of the flexible pipe installationcampaign offshore Brazil for Devon Energy’sPolvo field. The work was performedusing a vessel mobilised from the NorthSea and underscored Wellstream’sconcept of providing low cost solutionsby selecting the appropriate vessel fromthe available market.

Seastream is currently tendering severalmajor projects in Brazil, West Africa andthe Asia Pacific Region.

ONSHOREWellstream’s 6 inch FlexSteel product hasquickly become the solution of choice fora growing number of operators. Althoughdesigned to fill a void in the pipeline marketfor a larger diameter spoolable product,acceptance in the market has been morerapid than anticipated. This productprovides a reliable, high quality, costeffective and commercially attractivealternative to the steel line pipe whichhas historically dominated the market.

The feedback from our customers hasbeen very positive and this has confirmedthe belief that the larger diameter spoolableproduct provides an attractive alternativesolution to the labour and equipmentintensive rigid steel pipeline installation.

The sales product mix for 6 inch pipe hasgrown from 33% for the first six monthsof 2008 to 52% for the last six months ofthe year. It is expected that the demandfor this product will continue to growand contribute in excess of 60% ofonshore sales in 2009.

The customer user list for 2008 includesonshore industry leaders Chevron, Encana,ExxonMobil as well as Williams, XTO,Husky, Penn West, Penn Growth andPenn Virginia. PEMEX and PDVSA havealso become key customers particularlyfor pipeline refurbishment applications.

WELLSTREAM’S 6 INCHFLEXSTEEL PRODUCT HASQUICKLY BECOME THE SOLUTIONOF CHOICE FOR A GROWINGNUMBER OF OPERATORS.

Images (left to right): offshoreinstallation; Pyrenees field layout;Pyrenees installation vessel;onshore Flexsteel installation.

20/21

ORGANISATIONThe main area of growth has been inBrazil, primarily to support executionof pipe production and completion asthe plant moved into its first full yearof production and 24/7 operations.Throughput increased from 52nKmin 2007 to 127nKm in 2008.

In the UK manufacturing operationsin particular have benefited from theContinuous Improvement drive tobecome “Leaner” across the business.

ENTERPRISE RESOURCEPLANNING (ERP) SYSTEM2008 saw the successful “go-live” ofPhase 1 of the Group ERP Project in theUK. Finance, Inventory and Procurementsystems were replaced and integratedwithin the new system. The system isalready showing benefits in terms ofeffective information processing and costmonitoring. Phase 2 of the project is wellunderway, encompassing engineering,manufacturing and scheduling functions.The Group is also embarking on the rollout of ERP into Brazil.

KEY PERFORMANCEINDICATORS (KPIs)Wellstream implements performancemanagement throughout the business.At the start of every year the criticalsuccess factors are reviewed and keyperformance indicators are set for theGroup. Naturally, as the businessenvironment changes so may the criticalsuccess factors and associated KPIs.The Board approves these KPI targetsat the beginning of the year and monitorsand assesses performance against thesethroughout the year. These KPIs arecascaded throughout the business andmore detailed KPIs are also created thatalign with geographical centres andbusiness functions.

These KPIs drive the appropriate focusin the Group and the top 7 KPIs for 2008were as above.

(1) EBITDA is defined as operating profit beforedepreciation and amortisation.

(2) Offshore Margin growth measures the profitabilityof offshore projects in the year. It is calculated bydeducting material, transportation and other projectcosts from revenue on a contract by contract basis.

(3) On-time material receipts are important in ensuringminimal interruption to production. We measure anydelay to the planned production that results directlyfrom delayed material receipts and this is calculatedas a proportion of production hours available.

(4) Throughput is measured in normalised kilometres(nKms) as a measure of capacity utilisation.

(5) The KPI for technology was changed in 2008 to reflectreturn on research effort which gives a more meaningfulmeasure than the number of patents filed. The measureis new 2008 work revenues or cost savings arising fromdevelopment work in the period 2004-2007 divided by2008 projected internal/external non-staff spend.

(6) Offshore orders are the value of future revenue added tobacklog on receipt of a customer order. It is a measureof the rate at which we win new business.

(7) The HSEQ measure is a leading indicator, “Percent Safe”.It is based on audits that are carried out over 200 daysin the year which specifically measure adherence tojob risk evaluation and the wearing of appropriateprotective equipment.

ORGANISATIONCHIEF EXECUTIVE’S REVIEW:

BUSINESS AREA KPI MEASURE

FINANCIAL DELIVERY EBITDA Growth (Group) (1) 68.7% increase on 2007

PROJECT MANAGEMENT Offshore Margin (2) 49.1% increase on 2007

SUPPLY CHAIN Material Receipts (3) 99% on-time delivery

MANUFACTURING Throughput (4) 27% increase on 2007

TECHNOLOGY Return on research effort (5) 7.6

SALES AND BUSINESSDEVELOPMENT Offshore orders (6) 1.3% decrease on YE 2007

HSEQ “Percent Safe”greater than 95% (7) 97%


WELLSTREAMIMPLEMENTSPERFORMANCEMANAGEMENTTHROUGHOUTTHE BUSINESS.

22/23

WE HAVE ENGAGED ALLOF OUR KEY SUPPLIERSON THE SUBJECT OF THEIRCHANGING ENVIRONMENTAND CONTINUE TO CLOSELYMONITOR THE SITUATION.


GIVEN THE ECONOMICCHALLENGES IN THE LATTERHALF OF 2008, EVALUATIONOF RISKS AND UNCERTAINTIESHAS TAKEN ON EVEN GREATERPROMINENCE ACROSS OURBUSINESS. OUR FOCUS RANGESFROM HIGH AND LOW LEVELSUPPLIERS TO OUR INTERNALOPERATIONS AND INTERFACESWITH CUSTOMERS IN BOTHTHE ACQUISITION ANDEXECUTION ARENAS.

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-project basisand the operations are reviewed monthlythrough formal processes.

At the corporate level, Wellstream’sexecutive team regularly perform a riskmapping exercise which is reviewed withthe Board and the Audit Committee. Thisincludes an assessment of operational,financial, strategic, compliance andenvironmental risks and mitigatingactions. Key risks highlighted at 2008year-end include:

PETROBRAS IS A KEYCUSTOMER OF WELLSTREAMPetrobras commands a significantproportion of Wellstream’s business.The Framework Agreement gives theGroup a level of certainty of demand.Through close dialogue with Petrobrasat all levels a plan of future projects ismaintained with a typical look ahead of12 months; this plan is regularly updatedas Petrobras’ requirements firm up.

Wellstream continues its drive to diversifythe customer base both in Brazil andinternationally with renewed focus onAsia Pacific and West Africa in particular.

SUPPLY CHAIN ANDINCREASED VOLATILITYRisk in the supply chain has taken on anincreased significance as the economicdownturn took hold in 2008 and lines ofcredit have become less accessible forsuppliers of all tiers. We have engaged allof our key suppliers on the subject of theirchanging environment and continue toclosely monitor the situation. Wellstream’ssupply chain is critical to the operationand for certain material types there aresole source vendors for which the risk iselevated. Wellstream has adopted a veryopen approach with vendors to anticipateany challenges and mitigate them at theearliest opportunity. These challenges aremitigated by having a clear and flexiblesupply chain strategy in place, whichcontinually monitors material levels, vendorperformance and their financial status.The continual development of commercialrisk and reward arrangements and, whereappropriate, the establishment of effectivelong term vendor frame agreementsremain an integral part of the supplychain strategy.

RISK ANDUNCERTAINTIES


CUSTOMER CONCENTRATIONWellstream’s business is founded ona relatively small number of high valuecustomers including Petrobras. If requestedproject lead times from these customerschange significantly, revenue and marginperformance could be put at risk. In orderto mitigate this, Wellstream continues tobroaden its customer base, develop newrelationships in selected regions andapply the principle of focused accountmanagement to its strategically targetedcustomer base.

VOLATILITY OF THEOIL AND GAS INDUSTRYThe 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 reductionin oil and gas prices and/or a reduction inbusiness confidence or continued volatilityas seen over recent months 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.

LIQUIDITY RISKThe Group’s Offshore business necessitatesit trading with a limited number of customersand acceptance of the credit risk arisingfrom a number of large contracts withthese customers. The Group contractsits business in such a way that it receivesregular stage payments from its customersthat are appropriate to the stage ofcompletion of the contract. This paymentprofile is approved by senior managementin advance of accepting a contract andis monitored subsequent to acceptanceat regular intervals. This approach, theGroup’s banking arrangements discussedin the Financial Review and its customerprofile which consists largely of nationaland international oil companies with wellestablished and substantial credit histories,significantly mitigates both credit andliquidity risk.

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RISK ANDUNCERTAINTIES



INTRODUCTIONWellstream is a global organisation workingin an industry which has a significantinfluence on both human and naturalresources. Corporate social responsibilityextends across all boundaries and formsa framework within which we operate. Asan organisation, our core values are trust,integrity, tenacity and clarity. These valuesensure we remain focused on meeting ourresponsibilities not only to our stakeholders butalso to the communities in which we work.

Wellstream’s Community Investmentprogramme is an established part ofWellstream’s operations. The programme isoperated in line with the Company’s visionthat it should provide access and supportfor young people to develop their talent,whether that talent be academic, sportingor entrepreneurial in nature. In 2008,the programme continued to grow andsupport increasing numbers of organisationsand was again allocated specific fundsas part of the budgeting process.

UKThe Group has continued to supporta wide number of local and nationalorganisations. Charities include the GreatNorth Air Ambulance, St Oswalds Hospice,Save the Children, Walker Central FootballClub and Sir Bobby Robson’s Foundation.

We are actively involved in YoungEnterprise North East which facilitatesschools and businesses working togetherto promote enterprise as an achievablecareer path for all young people, whatevertheir background. Chris Braithwaite(executive director) is also a directorof this organisation.

In 2008 Wellstream continued to buildon its links with all levels of educationrecognising, in particular the need forindustry to become involved at an earlystage to ensure young people are awareof the opportunities available in engineeringand offshore based industries. Specifically,Wellstream sponsors a PhD student atSunderland University, a KnowledgeTransfer Partnership student at Newcastleupon Tyne University and sponsoredstudent prizes at Newcastle upon TyneUniversity Business School.

BRAZILThe Group continues to support the Ilhada Conceição kindergarten located in alocal community in need and has donatedcomputers both to a local hospital and akindergarden.

In a separate project the Group hasalso donated water pipelines to thecommunity to increase the availability ofwater to houses with no running water.

USAUSA employees continue to generouslysupport a number of charitableprogrammes including: the UnitedWay charity scheme through voluntarypaycheck deductions matched byWellstream; support of various charitableprogrammes aiming to provide resourcesto under-privileged children; and inPanama City, they support the Walkof Dimes which is an annual charitywalk in aid of disabled children.

26/27

CORPORATESOCIALRESPONSIBILITY


HSEQThroughout 2008, the Group retainedits focus on health and safety, quality andenvironment, monitoring performanceagainst the policy objectives set for 2008by the Chief Executive Officer. The primaryconcerns have been to reduce thepotential for incidents by increasing focuson preventative measures, awarenessthrough training and improvement inenvironmental management. We arepleased to have consolidated the realimprovements in key metrics on whichwe reported last year.

The Group has an HSEQ Committeewhich is chaired by the Chief OperatingOfficer and consists of management andmanufacturing representatives, Supervisors,Safety Representatives and members ofthe HSEQ department. The purpose ofthe Committee is to review and discussissues affecting HSEQ performance. TheCommittee also provides an opportunityto share learning and “best practice” andforms part of the communication cascadeon issues relating to HSEQ.

The Group has a proactive attitude towardshealth and safety within the work place.The Company’s Health, Safety & QualityPolicy statements were revised significantlyin 2008 and approved by the CEO andBoard and circulated to all employees.The revised policies are designed to ensuremaximum understanding of the guidingprinciples and expectations associatedwith effective HSEQ management.

PERFORMANCEThe Group has continued with its“Journey to Zero” campaign, launchedin 2007 to embed safety into the Group’sorganisational culture, based on thebelief that all accidents and incidents arepreventable through focusing on behaviour.

Whilst a small number of injury incidentswere recorded in 2008, some of whichresulted in lost working time, it is pleasingto note that none of the incidentsrecorded was considered severe.

The Group is committed to maintainingthe profile of this programme as the keyto its success is the involvement andunderstanding at all levels within theorganisation enhancing behavioural change.

All risk observations, near missesand incidents are recorded within theorganisation and analysed on a continuousbasis to understand their root causes andput in place corrective actions to avoidreoccurrence.

2008 has seen the successful rollout ofa number of initiatives under the Journeyto Zero banner and these have included:

Introduction of “Percent Safe”(behavioural safety audits) into dailywork routines. This has now beenadopted as a prime KPI in the business

Rollout of the revised globalHSEQ operating system and localmanagement systems

Overhaul of occupational healthprovision in Newcastle upon Tyneand Niterói including the recruitment ofin-house occupational health advisorsand the allocation of dedicatedoccupational health suites. This not onlyenables regulatory testing to be carriedout on site with minimum disruption andeffective handling of health problemsbut also the delivery of proactive“well man/woman” health campaigns

Coninued overleaf.


THROUGHOUT 2008,THE COMPANY RETAINEDITS FOCUS ON HEALTHAND SAFETY, QUALITYAND ENVIRONMENT.

Introduction of “Deal With It”, “NearMiss” and Risk Observation Reportingprocesses

Launch of “Attitude Positiva” in Brazil,disseminating information on health,nutrition and other issues to employeesby means of an internal newsletter

In April 2008, all of Wellstream’s globaloperations received awards from the UK’sRoSPA (Royal Society for the Preventionof Accidents) for excellence in safetyperformance. These Awards recogniseand celebrate the achievement of a veryhigh standard of health and safety atwork and are one of the major industryawards in this area. Wellstream securedgold awards in Newcastle upon Tyne andBrazil with a silver award in North America.This was an excellent achievementparticularly as Brazil was still in its firstyear of operation.

QUALITY ANDCONTINUOUS IMPROVEMENT2008 has seen the rollout of ‘the WellstreamWay’, a Continuous Improvement (CI)programme implementing “lean” principles,throughout the organisation. The traininghas introduced new tools, techniques andterminology and awareness for all that itis acceptable to challenge the norm.The rollout of “lean” is evident throughoutthe organisation as daily meetings focuson improvements.

There have been some significantimprovements highlighted so far in termsof increased capacity and a reduction ofmany wastes. The CI tools and techniquesare being applied equally to the supportingfunctions and the elimination of wasteand rework is a goal for all operations.

ENVIRONMENTThe Company is committed to makeevery effort to minimising its environmentalimpact. Resource conservation andpollution prevention principles areintegrated into our business processes,facilities, operations and products.The Group’s environmental policystatement was revised in 2008 andre-issued to all employees by the CEOwho has responsibility at Board levelfor the Group’s environmental policies.

All the Group’s operations comply withthe relevant regulatory requirementsapplicable to its business. In 2008 therewere no environmental incidents at any ofthe Group’s facilities/operations. It is theGroup’s policy that all its operations arealigned to ISO 14001. Currently the UKoperations are certificated to ISO 14001,and Brazil and USA will go through thecertification process in 2009.

The Group has made good progressagainst the environmental objectivesfor 2008:

The Group acknowledges that forall organisations the identification ofcarbon producing activities and thequantification of emissions is the firststep to an effective climate changestrategy. An independent assessorTNEI Services Ltd was commissionedto undertake two reports, an EnergyAudit and Carbon Footprint studyat the Company’s Newcastle uponTyne operations. The energy auditinvestigated the possibilities of improvingenergy efficiency for the factory andoffice areas and identified a number ofareas where significant benefits couldbe obtained. Of note was the fact thatthe report concluded that Newcastleupon Tyne’s energy usage was alreadyin line with what is considered goodpractice. However with identifiedefficiency savings and a focus onbehaviour, Wellstream has in place atarget to reduce energy consumptionper nKm of pipe manufactured by10% in 2009.

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CORPORATESOCIALRESPONSIBILITY


The carbon footprint report has beenused to set a baseline for monitoringprogress in carbon reduction andmanagement, and showed that thecarbon footprint for Wellstream, relatingto the year to 31 December 2007 was7,273 tonnes CO2e (excluding shippingcosts). In 2009 the aim is to developthe carbon measuring process andestablish a global understanding of theWellstream ‘footprint’. 2009 includesthe introduction of a green travel plan,which will see the use of trains prioritisedover air travel where practicable fordomestic travel and use of videoconferencing to avoid internationalair travel. In 2008, Wellstream’s UKoperations joined the UK Government’sCycle Scheme which supports cyclingto work and there has been anencouraging take up of the scheme.

Sustainability training for employees atall levels and functions of the Companyhas commenced and will be completedin Q2 2009.

Elsewhere Wellstream has actively adoptedenvironmental best practice as part of thecapacity expansion plans in both Newcastleupon Tyne and Niterói. In the former, areview of ECO design principles resultedin the use of heat pump technology asopposed to traditional air conditioningsystems to reduce energy usage;

installation of an additional heating coilin domestic hot water cylinders forconnection to future solar heating panels;a heat reconvert plate in the ventilationair handling plant; passive ventilation torelieve smoke and high efficiency gas firedcondensing boilers. Use of photocells andmotion detectors for lights has also beeninstalled throughout the offices. A largescale recycling programme has also beenintroduced as part of the expansion plan.

Wellstream operates a formal managementreview process for monitoring andevaluating HSEQ performance. Thisprocess also includes consultation withappropriate stakeholders. The HSEQmanagement systems and processes areaudited and certificated by Lloyds RegisterQuality Assurance across the Group.

ETHICAL TRADING POLICIESWellstream has a robust businessconduct policy that ensures the Companytrades legally, fairly, openly, honestly andwith transparency in all dealings. Thepolicy is highly visible and governs theactions of all employees in the conduct ofWellstream’s business and in respect ofthe Company’s dealings with customers,suppliers, clients, contractors andintermediaries. The Group’s businessconduct policy covers gifts and hospitality,international business relationships,conflicts of interest, confidential informationand the reporting of misconduct.

The Group is committed to following astringent fraud and anti-corruption policyto ensure all business is conducted in alegal, fair and honest manner. This policygoverns the actions of all employees andis accessible to all. The Company will nottolerate fraud, corrupt, dishonest or illegalactivity amongst employees, customers,suppliers or intermediaries.

Wellstream also operates under theguidance of a whistle blowing policy. Thewhistle blowing policy states the courseof action an employee should take if theyhave concerns. All policies are availableto view on the website.www.wellstream.com

Gordon ChapmanChief Executive Officer16 March 2009


IN 2008 THERE WERE NOENVIRONMENTAL INCIDENTSAT ANY OF THE COMPANY’SFACILITIES/OPERATIONS.

30/31

OVERVIEWRevenue for the year ended 31 December2008 increased by 38.7% to £369.9m(2007: £266.8m). Resulting OperatingProfit increased by 70.3% to £81.0m(2007: £47.6m) which generated Profitbefore Taxation of £77.5m (2007: £41.7m)and diluted earnings per share of 52.3p(2007: 31.6p).

REVENUERevenue for the year ended 31 December2008 totalled £369.9m (2007: £266.8m).

The offshore business, which represented96.3% of the Group revenue in the year,grew by 39.3% to £356.2m (2007:£255.6m). The effect of the first full year’soperation in our facility in Brazil, a 7%increase in average revenue per nKmof pipe and initial installation revenuesfrom our Seastream JV were the mostsignificant factors behind this growth.

The Onshore business grew by 22.7%in the period largely driven by successfulnew product introductions.

GROSS MARGINDuring 2008 there was significant volatilityin raw material pricing which resulted ina much increased cost base over theyear, the impact of this on gross marginwas alleviated by increased pricing in theperiod. Other direct costs increased by47% in the period reflecting increasedactivity, a full year’s operating activityin Brazil and recognised costs from theSeastream JV. Overall, gross marginin the year increased by 2% to 31.8%(2007: 29.8%).

OPERATING PROFITOther operating and administration costsincurred during the year of £37.8m (2007:£33.0m) also reflect a full year’s operationin our facility in Brazil. Resulting OperatingProfit for the year was £81.0m (2007:£47.6m) an increase of 70.3%.

FINANCING COSTSNet financing costs incurred duringthis year totalled £3.5m (2007: £5.8m).Reduced net debt during the first half ofthe year and lower interest rates in thesecond half, when the demand fromworking capital and capital expenditureincreased, contributed to the year onyear reduction. The 2007 comparativewas influenced by the pre-IPO financialstructure and currency fluctuations thereon.

PROFIT BEFORE TAXATIONProfit before taxation increased by 85.6%to £77.5m (2007: £41.7m) though it isworth noting that the correspondingfigure for 2007 included a net £3.1mof one-off cost arising from the IPO.

TAXATIONThe effective rate of taxation for theGroup was 30.5% (2007: 30.5%).Increased profits in Brazil, which aretaxed at 34%, a reduced UK corporationtax rate and a favourable tax regime inthe UK for research and development,underlie the 2008 rate.

An additional one-off deferred taxationcharge of £1.1m has been taken in theyear to reflect the abolition of capitalallowances on Industrial buildings.

FINANCIALREVIEW

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008FINANCIAL REVIEW

EPSEarnings per share for the year ended31 December 2008 was 52.9p (2007:31.8p) and diluted earnings per sharewas 52.3p (2007: 31.6p). The one-offdeferred taxation charge discussed aboveadversely impacted 2008 earnings pershare by 1.1p, similarly one-off costsarising from the IPO adversely impactedthe corresponding figure by 3.1p.

DIVIDENDThe Company announced a maideninterim dividend of 4p in August andpropose a final dividend of 6p per share.If approved, the final dividend will bepayable on 12 June 2009 to shareholderson the register at close of business on22 May 2009.

OPERATING CASH FLOWCash flow from operations was£49.5m (2007: £32.7m). Working capitalrequirement increased by £41.1m (2007:£24.6m) driven by activity, additionalinventory carried in Brazil to facilitatethe capacity expansion, an increasein the value of construction contractsin progress and an increase in customerdebtor days to 76 days (2007: 68 days).

After income tax payments in the year of£10.0m (2007: £4.5m) and net interestcosts of £3.2m (2007: £3.1m) resultantnet cash increase from operating activitieswas £36.3m (2007: £25.1m).

CAPITAL EXPENDITUREExpenditure on capital projects duringthe year totalled £54.2m (2007: £16.7m).Significant spends included the expansionplan in both Brazil and the UK whichwhen completed in Q1 2009, will havecost some £38m, additional reelsrequired to support increased volumepost expansion and expenditure onLay Spread equipment required forthe Group’s installation activities.

FINANCING ACTIVITIESDuring the year the Group has utilisedan additional £13.0m of its bank facilitiesand a further £5.9m has been drawnunder an ICMS (sales tax) loan programmewith the Rio State Government. TheCompany paid its maiden interim dividendof £4.0m in 2008.

NET DEBTNet debt at 31 December 2008 was£65.8m (2007: £46.7m). Total debtavailable to the Group is £107.2m, which,after allowing for performance bonds,guarantees, cash balances held overseasand the Group’s share of cash heldin JV’s, leaves the Group with £17.1m(2007: £26.0m) of available headroom.

TREASURY & FINANCIAL RISKThe Group’s day-to-day cash requirementsand its capital investment programme arefinanced through a £96.9m revolvingcredit facility that was increased by £15mduring the year. Short term fixed interestrate loans, normally over a period of lessthan 3 months, form the significant part ofthe drawn-down facility with the balancebeing carried at variable interest rates.This facility reduces at the end of each sixmonth period, the first of which occurredin November 2008, until its expiry in May2013. The Group also has a facility todraw down up to £22.5m with the Riostate government, to date £10.3mhas been utilised.

REVENUE FOR THE YEARENDED 31 DECEMBER2008 INCREASED BY38.7% TO £369.9M.

FINANCIALREVIEW

32/33

THE GROUP’S CUSTOMERPROFILE CONSISTSLARGELY OF NATIONALAND INTERNATIONALOIL COMPANIES WITHWELL ESTABLISHEDAND SUBSTANTIALCREDIT HISTORIES.

Although a substantial part of the Group’srevenue and profit is earned outside theUK, subsidiaries generally trade in eitherlocal currency or Sterling. As a result, theGroup is not normally exposed to significantforeign exchange transactional risk.Occasionally the Group does generaterevenue in a third party currency and,where this occurs, the potential risk isassessed against any natural hedges thatexist within the Group before any financialhedges are considered. The Group alsohas an exposure to foreign currency thatarises upon the translation of overseasresults into Sterling.

The Group did not hold any financialinstruments to hedge either currency orinterest rates at the year end or the dateof the report though it is anticipated thatincreased activity in Brazil will necessitatethe hedging of consequent currencyexposures that may arise.

The nature of the Group’s offshorebusiness necessitates it trading witha limited number of customers andacceptance of the credit risk arisingfrom a number of large contracts withthese customers. The Group contractsits business in such a way that it receivesregular stage payments from its customersthat are appropriate to the stage ofcompletion of the contract. This paymentprofile is approved by senior managementin advance of accepting a contract and ismonitored subsequent to acceptance atregular intervals. This approach and theGroup’s customer profile which consistslargely of national and international oilcompanies with well established andsubstantial credit histories, significantlymitigates the risk of financial lossfrom default.

GOING CONCERNThe directors have considered currentbusiness conditions, internal planningand control procedures, financial riskssummarised above and identified inthe Chief Executive’s Review on pages 7to 29; in particular the Group’s exposureto Brazil and a small number of significantcustomers and, whilst acknowledgingeach carries with it some uncertainty, thedirectors have a reasonable expectationthat the Company and the Group haveadequate resources to continue inoperational existence for the foreseeablefuture. For this reason, the directorscontinue to adopt the going concernbasis in preparing the accounts.

Chris GillFinance Director16 March 2009

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008FINANCIAL REVIEW

Image right: crawler crane at Niterói.Image bottom right: buoyancy module for flexible riser.Image below: offshore installation.

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JOHN W KENNEDYCHAIRMANMr. Kennedy, aged 59, joined Wellstream in2003 as Chairman. Mr. Kennedy has over30 years of experience, holding executivepositions in Halliburton, Brown & Root andDresser Enterprises. In 1993, Mr. Kennedyreceived the Sloan Fellowship, LondonBusiness School and also holds a M.Sc.,B.E. and C.Eng. from University CollegeDublin. Mr. Kennedy is currently a directorof the United Kingdom Atomic EnergyAuthority, Integra Company, MaxwellDrummond International Ltd, HydrasunHoldings Ltd, Bifold Fluid Power Ltd, andalso acts as an advisor and a consultantto several oil field service companies.

GORDON CHAPMANCHIEF EXECUTIVE OFFICERMr. Chapman, aged 58, originally joinedWellstream in 1991 and is now theCompany’s Chief Executive Officer havingled the Management Buy-Out in 2003. Hehas over 30 years of experience in the oilfield services sector, including 15 yearswith Wellstream. Prior to joining Wellstream,Mr. Chapman worked on pipeline projectsin South America, India, the Caribbean,Nigeria and the North Sea. He is achartered civil engineer with a degree inCivil Engineering from Salford University.

CHRISTOPHER BRAITHWAITECHIEF OPERATING OFFICERMr. Braithwaite, aged 52, joined Wellstreamin August 2004 as Chief Operating Officer.He has over 25 years of experience inproject management, engineering andmanufacturing businesses in companiesincluding Halliburton/Brown & Root andABB. He has a B.Sc. (Hons) degree inCivil Engineering from the University ofSurrey and a M.Sc. degree in BusinessAdministration & Project Managementfrom Cranfield School of Management.He is chairman of Subsea NE and deputychairman of NOF Energy, both industrybodies. He is also a director of YoungEnterprise North East.

CHRIS GILLFINANCE DIRECTORMr. Gill, aged 46, joined the Companyas Finance Director on 7 January 2008.He qualified as a Chartered Accountantin 1988 with Ernst and Whinney andhas a B.Sc. in Mining Engineering fromNewcastle upon Tyne University. He hasover 20 years of financial experienceacross a diverse range of businesses,most recently as Finance Director at theNoble Organisation and domnick hunterGroup plc and prior to that in Black andDecker Corp. He is a non-executivedirector of Stadium Group plc and aboard member of the North of EnglandIndustrial Development Board.

LUIS ARAUJOEXECUTIVE DIRECTORMr Araujo, aged 50, joined the Companyon 21 June 2004 as President ofWellstream Brazil. He has over 26 yearsof experience in the industry workingas a general manager for ABB Groupand in engineering, project managementand sales for Coflexip, Vetco and FMCTechnologies. He has a degree inmechanical engineering and an MBAfrom Edinburgh University.

BOARD OFDIRECTORS

WELLSTREAM HOLDINGS PLC

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008BOARD OF DIRECTORS

SIR GRAHAM HEARNE CBESENIOR INDEPENDENTNON-EXECUTIVE DIRECTORSir Graham, aged 71, joined Wellstreamin 2003 as an independent non-executivedirector. Sir Graham’s appointment wasrenewed in April 2007 under a letter ofengagement for a period of three years.Sir Graham practiced law before takinga number of senior executive positions,including Chief Executive of EnterpriseOil. Sir Graham is currently non-executiveChairman of Braemer Shipping ServicesPLC, Catlin Group Limited and StraticEnergy Corporation. He is a non-executivedirector of N.M. Rothschild & Sons Ltdand Rowan Companies, Inc.

NEIL GASKELLINDEPENDENT NON-EXECUTIVE DIRECTORMr. Gaskell, aged 60, joined Wellstreamin March 2007 as an independentnon-executive director. Mr. Gaskell wasappointed under a letter of engagementfor three years. Mr. Gaskell has 25 yearsof experience in senior managementroles at various Shell companies includingfrom 2000 to 2003 as Group Treasurer,responsible for all financing policies, fundingand risk management. Mr. Gaskell iscurrently Chairman of Aberdeen All AsiaInvestment Trust PLC and a non-executivedirector of several companies includingIntegra Group in the oil and gas industry.Mr. Gaskell is a fellow of the Associationof Chartered Certified Accountants andhas a B.A. in Philosophy and Economicsfrom the London School of Economicsof which he is also a Governor.

FRANCISCO GROSINDEPENDENT NON-EXECUTIVE DIRECTORMr. Francisco R. Gros, age 66, has been adirector of the Company since March 2007.Mr Gros was appointed under a letter ofengagement for a period of three years.Mr. Gros is non-executive Vice Chairmanof OGX Petroleo e Gas Participacoes S.A.,a Company involved in the exploration ofoil and gas reserves in Brazil. PreviouslyMr. Gros was President and Chief ExecutiveOfficer of Fosfertil from 2003 to 2008. Inaddition, Mr. Gros was President and ChiefExecutive Officer of Petróleo BrasileiroS.A. from January 2002 to December2002, and President and Chief ExecutiveOfficer of the Brazilian Development Bankfrom 2000 to December 2001. Previously,Mr. Gros was also a Managing Director ofMorgan Stanley from 1993 to 2000, andwas Governor of the Central Bank on twooccasions, in 1987 and from 1991 to 1992.Mr. Gros is also the Chairman of the Boardfor Wilson Sons Ltd. and serves on theBoards of Globex Utilidades S.A., EDP-Energias do Brasil S.A., Lojas Renner,Fosfertil, and Agco Corp. Mr Gros hasa B.A. (cum laude) from the WoodrowWilson School of Public and InternationalAffairs at Princeton University.

PATRICK M MURRAYINDEPENDENT NON-EXECUTIVE DIRECTORMr. Patrick Murray, aged 66, joinedWellstream in July 2007 as an independentnon-executive director. Mr. Murray wasappointed under a letter of engagementfor a period of three years. Mr. Murrayhas 25 years of experience in seniormanagement positions, most recentlyas Chairman of the Board and CEO ofDresser, Inc. Mr. Murray holds a B.S.degree in Accounting and a Master ofBusiness Administration from Seton HallUniversity. Mr. Murray is on the Board ofDirectors of Harvest Natural Resources,Inc., Precision Drilling Corporation,Rancher Energy Corp., the MaguireEnergy Institute, the World Affairs Councilof Dallas/Fort Worth, and the Boardof Regents of Seton Hall University.

Board of Directors (left to right): John W Kennedy,Gordon Chapman, Christopher Braithwaite, Chris Gill,Luis Araujo, Sir Graham Hearne, Neil Gaskell,Francisco Gros, Patrick M Murray

THE RELEVANT DISCLOSURES ABOVE HAVE BEENREVIEWED BY EACH DIRECTOR AND ACCURATELYDISCLOSE THE MAIN COMMITMENTS TAKING UPTHEIR TIME

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WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008DIRECTORS’ REPORT

DIRECTORS’REPORTPRINCIPAL ACTIVITIESThe principal activities of the Group continue to be the design and manufacture of bespoke flexible pipeline products andsystems for the oil and gas industry.

The subsidiary and jointly controlled undertakings principally affecting the profits or net assets of the Group in the year arelisted in note 14 to the financial statements.

The Group has operations in Newcastle upon Tyne UK, Panama City Florida USA, Niterói Brazil, Perth Australia, and officesin Rio de Janeiro Brazil, Houston USA and Calgary Canada, including a branch in Panama City USA.

BUSINESS REVIEWThe Companies Act 2006 S 417 requires the Company to set out in this report a fair review of the business of the Groupit heads, its development and performance during the year including an analysis of the position of the Group at the endof the financial year and a description of the principal risks and uncertainties facing the Group, “the Business Review”.

The following information detailed in these sections is incorporated by reference and deemed to form part of this report.

• Chairman’s statement on page 5

• Chief Executive’s statement on pages 7 to 29 which contains key performance indicators, principal risks anduncertainties, business performance, future development, trends and strategy

• Finance Director’s report on pages 30 to 33

• Principal risks and uncertainties on pages 22 to 24

• Key performance indicators on page 20

• Environmental, employees and social and community issues on pages 26 to 29

• Information about suppliers and customers essential to the business of the Group on page 39

RESULTS AND DIVIDENDSThe results for the year and amounts transferred to reserves are detailed on pages 58 – 60. A dividend of 6p per share isrecommended by the directors for consideration of the shareholders at the Annual General Meeting on 12 May 2009. Ifapproved, the dividend will be paid on 12 June 2009 to those members on the register at close of business on 22 May 2009.

An interim dividend of 4p per share was paid on 13 October 2008. If the final dividend is approved as recommended,the total ordinary dividend for the year will amount to 10p per share.

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 Committee

Gordon Chapman appointed 13 January 2003Chief Executive Officer (CEO)

Chris Braithwaite appointed 27 August 2004Chief Operating Officer (COO)

Chris Gill appointed 7 January 2008Finance Director (FD)

Luis Araujo appointed 10 March 2009Executive Director

Sir Graham Hearne CBE appointed 18 July 2003Senior Independent non-executive director,Chairman of the Nomination Committee andmember of the Audit and Remuneration Committees

Neil Gaskell appointed 19 March 2007Independent Non-executive director and Chairmanof the Audit Committee

Pat Murray appointed 10 July 2007Independent Non-executive director, memberof the Remuneration and Audit Committees

Francisco Gros appointed 19 March 2007Independent Non-executive director, Chairmanof the Remuneration Committee and memberof the Nomination Committee

Nils Stoesser appointed 13 January 2003Non-executive director and member of theAudit Committee. He resigned on 8 April 2008

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ELECTION AND RE-ELECTION OF DIRECTORSAt the 2008 Annual General Meeting, all of the Board was elected or re-elected by shareholders.

In accordance with Article 76 of the Company’s Articles, Gordon Chapman, Chris Gill and Neil Gaskell retire by rotation at theforthcoming Annual General Meeting and, being eligible, offer themselves for re-election. Luis Araujo, appointed 10 March 2009,resigns and, being eligible, offers himself for election.

The Board believes that all of the directors offering themselves for election or re-election should be elected or re-elected totheir roles because of the contribution they have made to the success of the Group and because their experience is valuablefor the future growth of the Group.

All directors who are due for election or re-election continue to perform effectively in terms of contribution, time commitmentand 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. Directors areappointed by the Company by ordinary resolution at a general meeting of holders of ordinary shares or by the Board on therecommendation of the Nomination Committee. The Corporate Governance Report sets out further details on page 43.

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, asset out in the Notice of Meeting, include resolutions to renew such authorities. The Corporate Governance Report sets outdetails of matters reserved to the Board on page 44.

DIRECTORS’ INTERESTSThe directors who held office at 31 December 2008 had the following interests in the shares and debentures of WellstreamHoldings PLC:

1 January2008or

Description subsequentof shares or 31 December date ofdebentures 2008 appointment

Name of Director Beneficial Non-Beneficial Beneficial Non-Beneficial

John Kennedy* Ord 1p shares 2,140,625 - 4,078,125 -

Gordon Chapman Ord 1p shares 1,300,000 - 2,500,000 -

Chris Braithwaite Ord 1p shares 1,000,000 - 2,000,000 -

Sir Graham Hearne Ord 1p shares 300,000 - 692,250 -

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

Pat Murray Ord 1p shares 18,500 - - -

*Held by Amko Energy SA.

No changes in the interests of directors took place between 31 December 2008 and the date of this report.

DIRECTORS’ SHARE OPTIONSNone of the directors currently hold share options in the Company except under the Performance Share Plan.Details of share option grants are included in the Directors’ Remuneration Report on page 54.

DIRECTORS’REPORT


DIRECTORS’ INDEMNITIESThe directors have the benefit of qualifying third party indemnity provisions and qualifying pension scheme indemnity provisions.

SIGNIFICANT AGREEMENTS – CHANGE OF CONTROLThe following significant commercial agreements contain certain termination and other rights for our counterparties upon achange of control of the Company.

All Petrobras contracts follow their standard terms and conditions which provide for rights on a change of control. Thefollowing 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

• C408 risers for Barracuda / Caratinga

• Petrobras Framework Agreement in excess of £600m over 4 years

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

The Company’s banking arrangements, including the revolving facility and the debenture, have change of control provisions.

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

SIGNIFICANT SUPPLIERS AND CUSTOMERS ESSENTIAL TO THE GROUPIn accordance with the Companies Act 2006, we disclose the following which are considered to be essential suppliersor customers to the business.

SuppliersThe suppliers are either single source suppliers or supply key materials. We have long term supply agreements with thesesuppliers which helps mitigate the risk.

• Bekaert Companies – Global Carbon Steel

• Allegheny Ludlum Corporation – Global Stainless Steel

• Solvay Solexis – Global PVDF

• 3M – Global High Strength Glass Filament Tapes

• Evonik – Global Nylon PA12 Supply

• Trelleborg CRP – Bend Stiffeners

CustomersPetrobras and BHP Billiton are key customers to the business accounting for over 67% of sales.

SUPPLIER PAYMENT POLICYThe Group’s policy, which is also applied by the Company, is to settle terms of payment with suppliers when agreeing theterms of each transaction, ensure that suppliers are made aware of the terms of payment and abide by the terms of payment.Trade creditors of the Group at 31 December 2008 were equivalent to 61 days’ purchases (2007: 45 days), based on theaverage daily amount invoiced by suppliers during the year.

CHARITABLE AND POLITICAL CONTRIBUTIONSDuring the year the Company made charitable donations of £35,000 (2007: £35,000) principally to local charities servingthe communities in which the Company operates.

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

DIRECTORS’REPORT

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SUBSTANTIAL SHAREHOLDINGSOn 2 March 2009 the Company had been notified, in accordance with the Disclosure and Transparency Rules, of thefollowing interests in the ordinary share capital of the Company.

Number of Nature ofName of Holder Shares Percentage Holding

Janus Capital Management LLC 8,543,229 8.57 Direct

Schroder Investment Management (UK) ltd 6,815,006 6.83 Indirect

William Blair & Co Ltd 6,528,897 6.55 Indirect

Invesco Asset Management Ltd 5,435,524 5.45 Direct

BlackRock Investment Management (UK) Ltd 4,506,665 4.52 Indirect

Baillie Gifford Co Ltd 4,377,244 4.39 Indirect

Legal & General Investment Management Ltd 4,340,778 4.35 Direct

DISABLED EMPLOYEESApplications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicantconcerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment within theGroup continues and that appropriate training is arranged. It is the policy of the Group that the training, career developmentand promotion of disabled persons should, 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 keep them informed onmatters affecting them as employees and on the various factors affecting the performance of the Group. This is achievedthrough formal and informal meetings. Employee representatives are consulted regularly on a wide range of matters affectingtheir current and future interests.

ENVIRONMENT AND SOCIAL RESPONSIBILITYThe Group recognises that it is part of the wider community and strives to act responsibly to promote the interestsof the community. Further details of the Group’s approach to these issues are given on pages 26 to 29 of the ChiefExecutive’s Review.


EMPLOYEE SHARE PLANSThe Group is keen to promote employee involvement in the success and growth of the Group. A Sharesave plan is in placeand has been well received with over 75% of staff in the UK participating. It is open to all UK employees who can elect to saveup to £250 per month for 3 or 5 years and may then use the accumulated capital and interest to buy shares at the discountedprice fixed at the beginning of the savings period. An overseas plan equivalent to the UK plan, called the Overseas Sharesaveplan was introduced in 2008 and gives overseas employees rights called “SARs” being an interest in the growth of the shareprice from a discounted price fixed at the beginning of the savings period.

PERFORMANCE SHARE PLANDuring the year executive directors and senior employees were granted nominal cost share options which vest over a threeyear period when certain performance conditions set by the Remuneration Committee are met. Further details are given inthe Directors’ Remuneration Report.

Neither scheme has issued any shares.

RESEARCH AND DEVELOPMENTFurther details are provided in the Chief Executive’s Review on pages 14 and 15.

FINANCIAL INSTRUMENTSInformation about the use by the Company and its subsidiaries of financial instruments is given in note 23.

ARTICLES OF ASSOCIATION AND CAPITAL STRUCTUREThe Company’s Articles may only be amended by special resolution at a general meeting of the shareholders.

The Company’s authorised share capital as at 31 December 2008 was £1,500,000 divided into 150,000,000 ordinaryshares of £0.01 each. The Company’s issued share capital as at that date was 99,642,250 ordinary shares of £0.01 each,each credited as fully paid.

The only change that took place to the share capital of the Company during the year was an issue of ordinary sharesto the Chairman under his contract of engagement as more fully described on page 53.

The resolutions being proposed at the Annual General Meeting include resolutions to allow the Directors to allot ordinaryshares and to dis-apply pre-emption rights in certain circumstances, in line with recent guidance issued by the Associationof British Insurers (the “ABI”). A resolution is also being proposed to increase the authorised share capital of the Companyto allow it to take full advantage of the ability to allot ordinary shares under these resolutions. Further details are set out in theNotice of Meeting and explanatory notes on pages 90 to 97.

The rights and obligations attaching to the Company’s ordinary shares are set out in the Company’s Articles, copies of whichcan 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 agreements known to the Groupwhich might result in such restrictions. There are no shareholders carrying special rights with regard to control of the Company.No shares held by employee share schemes of the Company have rights regarding control of the Group that are not directlyexercisable by employees.

At the Annual General Meeting of the Company on 19 May 2008, the Company was authorised, to purchase up to 9,957,975of its own shares at a price between the nominal value and 105% of the market price. The resolutions being proposed at theAnnual General Meeting include a resolution to renew this authority.

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BUSINESS OF THE ANNUAL GENERAL MEETINGAn explanation of the resolutions is attached to the Notice of Meeting on pages 91 and 92.

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 Group’s auditors are unaware; and

• the director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself awareof any relevant audit information and to establish that the Group’s auditors are aware of that information.

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

On 1 December 2008 the Company’s auditors changed their name from Deloitte & Touche LLP to Deloitte LLP. Deloitte LLPhave expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at theforthcoming Annual General Meeting.

Wellstream Holdings PLCBy order of the Board,

Rob LambCompany Secretary16 March 2009

DIRECTORS’REPORT

CORPORATEGOVERNANCEREPORT

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008DIRECTORS’ REPORT / CORPORATE GOVERNANCE REPORT

STATEMENT OF COMPLIANCEWITH THE COMBINED CODEThe Financial Services Authority requires listed companies to disclose how they have applied, and complied with, theprovisions set out in section 1 of the Combined Code. For the 12 months to 31 December 2008, the Company has compliedfully with the provisions set out in section 1 of the Combined Code, except that one non-independent non-executive directorwas a member of the Audit Committee contrary to C.3.1 of the Combined Code until his resignation on 8 April 2008. TheCompany has been fully compliant since then.

THE BOARDBoard composition and independenceAt the date of this report, the Board of Wellstream Holdings PLC consists of the Chairman, four executive directors and fourindependent non-executive directors. The roles of Chairman and Chief Executive Officer are separate and each has clearlydefined responsibilities.

The Chairman’s main role is to lead the Board, ensuring its effectiveness in all aspects of its role and setting its agenda.The Chairman is also responsible for ensuring that the directors receive accurate, timely and clear information; a processthat will be reviewed annually. Regular presentations are made to the Board on all aspects of the business including Strategy,Health and Safety, R&D, Technology and Risk. The Chairman also ensures that the Company maintains clear communicationwith shareholders, facilitates the effective contribution of non-executive directors in particular and ensures constructive relationsbetween executive and non-executive directors. The Chairman regularly meets the non-executive directors without theexecutive directors being present. The Chairman devotes two days a week to the business of the Group, assisting in framingand developing strategy. Following its review, the Nomination Committee is satisfied that the Chairman is able to dedicatesignificant time to the business and that there has been no change in the level of his commitments since the last review.The Chief Executive Officer is responsible for implementing Group strategy and for managing the Company.

The Board aims to embody an appropriate balance of skills and experience to support the Group’s strategy and performanceand has consequently appointed experienced non-executive directors who bring to the Group a wealth of skills and knowledgeof the oil and gas industry. All of the non-executive directors, Neil Gaskell, Francisco Gros, Sir Graham Hearne and PatMurray 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 could appear to affect,the judgement of these directors. Sir Graham Hearne is recognised as the Senior Independent Non-executive Director andis available to shareholders should they have concerns that cannot be resolved through normal channels with the Chairman,Chief Executive Officer or Finance Director. The independent non-executive directors meet annually without the Chairmanpresent to review the performance of the Chairman.

The non-executive directors are appointed for three year terms under letters of appointment and are entitled to a fee for theirservices. They are not entitled to participate in any of the Group’s share schemes and are not eligible to join the Group’spension scheme. Other than their fees, no non-executive director received remuneration from the Group during the year.

The terms and conditions of appointment of the non-executive directors are available for inspection at the Annual GeneralMeeting or by any person during normal business hours at the Company’s registered office.


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THE ROLE OF THE BOARDThe Board has approved a schedule of matters specifically reserved for the Board’s attention. The types of decisions takenby the Board include the approval of the Company’s strategy and annual budget and financial statements, acquisitions ordisposals, documents sent to the Company’s shareholders, changes in capital structure, dividends and matters relating toits committees and evaluation of risk. Operational decisions are delegated to the Group’s management.

The Board holds ultimate responsibility for the management and success of the Company, developing strategy, scrutinisingperformance and maintaining internal controls and corporate governance. Responsibility for the day-to-day managementof the Group is delegated to the Chief Executive Officer. Further, the Chief Operating Officer is responsible for managingthe operating functions of the Group and customer relations and service. The Chief Executive Officer is responsible for allenvironmental and risk matters together with all employee/HR matters and external stakeholder issues.

All directors are to be appointed via the recommendation of the Nomination Committee chaired by the Senior IndependentNon-executive Director, Sir Graham Hearne. Directors must retire and offer themselves for re-election by shareholders everythree years in accordance with the Articles of the Company.

All directors joining the Company benefit from a tailored induction process familiarising them with the Group and updating theirexisting skills based on reports to the Board, factory visits and briefings from advisers. This training includes environmentaland social issues. Regular Board meetings are held in Brazil and the USA in addition to Newcastle upon Tyne where factoryvisits are also arranged for the directors as well as receiving presentations from business unit heads.

A formal evaluation of the effectiveness of the Board, Board Committees, and of individual directors was carried out duringthe year. The results of the evaluation were reported to the Board.

The non-executive directors are available to meet shareholders through the year to discuss any concerns. No such meetingswere requested or took place during the year.

The Board holds meetings on a regular basis, at least five per year and additionally for specific purposes as and when required.There were fourteen Board meetings in the year to 31 December 2008. Six meetings are scheduled in 2009. The number ofmeetings of the Board and of its committees held during the year is given below, together with the attendance details of eachdirector or committee member:

Audit Remuneration NominationNumber of meetings during the Board Committee Committee Committeeyear ended 31 December 2008 14 3 8 4

John Kennedy 12 N/A N/A 4

Gordon Chapman 13 N/A N/A N/A

Chris Braithwaite 13 N/A N/A N/A

Chris Gill 13 N/A N/A N/A

Sir Graham Hearne 12 3 7 4

Francisco Gros 11 N/A 8 4

Neil Gaskell 13 3 N/A N/A

Nils Stoesser (resigned 8 April 2008) 3 1 N/A N/A

Pat Murray 14 3 8 N/A

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008CORPORATE GOVERNANCE REPORT

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 are on the Company’s website under Investor Relations. Details of each committee,its membership and its terms of reference are summarised below.

Audit CommitteeThe current members of the Committee are Neil Gaskell (Chairman of the Committee), Sir Graham Hearne and PatMurray who are all independent non-executive directors. Nils Stoesser a non independent non executive director wasa member of the Committee until his resignation as a director and committee member on 8 April 2008. Mr Stoesserrepresented Candover on the Board, a major shareholder at the time. All members of the Committee are financiallyliterate non-executive directors and Neil Gaskell is considered to have “recent and relevant financial experience”.

Further details about the Committee are included in the Audit Committee Report on page 48.

Remuneration CommitteeThe Committee comprises Francisco Gros (Chairman of the Committee), Sir Graham Hearne, and Pat Murray, allindependent non-executive directors.

The Committee met eight 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 the awards under the Company’sshare plans and the salary and bonus arrangements based on performance targets agreed by the Committee. Furtherdetails about the Committee and details of the remuneration of directors are included in the Directors’ RemunerationReport on page 49.

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 the re-electionby shareholders of any director under the retirement by rotation provisions of the Company’s Articles of Association. TheCommittee also considers plans that are in place for succession planning, appointments of senior management and reviewsthe balance of skills and experience within the Company.

The Committee comprises Sir Graham Hearne (Chairman of the Committee), John Kennedy and Francisco Gros. A majorityof the Committee are independent non-executive directors.

The Committee met four times during the year to 31 December 2008. It reviewed and approved the evaluation processof the Board, the appointment of an Executive Vice President and a Vice President Business Development both PDMRsas well as a senior staff appointment.

It also reviewed and amended its terms of reference and conducted an evaluation of its own performance which wasfound to be effective. The Terms of Reference are posted to the website.

Conflicts of InterestThe Companies Act 2006 sets out directors’ general duties which largely codify the existing law but with some changes.Under the Companies Act 2006, from 1 October 2008 a director must avoid a situation where he has, or can have, a director indirect interest that conflicts, or possibly may conflict, with the Company’s interests. The requirement is very broad andcould apply, for example, if a director becomes a director of another Company or a trustee of another organisation. TheCompanies Act 2006 allows directors of public companies to authorise conflicts and potential conflicts where appropriate,provided that the articles of association contain a provision to this effect. The Companies Act 2006 also allows the Articlesof Association to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty. The Articlesof Association approved by shareholders at the 2008 Annual General Meeting give the directors authority to approve suchsituations and to include other 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 potential conflict. First, onlydirectors who have no interest in the matter being considered will be able to take the relevant decision and, secondly, intaking the decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’ssuccess. The directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate.


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Conflicts of Interest (continued)The Articles of Association approved by shareholders at the 2008 Annual General Meeting contain provisions relating toconfidential information, attendance at board meetings and availability of board papers to protect a director being in breachof duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position givingrise to the potential conflict has previously been authorised by the directors.

It is the Board’s intention to report annually on the Group’s procedures for ensuring that the Board’s powers to authoriseconflicts are operated effectively.

In accordance with the Companies Act 2006, each director declared any conflicts or potential conflicts for the considerationof the Board as a whole. None was considered material. Other directorships held were authorised by non-conflicteddirectors. There are no related party transactions involving the directors to report. The process of reviewing conflictswill be conducted annually.

ACCOUNTABILITY AND AUDITInternal ControlThe Board is responsible for the Group’s system of internal control. Such a system is designed to manage rather thaneliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assuranceagainst material misstatement or loss.

The Board has monitored the effectiveness of the Group system of internal control during the year and reviewed reportsreceived from the Audit Committee addressing the result of its review of the risk assessment process as a whole. The Boardconsiders the Group system of internal control appropriate and effective.

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

INDICATION OF BUSINESS RISKSKey business risks are recorded and reported against by an executive director who is responsible at Board level for thesematters. Regular reviews and periodic updates with senior executives and management are carried out. This processconsiders the significant risks facing the Group. In identifying significant risks to which the Group is exposed it reviewsthe results of any relevant internal audit work and agrees mitigating action, when possible.

Quality and Integrity of PersonnelThe integrity and competence of personnel is ensured through high recruitment standards and subsequent training courses.High quality personnel and HR management processes are seen as an essential part of the control environment.

Management StructureThe Board has overall responsibility for the Group. The management of the Group as a whole is delegated to the ChiefExecutive Officer and the Executive Directors. Each executive director has been given responsibility for specific aspects ofthe Group’s affairs. A clearly defined organisation structure exists within which individual responsibilities are identified and canbe monitored. The conduct of individual businesses is delegated to the local executive management teams. These teams areaccountable for the conduct and performance of their businesses within the agreed business strategy. Subject to delegatedauthorities, they have full authority to act subject to the reserved powers and sanctioning limits laid down by the Board andto Group policies and guidelines.

Internal AuditThe Group established an internal audit function in September 2007. It has an agreed programme of activities to reviewcompliance with procedures and assess the integrity of the control environment. Internal audit acts as a service to thebusiness by assisting with the continuous improvement of controls and procedures. Actions are agreed in response toits recommendations and these are monitored by the Audit Committee to ensure that satisfactory control is maintained.

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008CORPORATE GOVERNANCE REPORT

Budgetary ProcessA comprehensive budgeting system is in place, with annual budgets for all operating subsidiaries. The combined budgetis subject to consideration and approval by the Board. Management information systems provide the directors with relevantand timely information required to monitor financial performance.

Investment AppraisalBudgetary approval and defined authorisation levels regulate capital expenditure. As part of the budgetary process, theBoard considers proposals for research and development programmes.

Whistle Blowing PolicyThe Group has in place a whistle blowing policy by which concerns may be reported and investigated confidentially.

Through these processes, the Board believes it had an appropriate system of internal controls in place throughout the periodand that the enhanced control environment established during 2007 complies with provision C.2.1 of the Combined Codethroughout 2008.

RELATIONSWITH SHAREHOLDERSDialogue with Institutional ShareholdersMost shareholder contact is with the Chief Executive Officer and Finance Director, however the Chairman, the SeniorIndependent Non-executive Director and other directors as appropriate maintain contact with major shareholders tounderstand their issues and concerns and are available for discussion with shareholders.

EMPLOYMENT POLICIESWe recognise that our employees are at the heart of delivering excellent service to our clients and customers, helping usachieve our objectives.

Wellstream is fast gaining a reputation for being an ‘employer of choice’ within the communities within which we operate.We are enhancing our relationships with universities based on the strength of our relationship with Newcastle University.Our global retention rate for employees is 0.53%, which is well below the industry norm and we are proud of our Investorsin People award, which was achieved in the UK and has been maintained since 2001.

In 2009/10 we plan to expand our graduate scheme to Brazil and the USA, enabling our graduates to experience andcontribute to all Wellstream operating locations.

We have invested heavily in training and development during 2008, with targeted training provision in Health and Safety,Continuous Improvement, ERP System and supervisory level development. We continue to facilitate the transfer of skillsbetween our operating facilities in Newcastle upon Tyne, UK, Panama City, Florida and Niterói, Brazil, to broaden and deepenour experience in manufacturing, and this is proving very successful. Our key development focus in 2009/10 will centreon core competencies and management development.

We are proud of our culture of equal opportunity and diversity within the workplace and which is reflected throughoutWellstream policies.

CONSTRUCTIVE USE OF THE AGMThe Annual General Meeting is to be held on 12 May 2009, and shareholders are encouraged to attend and to raise areasof interest or concern to directors.

Regular reports are made to the Board concerning shareholder’s views and market expectations. Investor road shows havebeen carried out to brief analysts and shareholders on the Group’s activities and information is regularly posted to the website.

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AUDIT COMMITTEEREPORTOVERVIEWThe names and qualifications of the members of the Committee are given in the Corporate Governance Report on page 45and in the directors’ biographies on pages 34 – 35. All members are financially literate, independent non-executive directors,and the Board has determined that Neil Gaskell has relevant financial and audit committee experience. The Committee metthree times during the year and attendance is indicated in the table on page 44. The Audit Committee invites the GroupFinance Director, the Internal Auditor, and the lead partner and other senior representatives of the external auditors to attendall of its meetings. The Committee held two private meetings during the year with the external auditor without the presence ofexecutive management. Other senior 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 Audit Committee has evaluated and made recommendations to the Board about the appropriateness ofaccounting policies and practices, areas of accounting judgement, compliance with Accounting Standards, stock exchangeand legal requirements and the results of the external audit and internal audit. It has reviewed the Annual Financial Statementsfor 2007 and the unaudited interim report for the first half of 2008 and recommended formal adoption of the financialstatements and reports by the Board. It has also reviewed other statements released to the stock exchange, shareholdersand the financial community.

The Committee has reviewed the output from the group-wide process used to identify, evaluate and mitigate risks and theeffectiveness of the system of internal control. The Committee oversees Internal Audit, approves the department’s programmeof work and has reviewed reports on the audits and other investigations undertaken by Internal Audit.

The Audit Committee manages the relationship with external auditors on behalf of the Board. It has reviewed the externalauditor’s independence and performance, approved the terms of their appointment, the audit plan and remuneration for2008. The Committee has agreed that the external audit partner will be replaced by rotation in 2009 after completion of the2008 audit having served the Company in this capacity for 5 financial years.

The Committee has also established a policy for limiting non audit and non audit related services supplied by the externalauditors. It has set a target that fees for non audit services should not normally exceed audit and audit related fees unlessspecifically approved by the Committee. The audit and audit related fees for 2008 comprised 43% (£217,000) of total feespaid to the auditors. Non-audit fees related mainly to tax compliance (£163,000) and remuneration advice (£112,000).The excess over the target ratio was due to the provision of remuneration advice to the Remuneration Committee and wasapproved in advance by the Audit Committee. The Committee concluded that the independence of the external auditorscontinues to be maintained.

The Committee carried out an evaluation of its effectiveness in March and areas for future focus which were identified havebeen included in the Committee’s agenda for 2009.

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

The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about thework of the Committee.

Neil GaskellChairman of the Audit Committee16 March 2009

DIRECTORS’REMUNERATIONREPORT

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008AUDIT COMMITTEE REPORT / DIRECTORS’ REMUNERATION REPORT

INTRODUCTIONThis report has been prepared in accordance with Schedule 7A to the Companies Act 1985 (“the Act”). The report alsomeets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board hasapplied the principles relating to directors’ remuneration. As required by the Act, a resolution to approve the report will beproposed at the Annual General Meeting of the Company 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 andto state whether in their opinion those parts of the report have been properly prepared in accordance with the CompaniesAct 1985. The report has therefore been divided into separate sections for audited and unaudited information.

UNAUDITED INFORMATIONRemuneration CommitteeThe members of the Committee are Chairman Francisco Gros, Sir Graham Hearne and Pat Murray. They are all independentnon-executive directors.

None of the Committee has any personal financial interest (other than as shareholders), conflicts of interests arising fromcross-directorships or day-to-day involvement in running the business. The Committee makes recommendations to theBoard. No director plays a part in any discussion about his or her own remuneration.

The Committee appointed Deloitte LLP executive remuneration consulting team to provide advice on market practiceand current trends in directors’ remuneration and benchmarking data. Deloitte LLP are the Company’s auditors. TheAudit Committee has considered the independence of the auditors in relation to the provision of non-audit servicesto the Group and has concluded that the independence of the auditors is not compromised.

The Terms of Reference are available to view on the Company’s website www.wellstream.com.

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

• Review and set remuneration for the executive directors including performancetargets for salaries, bonuses and share based incentives

• Consider the Chairman’s bonus payment

• Consider reports on corporate governance matters relating to remuneration

• Carry out a review of the effectiveness of the Committee

• Review and set remuneration for other Persons Discharging Managerial Responsibility

REMUNERATION POLICY FOR THE EXECUTIVE DIRECTORSExecutive remuneration packages are designed to attract, motivate and retain directors of the high calibre needed to maintainthe Group’s position as a market leader and to reward them for achieving appropriate levels of performance and for enhancingvalue to shareholders. The performance measurement of the executive directors and key members of senior managementand the determination of their annual remuneration 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 the Chairman’s permission is sought.

In setting the remuneration of executive directors, the Committee takes into consideration aspects of remuneration elsewherewithin the Group together with the wider remuneration environment.

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DIRECTORS’REMUNERATIONREPORTBASIC SALARYAn executive director’s basic salary is normally reviewed by the Committee prior to the beginning of each year and whenan individual changes position or responsibility. In deciding appropriate levels, the Committee considers the Group as awhole and relies on objective research which gives up-to-date information. Benchmarking data was reviewed which includedan all sector analysis of the FTSE 250, other published survey data and comparator companies within the Company’s sector.Executive directors’ contracts of service which include details of remuneration will be available for inspection at the AnnualGeneral 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 be paid. In settingappropriate bonus parameters the Committee refers to market practice. Bonus targets for 2008 were based on EBITDA. Themaximum performance-related bonus that can be paid is 100% of basic annual salary for the CEO and 80% of basic salary forthe COO and FD. Maximum bonus payments for the year ended 31 December 2008 were paid as the target was exceeded.

PERFORMANCE SHARE PLANThe Performance Share Plan (PSP) was designed to align the interests of shareholders and directors by means of performancetargets. The Committee has responsibility for supervising the scheme and the grant of awards subject to performanceconditions under its terms.

The performance criterion that must be met requires the Company’s aggregate earnings per share to exceed certain targetsset by the Remuneration Committee over a three year period. Thereafter the option may be exercised for the remaining partof its five year life without further test.

The proportion of the award that a participant in the PSP will ultimately receive will depend on the Company’s aggregateearnings per share (EPS) over a three year period commencing at the beginning of the financial year in which the award ismade. The EPS targets are set by the Remuneration Committee based on its expectations regarding the Company’sprospects over the period.

For awards made in 2007, the EPS targets are as follows:

Aggregate EPS for 2007, 2008 and 2009 financial years % of award to which participant is entitled

65p 30%

75p 50%

85p 100%

The aggregate EPS target of 85p set for the awards to vest in full exceeded company financial forecasts and the consensusof brokers’ forecasts for the performance period.

The performance targets for awards made in 2008 were set in a similar manner and will be disclosed in the Directors’Remuneration Report for the year ended 31 December 2009.

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

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008DIRECTORS’ REMUNERATION REPORT

POLICY REVIEWThe Committee is currently reviewing overall remuneration policy including the performance measures for the annualbonus and the Performance Share Plan taking into account current conditions and institutional guidelines. No increasesin base salary have been awarded for 2009. The annual bonus will be measured against EBITDA, working capital andpersonal objectives, and the potential value of the long term share incentive awards will be considered by the Committeewhen setting the relevant targets, and before deciding on an award of shares expressed as a lower percentage of salaryunder the PSP.

SAVE AS YOU EARN SHARE SCHEME (SAYE)The Group also operates an SAYE scheme where options may be granted at up to a 20% discount to market value atdate of grant. The executive directors are not eligible to participate in this scheme.

OVERSEAS SHARESAVE SCHEMEDuring the year, the Group set up a Share Appreciation Rights Scheme to mirror in effect the UK SAYE scheme wherebyoverseas staff can acquire an interest in the rise in the Company’s share price over a three year savings period on an initialdiscounted fixed price.

PENSION ARRANGEMENTSA sum is paid to money purchase (defined contribution) arrangements for the executive directors and life cover is also provided.

PERFORMANCE GRAPHThe following graph shows the Group’s performance, measured by total shareholder return, compared with an appropriatecomparator of the FTSE Mid 250 (excluding investment trusts) of which the Company was a constituent during the year.The graph is based on average monthly data to 31 December 2008.

WELLSTREAM IS IN THE FTSE 250 INDEX

JAN–08

FEB–08

MAR–08

APR–08

MAY–08

JUN–08

JUL–08

AUG–08

SEP–08

OCT–08

NOV–08

DEC–08

500450400350300250200150100500

WELLSTREAM (TSR) FTSE 250 EX INVESTMENT TRUSTS (TSR INDEXED)


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EXECUTIVE DIRECTORSIt is the Company’s policy that executive directors should have contracts with an indefinite term providing for a maximum of oneyear’s notice by either party. None of the contracts have provisions for compensation to be payable upon early termination ofcontracts.

John Kennedy Chairman has a fixed term three year contract. None of the executive directors’ contracts of employmentcontain liquidated damages clauses or clauses effective upon a change of control.

The details of the executive directors’ service contracts who served during the year are summarised in the table below:

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

Chris Gill 7 January 2008 12 months

NON-EXECUTIVE DIRECTORSAll the non-executive directors have specific terms of engagement set out in letters of engagement for a three year period.Their fees are determined by the Board within the limits set by the Articles of Association and based on independent surveysof fees paid to non-executive directors of similar companies. The basic fee paid to Sir Graham Hearne is £60,000 pa as theSenior Independent non-executive Director. Each of the other non-executive directors is paid a fee of £50,000 pa.

The non-executive directors receive further fees for additional work performed for the Group in respect of chairing of theRemuneration Committee, Nomination Committee and Audit Committee. The additional fees paid during the year were ata rate of £5,000 pa for chairing of a committee. Non-executive directors cannot participate in any of the Company’s shareschemes and are not eligible to join the Company’s pension scheme.

All of the service contracts and letters of engagement will be available for inspection before and during the Annual General Meeting.

AUDITED INFORMATIONAggregate directors’ remunerationThe following amounts relate to directors’ remuneration paid to directors who served during the year:

2008 2007£ £

Emoluments 2,231,322 1,436,757

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

Money purchase pension contributions 132,998 90,173

2,364,320 5,151,546

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008DIRECTORS’ REMUNERATION REPORT

DIRECTORS’ EMOLUMENTSThe following relates to directors’ emoluments and compensation paid to directors who served during the year.

Fees/Basic Benefits Annual 2008 2007salary in kind bonuses total total

Name of director £ £ £ £ £

ExecutiveJohn Kennedy 200,000 - - 200,000 181,221Gordon Chapman 409,000 8,173 400,000 817,173 631,975Chris Braithwaite 289,000 2,994 224,000 515,994 416,408Chris Gill 254,823 5,832 200,000 460,655 -

Non-ExecutiveSir Graham Hearne 65,000 - - 65,000 50,065Pat Murray 50,000 - - 50,000 25,000Neil Gaskell 55,000 - - 55,000 55,000Nils Stoesser resigned 8 April 2008 12,500 - - 12,500 38,319Francisco Gros 55,000 - - 55,000 38,769

Aggregate emoluments 1,390,323 16,999 824,000 2,231,322 1,436,757

CHAIRMAN’S AWARDJohn Kennedy (Chairman) is paid a fee of £200,000 per annum and is eligible to receive an annual discretionary allocationof shares over a three year period from the date of Admission. At the discretion of the Remuneration Committee, he maybe awarded each year a number of Wellstream shares calculated by dividing up to £250,000 by the share price (£3.20) onAdmission (1 May 2007). For each annual award, 80% is issued to him on or within 30 days of the anniversary of the date ofAdmission (1 May) of the relevant year. The remaining 20% of the first and second awards, and all of the third award, are tobe issued to him on or 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, the Remuneration Committeemay determine the amount of deferred allocation to be issued to him, if any. John Kennedy is not a member of anyWellstream pension scheme. Details of the 2008 and 2009 awards are given below:

Value as No of Vesting dateat date of shares 80% Date of Balance for balance Vesting

Name of Director Admission of award Award of award of award criterion

John Kennedy (2008) £3.20 per share 62,500 1 May 2008 15,625 1 May 2010 Remainingin serviceat relevant

vesting date

John Kennedy (2009) £3.20 per share 62,500 1 May 2009 15,625 1 May 2010 Remainingin serviceat relevant

vesting date

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DIRECTORS’ PERFORMANCE SHARE PLANValue at

No of date of Performance Vesting Exerciseshares award period criteria Lapsed price

Gordon Chapman (2007) 79,327 £5.20 1 Jan Exceed - 1p perper share 2007 – 31 EPS share

Dec 2009 targets

Gordon Chapman (2008) 35,336 £14.15 1 Jan Exceed - 1p perper share 2008 – 31 EPS share

Dec 2010 targets

Chris Braithwaite (2007) 44,230 £5.20 1 Jan Exceed - 1p perper share 2007 – 31 EPS share

Dec 2009 targets

Chris Braithwaite (2008) 19,788 £14.15 1 Jan Exceed - 1p perper share 2008 – 31 EPS share

Dec 2010 targets

Chris Gill (2008) 17,667 £14.15 1 Jan Exceed - 1p perper share 2008 – 31 EPS share

Dec 2010 targets

Note: There have been no variations to the terms and conditions or performance criteria under the Performance SharePlan during the financial year.

The market price for Wellstream shares at the year end was £3.55 per share and at 1 January 2008 was £10.83. The lowestand highest share prices during the year were £3.25 and £14.72 respectively.

DIRECTORS’ PENSION ENTITLEMENTSThe Company paid a contribution to the pension arrangements of the executive directors, Gordon Chapman, Chris Braithwaiteand Chris Gill as follows:

2008 Rate 2007

Gordon Chapman 79,998 20% 50,667

Chris Braithwaite 28,000 10% 21,666

Chris Gill 25,000 10% -

Total 132,998 72,333

APPROVALThis report was approved by the Board of Directors on 16 March 2009 and signed on its behalf by:

Francisco GrosChairman of the Remuneration Committee16 March 2009


STATEMENTOFDIRECTORS’ RESPONSIBILITIES

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008DIRECTORS’ REMUNERATION REPORT / STATEMENT OF DIRECTORS’ REPONSIBILITIES

The directors are responsible for preparing the Annual Report,Directors’ Remuneration Report and the financial statementsin accordance with applicable law and regulations.Company law requires the directors to prepare financial statements for each financial year. The directors are required bythe IAS Regulation to prepare the Group financial statements under International Financial Reporting Standards (IFRSs) asadopted by the European Union and have also elected to prepare the parent Company financial statements in accordancewith IFRSs as adopted by the European Union. The financial statements are also required by law to be properly prepared inaccordance with the Companies Act 1985 and Article 4 of the IAS Regulation.

International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’sfinancial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions,other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expensesset out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of financialstatements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.However, 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 understandableinformation; and

• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable usersto understand the impact of particular transactions, other events and conditions on the entity’s financial position andfinancial performance.

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any timethe financial position of the Company and enable them to ensure that the financial statements comply with the CompaniesAct 1985. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps forthe prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on theCompany’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statementsmay differ from legislation in other jurisdictions.

The directors, whose names and functions are set out on pages 34 and 35 of the Annual Financial Report, confirm thatto the best of their knowledge:

(a) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU,give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakingsincluded in the consolidation taken as a whole; and

(b) the management report, which is incorporated by reference into the Directors' Report, includes a fair review of thedevelopment and performance of the business and the position of the company and the undertakings included in theconsolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OFWELLSTREAM HOLDINGS PLCWe have audited the Group and Parent Company financial statements (the “financial statements”) of Wellstream HoldingsPLC for the year ended 31 December 2008 which comprise the Group Income Statement, the Group and Parent CompanyStatements of Recognised Income and Expense, the Group and Parent Company Balance Sheets, the Group and ParentCompany Cash Flow Statements, and the related notes 1 to 30. These financial statements have been prepared underthe accounting policies set out therein. We have also audited the information in the Directors' Remuneration Report thatis described as having been audited.

This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are requiredto state to them in an Auditors’ Report and for no other purpose. To the fullest extent permitted by law, we do not acceptor assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work,for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statementsin accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EuropeanUnion 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 to be auditedin accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financialstatements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordancewith the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We alsoreport to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements.The information given in the Directors’ Report includes that specific information presented in the Chief Executive’s Reviewthat is cross referred 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 we have not received allthe information and explanations we require for our audit, or if information specified by law regarding directors’ remunerationand other transactions is not disclosed.

We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions ofthe 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report ifit does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls,or form an opinion on the effectiveness of the Group’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 and consider whetherit is consistent with the audited financial statements. We consider the implications for our report if we become aware of anyapparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to anyfurther information outside the Annual Report.

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008STATEMENT OF DIRECTORS’ REPONSIBILITIES

BASIS OF AUDIT OPINIONWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing PracticesBoard. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financialstatements and the part of the Directors' Remuneration Report to be audited. It also includes an assessment of the significantestimates and judgments made by the directors in the preparation of the financial statements, and of whether the accountingpolicies are appropriate to the Group's and Parent Company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessaryin order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part ofthe Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in thefinancial statements and the part 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 2008 and of its profit for the year then ended;

• the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the EuropeanUnion as applied in accordance with the provisions of the Companies Act 1985, of the state of the Parent Company’saffairs as at 31 December 2008;

• the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared inaccordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation; and

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

Deloitte LLPChartered Accountants and Registered AuditorsNewcastle upon Tyne16 March 2009

GROUP INCOMESTATEMENTFOR THE YEAR ENDED 31 DECEMBER 2008

Notes 2008 2007£000 £000

Revenue 4,5 369,935 266,810Cost of sales (252,137) (187,382)

Gross profit 117,798 79,428

Administrative expenses (37,795) (32,963)Other operating income 1,001 1,096

Operating profit 6,7 81,004 47,561

Foreign exchange (losses) / gains on financing 8 (96) 2,755Finance income 9 1,150 1,115Finance expenses 10 (4,582) (9,691)

Profit before tax 77,476 41,740

Income tax expense 11 (24,748) (12,727)

Profit for the year (all attributable to equity holders of the parent) 52,728 29,013

Basic earnings per ordinary share 13 52.9 31.8

Diluted earnings per ordinary share 13 52.3 31.6

All results are derived from continuing operations.

STATEMENTSOFRECOGNISEDINCOMEANDEXPENSEFOR THE YEAR ENDED 31 DECEMBER 2008

Group Company2008 2007 2008 2007£000 £000 £000 £000

Exchange differences on translation of foreign operations 8,603 7,578 - -

Net income recognised directly in equity 8,603 7,578 - -

Profit / (loss) for the year 52,728 29,013 12,473 (4,133)

Total recognised income / (expense)(all attributable to equity holders of the parent) 61,331 36,591 12,473 (4,133)

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 £12,473,000 profit (2007 – £4,133,000 loss).

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BALANCESHEETSAS AT 31 DECEMBER 2008

Group CompanyNotes 2008 2007 2008 2007

£000 £000 £000 £000

Non-current assetsInvestments 14 - - 2,920 794Goodwill 15 39,107 39,107 - -Property, plant and equipment 16 107,332 59,350 - -

146,439 98,457 2,920 794

Current assetsInventories 17 50,082 29,247 - -Trade and other receivables 18 180,652 136,307 77,264 67,250Cash and cash equivalents 7,407 5,904 - -

238,141 171,458 77,264 67,250

Total assets 384,580 269,915 80,184 68,044

Current liabilitiesTrade and other payables 21 (128,200) (106,728) - -Current tax liabilities (12,438) (1,030) (1,527) -Interest bearing loans and borrowings 22 (6,803) (5,148) - -

(147,441) (112,906) (1,527) -

Net current assets 90,700 58,552 75,737 67,250

Non-current liabilitiesInterest bearing loans and borrowings 22 (66,417) (47,439) - -Deferred tax liabilities 20 (8,925) (6,782) - -

Total liabilities (222,783) (167,127) - -

Net assets 161,797 102,788 78,657 68,044

Shareholders’ equityShare capital 24 996 996 996 996Share premium account 26 66,697 66,697 66,697 66,697Translation reserve 26 15,954 7,351 - -Capital redemption reserve 26 30 30 30 30Share based payment reserve 26 - - 2,919 793Retained earnings 26 78,120 27,714 8,015 (472)

Total equity 26 161,797 102,788 78,657 68,044

These financial statements were approved by the Board of directors and authorised for issue on 16 March 2009.

Signed on behalf of the Board of directors

Gordon Chapman Chris GillDirector Director

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008GROUP INCOME STATEMENT / BALANCE SHEETS

CASHFLOWSTATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2008

Group Company2008 2007 2008 2007£000 £000 £000 £000

Profit / (loss) for the year 52,728 29,013 12,473 (4,133)Share based payments 2,126 4,467 - 3,674Depreciation of property, plant and equipment 8,134 5,275 - -Gain on disposal of property, plant and equipment (636) (29) - -Finance income (1,150) (1,115) - -Finance expenses 4,582 9,691 - -Tax 24,748 12,727 1,527 (5)Foreign exchange losses / (gains) on financing 96 (2,755) - -Increase in inventories (17,981) (13,246) - -Increase in receivables (41,713) (65,696) (10,014) (66,244)Increase in payables 18,545 54,332 - -

Cash from operations 49,479 32,664 3,986 (66,708)

Income taxes paid (9,997) (4,464) - (21)Interest received 1,150 1,115 - -Interest paid (4,375) (4,229) - -

Net cash increase / (decrease) from operating activities 36,257 25,086 3,986 (66,729)

Investing activitiesPurchases of property, plant and equipment (51,865) (16,744) - -Proceeds on disposal of property, plant and equipment 752 38 - -

Net cash used in investing activities (51,113) (16,706) - -

Financing activitiesGross proceeds of new debt 60,936 62,526 - -Repayments of debt (42,000) (115,304) - -

Net proceeds / (repayment) on new financing 18,936 (52,778) - -Proceeds on issue of share capital - 75,063 - 75,063Redemption of own shares - (30) - (30)Costs of issuing equity - (8,304) - (8,304)Debt refinancing costs (150) (1,088) - -Dividends paid (3,986) - (3,986) -

Net cash increase / (decrease) from financing activities 14,800 12,863 (3,986) 66,729

Net (decrease) / increase in cash and cash equivalents (56) 21,243 - -Foreign exchange movements on translation of cash balances (96) 374 - -Cash and cash equivalents at beginning of year 756 (20,861) - -

Cash and cash equivalents at end of year 604 756 - -

Cash and cash equivalents and bank overdraftsat end of year comprise:

Cash and cash equivalents 7,407 5,904 - -Bank overdrafts (6,803) (5,148) - -

604 756 - -

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WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008CASH FLOW STATEMENTS / ACCOUNTING POLICIES

ACCOUNTINGPOLICIES1. GENERAL INFORMATIONWellstream Holdings PLC (“the Company”) is a Company incorporated in England and Wales under the Companies Act 1985and is domiciled in the United Kingdom. The address of the registered office is given within the Shareholders’ Informationsection of the Annual Report. The Group comprises Wellstream Holdings PLC and its subsidiaries. The nature of the Group’soperations and its principal activities are set out in note 5 and within the Directors’ report.

2. ADOPTION OF NEWAND REVISED STANDARDSThree interpretations issued by the International Financial Reporting Interpretations Committee became effective in thecurrent year. These are IFRIC 12 Service Concession Agreements, IFRIC 13 Customer Loyalty Programmes and IFRIC 14IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The adoption of thesestandards has not led to any changes in the Group’s Accounting policies.

In addition, the Group elected to adopt the following in advance of the effective date during the previous financial year:

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

At the date of authorisation of these financial statements, the following standards and Interpretations which have not beenapplied in these financial statements were in issue but not yet effective (and in some cases not yet adopted by the EU):

• IFRS 1 / IAS 27 Consolidated and Separate Financial Statements (amended January 2009; effective for accountingperiods beginning on or after 1 January 2009)

• IFRS 2 Share Based Payment; Vesting Conditions and Cancellations (amended January 2008; effective for accountingperiods beginning on or after 1 January 2009)

• IFRS 3 Business Combinations (revised January 2008; effective for accounting periods beginning on or after 1 July 2009)

• IAS 1 Presentation of Financial Statements (amended December 2008; effective for accounting periods beginning onor after 1 January 2009)

• IAS 23 (Revised) Borrowing Costs (amended December 2008; effective for accounting periods beginning on or after1 January 2009)

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

• IAS 32 / IAS 1 Financial Instruments: Presentation (amended January 2009; effective for accounting periods beginningon or after 1 January 2009)

• IFRIC 15 Agreement for the construction of Real Estate (effective for accounting periods beginning on or after 1 July 2009)

• IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for accounting periods beginning on or after1 October 2008)

• IFRIC 17 Distributions of Non-cash Assets to Owners (effective for accounting periods beginning on or after 1 July 2009)

• IFRIC 18 Transfers of Assets from Customers (effective for accounting periods beginning on or after 1 July 2009)

The directors anticipate that, with the exception of IAS 23 (Revised), the adoption of these standards and interpretations infuture periods will not have a material impact on the financial statements of the Group. IAS 23 (Revised) requires that all eligibleborrowing costs incurred in respect of qualifying assets are capitalised as part of the cost of those assets. It is currentlyGroup policy to expense all such borrowing costs as incurred and therefore the adoption of IAS 23 (Revised) will require achange in accounting policy. However, this change in accounting policy would not be retrospective and so would not impacton previously reported results. The impact of this future change in accounting policy on the Group’s financial statements isnot reasonably estimable, as the nature of future borrowings, and the existence of qualifying assets is not yet known.

ACCOUNTINGPOLICIES3. SIGNIFICANT ACCOUNTING POLICIESBasis of accountingThe consolidated financial information has been prepared under the historical cost convention, except for the revaluation ofcertain financial instruments, in accordance with International Financial Reporting Standards (“IFRSs”) and the CompaniesAct 1985 as applicable to companies reporting under IFRSs. The financial statements have also been prepared in accordancewith IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation.

As described within the Financial Review, the financial statements continue to be prepared on the going concern basis.

Basis of consolidationThe consolidated financial information includes the results, cash flows and assets and liabilities of Wellstream Holdings PLC(the Company) and the enterprises under its control (its subsidiaries). Control is defined as the ability to govern the financialand 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 statement fromthe effective date of acquisition or up to the effective date of disposal. Adjustments are made, where necessary, to the financialstatements of subsidiaries to bring their accounting policies into line with Group policies. All intra-Group transactions,balances, income and expenses are eliminated on consolidation.

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

GoodwillOn the acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises where the fair value ofthe consideration given exceeds the fair value of the net assets acquired. Goodwill is recognised as an asset at cost and issubsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually,with impairments being recognised immediately in the income statement. Goodwill is allocated to cash generating units forthe purpose of impairment testing. An impairment loss recognised for goodwill is not reversed in a subsequent period.

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

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amountssubject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has notbeen reinstated and is not included in determining any subsequent profit or loss on disposal.

Property, plant and equipmentProperty, plant and equipment is recorded at historical cost, net of accumulated depreciation and any provision for impairment.Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-linebasis 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.

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 is madeuntil such time when the assets are completed and ready for use.

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InventoriesInventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable,direct labour costs and overheads that have been incurred in bringing the inventories to their current location and condition.Cost is calculated using the average cost method. Net realisable value represents the estimated selling price less all estimatedcosts 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.

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 to whichobligations identified at the commencement of the contract are considered to have been met. These obligations may becontractual or non-contractual. Variations in contract work and incentive payments are included to the extent that theyhave been formally agreed with the customer.

Profit is only recognised where the outcome of a contract can be reliably estimated. Typically, for pipe manufacture contracts,this means that profit is recognised on a stage of completion basis. For installation contracts, profit is recognised in accordancewith the risk profile of the contract as assessed by management. The pattern of revenue recognition for installation contractswill 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 the periodin which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expectedloss 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 related taxes.With the exception of goods sold under construction contracts, sales of goods are recognised when goods are deliveredand title has passed.

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

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008ACCOUNTING POLICIES

ACCOUNTINGPOLICIESTaxationThe charge for taxation is based on the result for the year and takes into account current and deferred taxation. The chargeis recognised in the income statement except to the extent that it relates to items recognised in equity, in which case it isrecognised in equity.

The current tax charge is based on the taxable profit for the year. Taxable profit differs from profit as reported in the incomestatement because it excludes items of income or expenses that are taxable or deductible in other years and it furtherexcludes 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 or substantivelyenacted 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 the profit andloss account as they become payable. The assets of the scheme are held separately from those of the Group in independentlyadministered funds. The amount charged against profits represents the contributions payable to the schemes in respect ofthe 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’s functionalcurrency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At eachbalance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the ratesprevailing on the balance sheet date.

On consolidation, assets and liabilities of overseas subsidiaries and associates are translated into sterling at the market ratesruling at the balance sheet date. Trading results are translated at the average rates for the period. Exchange differences arisingon the consolidation of the investment in overseas subsidiaries and joint ventures, together with those on foreign currencyloans 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 currency translationreserve 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 the higher 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 instrumentsFinancial 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 an activemarket are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effectiveinterest method, less any impairment. Interest income is recognised by applying the effective interest rate, except forshort-term receivables when the recognition of interest would be immaterial.

64/65

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 an accrualsbasis in the income statement using the effective interest method and are added to the carrying amount of the instrumentto 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. Whereappropriate, 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 for speculativeor trading purposes. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors.

Under IFRS derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balancesheet date. The Group has chosen not to use hedge accounting to date and therefore changes in the fair value of any derivativeinstruments are recognised in the income statement as they arise.

Share based paymentsIn accordance with IFRS 2, the fair value of equity settled share options granted is recognised as an employee expensewith 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 to non-market conditions not being met. The fair value determined at the grant date of the equity-settled share based payments isexpensed over the vesting period, based on the group’s estimate of awards that will eventually vest. Fair value is measuredusing 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 as share based payments are considered to be transactions with shareholders.

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

Key estimates and judgments in applying the Group’s accounting policiesManagement considers the key estimates and judgments 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 contract activityat the balance sheet date, where the outcome of the contract can be estimated reliably. Stage of completion is determined byreference to the extent to which obligations identified at the commencement of the contract are considered to have been met.Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent that itis 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 contract activityand the probability that contract costs incurred will be recovered can be inherently difficult to estimate and require managementjudgement. The amounts recognised in the income statement in respect of construction contracts are regularly reviewed in thelight 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 the useof estimates (note 25).

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008ACCOUNTING POLICIES

NOTES TOTHEACCOUNTS4. REVENUEAn analysis of the Group’s revenue is as follows:

2008 2007£000 £000

Revenue from construction contracts 356,223 255,637Revenue from sale of other products 13,712 11,173

369,935 266,810

Other operating income 1,001 1,096Finance income (see note 9) 1,150 1,115

372,086 269,021

5. OPERATING SEGMENTSThe Group’s reportable segments remain unchanged and are 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 2008:

ConsolidatedOnshore Offshore year ended

2008 2008 2008£000 £000 £000

RevenueExternal sales 13,712 356,223 369,935

ResultEBITDA (2,035) 91,173 89,138Depreciation (8,134)

Operating profit 81,004

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5. OPERATING SEGMENTS (continued)The 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 52,836Depreciation (5,275)

Operating profit 47,561

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 2008 2007£000 £000

Onshore 19,285 10,689Offshore 365,295 259,226

Segment assets 384,580 269,915Unallocated assets - -

Consolidated assets 384,580 269,915

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 asset 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 2008 2007£000 £000

Onshore 2,773 1,704Offshore 211,085 158,641

Segment liabilities 213,858 160,345Deferred tax liabilities (note 20) 8,925 6,782

Consolidated liabilities 222,783 167,127

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.

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008NOTES TO THE ACCOUNTS

NOTES TOTHEACCOUNTS5. OPERATING SEGMENTS (continued)

Geographic informationRevenue from external customers:

2008 2007£000 £000

UK 5,790 3,894Rest of world 364,145 262,916

369,935 266,810

Included in revenue from external customers derived from outside of the UK is £239,340,000 (2007 – £216,692,000) derivedfrom customers in Brazil, £71,379,000 (2007 – £12,585,000) from customers in Australia, £32,884,000 (2007 – £1,684,000)from customers in Nigeria and £7,138,000 (2007 – £24,671,000) from customers in the USA.

Non-current assets by location (excluding goodwill) 2008 2007£000 £000

UK 53,110 36,522Rest of world 54,222 22,828

107,332 59,350

Included in non-current assets located outside of the UK is £48,970,000 (2007 – £19,950,000) of assets located in Brazil.

Information about major customersIncluded in offshore revenue is an amount of £202,309,000 (2007 – £136,999,000) arising from sales to the Group’s largestcustomer and £47,089,000 (2007 – £72,521,000) to the Group’s second largest customer. The Group’s next three largestcustomers each contributed between £22,000,000 and £33,000,000 to revenue.

6. OPERATING PROFITOperating profit for the year has been arrived at after charging / (crediting):

2008 2007£000 £000

Net foreign exchange gains (2,293) (2,257)Research and development 4,006 3,187Depreciation of property, plant and equipment 8,134 5,275Gain on disposal of property, plant and equipment (636) (29)Movement in provisions for trade receivables impairment 833 (102)Movement in provisions for inventory impairment (953) 505Write back of credit balances - (261)Cost of inventories (raw materials) 175,740 137,898Staff costs (all) 49,791 39,978

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 £nil (2007 – £261,000) in accruals against warranty and otherclaims which in the view of the directors are no longer required.

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6. OPERATING PROFIT (continued)An analysis of amounts payable by the Group to the Company’s auditors, Deloitte LLP, and their associates isprovided below:

2008 2007£000 £000

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 55 65

Fees payable to the Company’s auditor and their associates for other services:The audit of the Company’s subsidiaries, pursuant to legislation 121 70Other services pursuant to legislation 41 37

Total audit and audit related fees 217 172

Tax advisory 10 22Tax compliance 163 136Remuneration services 112 170Corporate finance services - 1,050

Total non-audit fees 285 1,378

502 1,550

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

7. STAFF COSTSGroup Company

2008 2007 2008 2007£000 £000 £000 £000

Staff costs during the year (including directors)Wages and salaries 40,447 30,867 - -Social security costs 5,829 3,870 - 465Other pension costs 1,389 774 - -Share based payments 2,126 4,467 - 3,674

49,791 39,978 - 4,139

The 2008 share based payment expense of £2,126,000 (2007 – £4,467,000) includes £nil (2007 – £3,624,000)relating to the granting of share options to Sir Graham Hearne on 19 March 2007, and £nil (2007 – £50,000) in relationto the exercise of warrants.

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

Group Company2008 2007 2008 2007No. No. No. No.

Average number of persons employedAdministration 249 235 - -Sales 25 21 - -Manufacturing 802 562 - -

1,076 818 - -

Details of directors’ remuneration are given in the Directors’ Remuneration Report on pages 49 – 55.


NOTES TOTHEACCOUNTS8. FOREIGN EXCHANGE (LOSSES) / GAINS ON FINANCING

2008 2007£000 £000

Foreign exchange (losses) / gains on financial liabilities held at amortised cost (96) 2,755

Exchange movements on financing arise on the retranslation of the Group’s foreign currency bank accounts.The prior period gain reflected the change in value of US dollar denominated bank debt and deep discount bonds.

9. FINANCE INCOME2008 2007£000 £000

Interest income on loans and receivablesInterest on bank deposits 1,150 1,115

10. FINANCE EXPENSES2008 2007£000 £000

Interest expense on financial liabilities held at amortised costInterest on bank overdrafts and loans 4,045 4,650Accretion of discount of deep discount bonds - 1,783Amortisation of arrangement fees 224 344

4,269 6,777

Write off of arrangement fees on extinguishing of related debt - 2,718Bank charges 313 224Fair value gains on interest rate swaps - (28)

4,582 9,691

During the year the Group made net losses of £4,365,000 (2007 – £6,740,000 loss) on financial liabilities held at amortised cost.

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11. INCOME TAX EXPENSE2008 2007£000 £000

Current taxCurrent tax charge 22,734 5,273Adjustments in respect of prior years 333 198

23,067 5,471Deferred taxOrigination and reversal of temporary differences 384 7,441One off charge arising from the abolition of IBAs 1,087 -Adjustments in respect of prior years 210 (185)

1,681 7,256

Total income tax in the income statement 24,748 12,727

UK corporation tax is calculated at 28.5% of the estimated assessable profit / (loss) for the year reflecting the decreasein the rate of corporation tax from 30% to 28% on 1 April 2008. Taxation for other jurisdictions is calculated at the ratesprevailing in the respective jurisdictions.

2008 2008 2007 2007% £000 % £000

Reconciliation of effective tax rate:Profit before tax 77,476 41,740

Tax calculated at UK corporation tax rate 28.50% 22,081 30.00% 12,522

Non deductible expenses 0.57% 442 0.58% 242Research and development tax relief -0.43% (336) -0.56% (236)Effect on deferred tax balances due to changein income tax rate from 30% to 28% - - -0.97% (403)

Impact of abolition of IBAs 1.40% 1,087 - -Effect of higher tax rates in overseas jurisdictions 1.00% 775 1.63% 682Effect of utilisation of tax losses and tax offset not recognised - - -0.22% (93)Adjustment in respect of previous years 0.70% 543 0.03% 13Other timing differences 0.20% 156 0.00% -

Effective tax rate and tax expense for the year 31.94% 24,748 30.49% 12,727

Income Deferred Total TotalTax Tax

2008 2008 2008 2007£000 £000 £000 £000

Tax recognised directly in equity:Relating to share based payments - (462) (462) 474

The UK Government is to phase out and withdraw capital allowances on qualifying industrial buildings from 2011.This has led to a one off deferred tax charge of £1,087,000 in the year.


NOTES TOTHEACCOUNTS12. DIVIDENDS ON EQUITY SHARESAmounts recognised as distributions to equity holders in the year: 2008 2007

£000 £000

Interim dividend paid for the year ended 31 December 2008 of 4p per share (2007 – nil) 3,986 -

Proposed final dividend for the year ended 31 December 2008 of 6p per share (2007 – nil) 5,979 -

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 12 May 2009 and,in accordance with IAS 10, has not been recorded as a liability in these financial statements.

13. EARNINGS PER SHAREBasic 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 average numberof shares has been adjusted to reflect the dilutive effect of the outstanding share options allocated under employee shareschemes where the market value exceeds the option price. It is assumed that all dilutive potential ordinary shares are convertedat the beginning of the accounting period. Diluted earnings per ordinary share is calculated by dividing earnings by the dilutedaverage number of ordinary shares.

Reconciliations of the earnings and 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 Weightedaverage average

number of number ofordinary ordinaryshares shares

2008 2008 2007 2007£000 No. £000 No.

For basic earnings per ordinary share 52,728 99,621,531 29,013 91,291,391Options and awards - 1,267,985 - 538,546

For diluted earnings per ordinary share 52,728 100,889,516 29,013 91,829,937

Basic earnings per share (p) 52.9 31.8Diluted earnings per share (p) 52.3 31.6

There are no adjustments to earnings in 2008 for the purposes of earnings per share. The adjusted diluted earnings pershare of 34.7p presented in 2007 was based on adjusted earnings of £31,828,000. The adjustments to earnings in 2007relate to one-off costs arising from the IPO.

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

72/73

14. INVESTMENTS IN SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIESGroupSubsidiary undertakings

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

ProportionCountry of of ordinary

incorporation Activity 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 entity

Country of Percentage of shares owned directlyName incorporation by Wellstream Australia Pty Ltd

Seastream JV Australia Pty Limited Australia 50%

Aggregated amounts relating to share of jointly controlled entity 2008 2007£000 £000

Non-current assets 181 159Current assets 5,157 3,611Current liabilities (4,700) (3,717)Non-current liabilities - -

Net assets 638 53

Income 6,746 854

Expenses (6,175) (801)

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

CompanySubsidiaries 2008 2007

£000 £000

CostAt 1 January 794 1Additions (note 7) 2,126 793

At 31 December 2,920 794

The additions in the year represent an increase in the cost of investment in the Company’s subsidiaries to recognise thegranting of options over its own shares to employees of those subsidiaries.


NOTES TOTHEACCOUNTS15. GOODWILLGroup 2008 2007

£000 £000

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

Accumulated amortisation is £nil at 1 January and 31 December 2008.

Existing goodwill relates entirely to the initial purchase of the offshore business and has been allocated to that business,which is considered to be a single cash generating unit. Upon further acquisitions goodwill acquired in a business will beallocated 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 prepares cash flow forecasts using the following year’s operating budget approved by the directors and anappropriate projection of cash flows thereafter. Discounted cash flow projections for the next three years are in excessof the carrying value of goodwill and other non-current assets and therefore no impairment of goodwill is evident for theyear ended 31 December 2008.

16. PROPERTY, PLANT AND EQUIPMENTAssets in the

course of Leasehold Freehold land Plant andconstruction improvements and buildings equipment Total

£000 £000 £000 £000 £000

CostAt 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 1 January 2008 2,225 357 15,938 60,169 78,689Additions 26,305 87 400 27,399 54,191Transfers (16,568) - 6,783 9,785 -Exchange differences 852 48 - 2,210 3,110Disposals - - - (408) (408)

At 31 December 2008 12,814 492 23,121 99,155 135,582

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

At 1 January 2008 - 81 2,931 16,327 19,339Charge for year - 69 816 7,249 8,134Exchange differences - 30 - 1,039 1,069Eliminated on disposals - - - (292) (292)

At 31 December 2008 - 180 3,747 24,323 28,250

Net book value

At 31 December 2008 12,814 312 19,374 74,832 107,332

At 31 December 2007 2,225 276 13,007 43,842 59,350

The amount of land included within freehold land and buildings that is not depreciated is £570,000 (2007 – £570,000).

The Company holds no property, plant or equipment.

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17. INVENTORIESGroup 2008 2007

£000 £000

Raw materials 38,826 22,049Work in progress 6,829 4,449Finished goods 4,427 2,749

50,082 29,247

18. TRADE ANDOTHER RECEIVABLESGroup 2008 2007

£000 £000

Trade receivables 78,304 81,970Impairment provision (833) -

77,471 81,970

Amounts due from contract customers (note 19) 70,656 32,600Prepayments 9,308 5,804Other receivables 23,217 15,933

180,652 136,307

2008 2007£000 £000

Movement in allowance for doubtful debtsBalance at the beginning of the year - 102Impairment losses recognised 833 -Amounts recovered in the year - (102)

Balance at the end of the year 833 -

2008 2007£000 £000

Ageing of past due but not impaired receivables1 – 30 days past due 18,112 4,92431 – 90 days past due 9,910 1,44791 days and more 14,584 541

42,606 6,912

Of the £42,606,000 past due but not impaired receivables, £38,506,000 had been recovered at the date of this report.The balance of £4,100,000 has not been provided for as the Group considers this amount to be recoverable(see note 23 for further details).

Company 2008 2007£000 £000

Amounts due from Wellstream International Limited 67,250 67,245Amounts due from Wellstream Finance Limited 10,014 -Corporation tax receivable - 5

77,264 67,250

Amounts owed by subsidiaries to Wellstream Holdings PLC are 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.


NOTES TOTHEACCOUNTS19. CONSTRUCTION CONTRACTS IN PROGRESS AT THE BALANCE SHEET DATEGroup 2008 2007

£000 £000

Amounts due from contract customers (note 18) 70,656 32,600

Amounts due to contract customers (note 21) (52,467) (57,314)

18,189 (24,714)

Contract costs incurred plus recognised profits less recognised losses to date 315,184 83,646Less progress billings (296,995) (108,360)

18,189 (24,714)

At 31 December 2008, retentions held by customers for contract work amounted to £3,606,000 (2007 – £3,573,000).

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

20. DEFERRED TAXThe 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 Other timing Taxdepreciation payments Goodwil differences losses Total

£000 £000 £000 £000 £000 £000

At 1 January 2007 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 - 6,782Impact of abolition of IBAs (note 11) 1,087 - - - - 1,087Charge / (credit) to income 748 (137) 454 (471) - 594Charge to equity - 462 - - - 462

At 31 December 2008 4,344 (371) 2,164 2,788 - 8,925

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 £15,954,000(2007 – £7,351,000). No liability has been recognised in respect of these differences because the Group is in a position to controlthe reversal of the temporary differences and it is not probable that such differences will reverse in the foreseeable future.

21. TRADE ANDOTHER PAYABLES

Group 2008 2007£000 £000

Trade payables 33,067 16,778Accruals and deferred income 32,212 25,704Amounts due to contract customers (note 19) 52,467 57,314Other tax and social security 863 764Other payables 9,591 6,168

128,200 106,728

Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.The average credit period taken for credit purchases is 61 days (2007 – 45 days).

The directors consider that the carrying amount of trade and other payables approximates their fair value.

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22. INTEREST BEARING LOANS AND BORROWINGSThe carrying value and fair value of the Group’s short-term and long-term borrowings are as follows:

Group CompanyCurrent liabilities 2008 2007 2008 2007

£000 £000 £000 £000

Secured borrowings held at amortised costBank overdrafts 6,803 5,148 - -

Group CompanyNon-current liabilities 2008 2007 2008 2007

£000 £000 £000 £000

Bank loans 57,000 44,000 - -Less: Unamortised costs (887) (961) - -

56,113 43,039 - -Rio State Government loan 10,304 4,400 - -

66,417 47,439 - -

GroupAnalysis of repayments 2008 2007

£000 £000

Bank OverdraftsWithin one year 6,803 5,148

Bank loansWithin one year - -In the second year - -In third to fifth years 57,000 31,500After five years - 12,500

57,000 44,000Less: unamortised costs (887) (961)

56,113 43,039


NOTES TOTHEACCOUNTS22. INTEREST BEARING LOANS AND BORROWINGS (continued)

Group2008 2007£000 £000

Rio State Government loanIn third to fifth years 2,662 1,137After five years 7,642 3,263

10,304 4,400

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

Fair ValueGroup 2008 2007

£000 £000

Bank overdrafts 6,803 5,148Bank loans 56,113 43,039Rio State Government Loan 10,304 4,400

73,220 52,587

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

Bank loan and overdraftDuring the year the Group increased its Revolving Credit Facility from £85,000,000 to £100,000,000. The facility will reduce to£nil over a five year period from 6 November 2008 to 30 April 2013, with staged reductions in the size of the facility occurringsix monthly. The first of these reductions occurred in November 2008 reducing the maximum facility to £96,875,000 at thebalance sheet date.

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

Interest on drawn funds is charged at a margin of between 1.25% and 2.50% above LIBOR, by reference to the Group’scapital structure. The average effective interest rate for the year was 7.20% in respect of term borrowings (2007 – 7.56%)and 6.93% (2007 – 7.08%) in respect of overdrafts.

Borrowings under the Revolving Credit Facility are secured by fixed and floating charges over the net assets of WellstreamInternational Limited and a share pledge over that portion of Wellstream do Brazil Industria e Servicos Ltda that is not securedunder the Rio State Government Loan (see below).

At 31 December 2008 the Group had available £17,088,000 (2007 – £26,027,000) of undrawn committed borrowing facilities,after allowing for guarantees and performance bonds that are drawn against this facility.

Rio State Government loanThis facility is provided by the State Government of Rio de Janeiro and has a maximum value of £22,488,000(2007 – £21,280,000). The loan is drawn down progressively on a monthly basis. The value of the monthly draw downis 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 £9,372,000 (2007 – £4,368,000) and a bank guarantee to the value of £1,491,000.

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23. FINANCIAL INSTRUMENTS

GroupCategories of financial instruments 2008 2007

£000 £000

Financial AssetsLoans and receivables (including cash and cash equivalents) 91,588 96,858

Financial LiabilitiesAt amortised cost 144,175 158,551

Capital risk managementThe Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximisingthe return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consistsof debt, which includes the borrowings disclosed in note 22, cash and cash equivalents and equity attributable to equity holdersof the parent, comprising issued capital, reserves and retained earnings as disclosed in note 26.

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

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

Market riskThe Group’s activities expose its financial instruments to risks of changes in foreign currency exchange rates and interest rates.

Foreign currency risk managementThe Group undertakes the bulk of its business in Sterling or in the local currency of its overseas operations. Trade carried outin any other currency is by exception and as such any exposure to transactional currency risk can be easily identified. In suchcircumstances natural hedges are first sought and if significant residual exposure exists, it is hedged using derivative financialinstruments. There were no such contracts in existence at the year end.

The Group has considerably expanded its activities in Brazil during the year. With this expansion it has developed a significantBrazilian Real denominated cost base which is a potential exposure to the extent that Real denominated sales exceed or fallbelow this level. Should such exposure become significant it is hedged using derivative financial instruments. There were nosuch derivative contracts in existence at the year end.

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

Liabilities Assets2008 2007 2008 2007£000 £000 £000 £000

Brazilian Real 23,171 15,108 17,892 59,127

US Dollar 9,703 6,481 13,900 13,423


NOTES TOTHEACCOUNTS23. 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% (2007 – 10%) increase and decrease in Sterling against therelevant foreign currencies, being management’s reasonabe assessment of the possible change in foreign exchange rates.The sensitivity 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 and other 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 impact onthe profit and other equity, and the balances below would be negative.

Real impact US Dollar impact2008 2007 2008 2007£000 £000 £000 £000

Recognised in equity 587 (15,597) (31) 1,382

Recognised in profit - - (431) -

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 91% (2007 – 90%) of total borrowings of which 84% (2007 – 91%)were for periods of less than three months.

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

If interest rates had been 0.5% (2007 – 0.5%) higher/lower and all other variables were held constant, the Group’s profitfor the year ended 31 December 2008 would decrease/increase by £123,000 (2007: decrease/ increase by £298,000).

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

At 31 December 2008 and 31 December 2007 there were credit risks associated with the concentration of the offshorebusiness into a limited number of large contracts with a limited number of customers and counterparties. Informationabout these major customers and their geographic profile is included in note 5. No significant unrecovered receivableshave arisen as a result of this risk.

At 31 December 2008 past due but not impaired receivables totalled £42,606,000 (2007 – £6,900,000), of this £38,506,000has been collected since the year end. The remaining balance largely relates to two contracts with the Group’s largestcustomer; these contracts are substantially complete with approximately 70% paid for, with the balance awaiting somefinal tests and documentation. Our customer has indicated the balance will be cleared.

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, representsthe Group’s maximum exposure to credit risk without taking account of the value of collateral obtained.

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23. FINANCIAL INSTRUMENTS (continued)

Liquidity risk managementThe Group was contractually obliged to make repayments of principal and payments of interest at 31 Decemberas detailed below:

In the In theWithin one year second third to Afteror on demand year fifth years 5 years Total

£000 £000 £000 £000 £000

2008Bank overdrafts 7,274 - - - 7,274Bank borrowings 1,767 1,767 61,123 - 64,657Rio State Government loan 618 618 4,303 9,342 14,881

9,660 2,385 65,426 9,342 86,812

In the In theWithin one year second third to Afteror on demand year fifth years 5 years Total

£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

Payments of interest are calculated using the interest rates applicable as at 31 December.

With respect to bank borrowings under the revolving credit facility, the timing of repayments assumes capital is repaidat the latest possible date, determined by the 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 the maturityprofile 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 £24,495,000(2007 – £31,382,000), being £17,088,000 (2007 – £26,027,000) of undrawn committed borrowing facilities in the UKand £7,407,000 (2007 – £5,355,000) of cash overseas. The Group expects to meet its other obligations from operatingcash flows and proceeds of maturing financial assets.

Company2008 2007£000 £000

Financial AssetsLoans and receivables 77,264 67,245

The Company has no financial assets or liabilities other than the intercompany receivables in note 18. Where applicablethe Company complies with Group policies and risk management procedures as outlined above.


NOTES TOTHEACCOUNTS24. SHARE CAPITAL

Authorised Authorised Issued IssuedNo. £ No. £

Ordinary shares of £0.01 eachAt 1 January 2007 and 1 January 2008 150,000,000 1,500,000 99,579,750 995,798Issue of shares - - 62,500 625

At 31 December 2008 150,000,000 1,500,000 99,642,250 996,423

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

Share optionsAt 31 December 2008 the outstanding options to purchase ordinary shares in Wellstream Holdings PLC in accordancewith the terms of the applicable schemes are as detailed in note 25.

25. SHARE BASED PAYMENTSDuring the year ended 31 December 2008, the following material share based payment arrangements existed:

Save as You Save as YouType of arrangement Chairman’s Performance Earn scheme Earn scheme

Award Share Plan (5 year) (3 year)

Timing of grant 01 May 07 30 Aug 07 29 May 07 29 May 0714 May 08 31 May 08 31 May 08

Number of options granted in 2008 - 275,816 16,680 30,706

1 year – 62,5002 year – 62,500

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

Fair value per share for 2008 grant (p) - 1,292 482 405

1 year – 3112 year – 301

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

Method of settlement Equity Equity Equity Equity

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

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

Notes:(i) Where three fair values are given for the Chairman’s Award the first relates to an award which vested in 2008,

the second to an award which may vest in 2009 and the third to an award which may vest in 2010.

(ii) Options granted by invitation at an exercise price of £0.01. Options are exercisable at the end of a three year incentiveplan, with vesting subject to performance conditions based on aggregate earnings per share over a 3 year period from1 January 2007 for the 2007 grants and from 1 January 2008 for the 2008 grants. Participants are not entitled todividends in the period prior to exercise of the options.

(iii) 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 option.

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

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25. 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:

Save as You Save as You2008 Awards Performance Earn scheme Earn scheme

Share Plan (5 year) (3 year)

Grant date 14 May 08 31 May 08 31 May 08Share price date of grant (p) 1,415 1,363 1,363Exercise price (p) 1 1,286 1,286Volatility 41.00% 41.00% 41.00%Average expected term to exercise (minimum months) 36 61 37Date of vesting 14 Aug 11 30 Jun 13 30 Jun 11

Risk free rate (%) 5.50% 5.50% 5.50%Assumed long term dividend yield (%) 3.00% 3.00% 3.00%

Save as You Save as You2007 Awards Chairman’s Performance Earn scheme Earn scheme

Award Share Plan (5 year) (3 year)

Grant date 1 May 07 30 Aug 07 29 May 07 29 May 07Share price date of grant (p) 377 618 423 423Exercise price (p) 1 1 339 339Volatility 30.00% 30.00% 30.00% 30.00%Average expected term to exercise (minimum months) 36 36 61 37Date of vesting 1 May 2008 / 30 Aug 10 30 Jun 12 30 Jun 10

1 May 2009 /1 May 2010

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 toset an expectation for the purpose of option valuations. Therefore the expected share price volatility was determined byreference to 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.


NOTES TOTHEACCOUNTS25. SHARE BASED PAYMENTS (continued)Details of movements for share option schemes during the year ended 31 December 2008 and year ended31 December 2007 were as follows:

2008 2007Weighted Weighted

Equity settled Schemes Number of exercise Number of exerciseoptions price (p) options price (p)

SAYE 3 and 5 yearOutstanding at start of year 708,009 339 - -Granted during the period 47,386 1,286 710,628 339Exercised during the period - - - -Forfeited / Lapsed during the period (42,724) 708 (2,619) 339

Outstanding at end of year 712,671 380 708,009 339

Exercisable at end of year - - - -

Performance Share PlanOutstanding at start of year 453,701 1 - -Granted during the period 275,816 1 479,341 1Exercised during the period - - - -Forfeited / Lapsed during the period (16,690) 1 (25,640) 1



Chairman’s AwardOutstanding at start of year 234,375 1 - -Granted during the period - - 234,375 1Exercised during the period (62,500) 1 - -Forfeited during the period - - - -



For those awards exercised in the year, the weighted average share price at the date of exercise was 1,244p. The totalexpense recognised for the year arising from share based payments is disclosed in note 7.

As at 31 December 2008 the weighted average remaining contractual life is 28 months (2007 – 39 months) for share optionsoutstanding under the SAYE schemes, 23 months (2007 – 32 months) for share options outstanding under the PerformanceShare Plan and 12 months for awards granted to the Chairman.

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26. STATEMENT OF CHANGES IN EQUITYCapital

Share Share Translation redemption Retainedcapital premium reserve reserve earnings Total£000 £000 £000 £000 £000 £000

GroupAt 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 - - 7,578

Charge in relation to share options 1,267 1,267and tax thereon - - - -

At 1 January 2008 996 66,697 7,351 30 27,714 102,788Profit for the year - - - - 50,728 52,728Dividends paid - - - - (3,986) (3,986)Exchange difference on translationof overseas operations - - 8,603 - - 8,603

Charge in relation to share optionsand tax thereon - - - - 1,664 1,664

At 31 December 2008 996 66,697 15,954 30 78,120 161,797

Capital Share basedShare Share redemption payment Retainedcapital premium reserve reserve earnings Total£000 £000 £000 £000 £000 £000

CompanyAt 1 January 2007 21 943 - - 17 981Loss for the year - - - - (4,133) (4,133)Share based payment charge – IFRIC 11 - - - 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 1 January 2008 996 66,697 30 793 (472) 68,044Profit for the year - - - - 12,473 12,473Dividends paid - - - - (3,986) (3,986)Share based payment charge – IFRIC 11 - - - 2,126 - 2,126

At 31 December 2008 996 66,697 30 2,919 8,015 78,657


NOTES TOTHEACCOUNTS27. COMMITMENTS

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 a factory in Brazil, for whichthere is an initial lease term of 10 years, which may be extended for a further 10 years at the Group’s option with a revisedrental based on the prevailing market value. The terms of the lease include a base rental, included in the table below, anda contingent element to be calculated by reference to Group revenue.

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

2008 2007£000 £000

Within one year 5,560 7,279In the second to fifth years inclusive 20,631 23,359After five years 12,007 18,131

38,198 48,769

Capital and other financial commitments 2008 2007£000 £000

Contracts placed for future capital expenditure not provided in the financial statements 8,880 6,024

28. CONTINGENT LIABILITIESAt 31 December 2008 the Group had granted guarantees and performance bonds to third parties totaling £17,475,000(2007 – £10,374,000). Of this total £9,580,000 (2007 – £8,404,000) is in respect of Seastream JV Australia Pty Limited,the jointly controlled 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 SeastreamJV Australia 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’s bankersin respect of overdrawn balances on certain Group bank accounts and in respect of other overdrafts, loans and guaranteesgiven by the banks to or on behalf of other Group undertakings. At 31 December 2008 there were bank overdrafts of£6,803,000 (2007 – £5,148,000) and loans of £67,304,000 (2007 – £48,400,000).

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29. PENSION COSTSContributions are made to personal money purchase pension plans for eligible employees.

The pension charge for the directors for the period was £133,000 (2007 – £90,000). The charge for the personal pensionplans for all other employees was £1,256,000 (2007 – £684,000).

30. RELATED PARTY TRANSACTIONS

GroupTransactions between fellow subsidiaries which are related parties have been eliminated on consolidation and are not 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 “Relatedparty transactions”. Compensation paid to the Company’s Board of directors is disclosed in the Directors’ Remuneration Report.

During the year ended 31 December 2008, and since, neither any director nor any other executive officer, nor any associateof any director or any other executive officer, was indebted to the Company.

During the year the Group incurred a share based payment charge of £807,000 (2007 – £4,042,000) 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, or proposedtransactions, in which any member of the key management personnel (including directors, any spouse or relative of thedirectors, or any relative of such spouse), had or was to have a direct or indirect material interest.

Transactions with jointly controlled entities 2008 2007£000 £000

Amounts invoiced to jointly controlled entities in respect of corporate administration fees: 866 687

Amounts due from jointly controlled entities in respect of corporate administration fees: 67 687

Company 2008 2007£000 £000

Amounts due from Wellstream International Limited 67,250 67,245Amounts due from Wellstream Finance Limited 10,014 -

77,264 67,245

Dividends receivable from Wellstream Finance Limited 14,000 -

Amounts advanced to Wellstream International Limited - 66,578


SHAREHOLDERINFORMATIONPayment of dividendsA dividend of 6 pence per share will be payableto shareholders on the register as at 22 May 2009.

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

Investor Relations ManagerJason NunnWellstream Holdings PLC2nd floor68 Pall MallLondon, SW1Y 5ES+44 (0) 207 968 8200

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

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

Merrill LynchMerrill Lynch Financial Centre2 King Edward StLondon, EC1A 1HQ

ANNUAL GENERAL MEETING 12 MAY 2009Interim results to be announced around end of August 2009.

Website www.wellstream.comOur shares are traded under the London Stock Exchange ticker WSM. All regulatory announcementsand press releases 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.

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WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008SHAREHOLDER INFORMATION / GLOSSARY

GLOSSARY

Continuous Improvement Programme – Wellstream’sprogramme to improve efficiency and production at itsmanufacturing facilities

Deepwater – Water depths greater than 500 metres

EBITDA – Earnings before interest, tax, depreciationand amortisation

E&P – Exploration and production

Flexbarrier – Polymer fluid barrier layer of flexibleoffshore pipe

FlexSteel™ – A specially designed flexible pipe for usein onshore applications

Flowlines – Static pipelines used to carry fluids on thesea bed

Fluid transfer lines – Large diameter dynamic pipelinesoften hanging in a large “U” bend in the water columnconnecting to two structures which are often dynamic

FPSO – Floating Production, Storage and Offloading; aconverted or custom-built shipshaped floater, employedto process oil and gas for temporary storage of oil priorto transhipment

HSE – Health, Safety and Environmental

HSEQ – Health, Safety, Environmental and Quality

ID – Internal diameter

ISO 14001 – A global certification administered bythe International Organisation for Standardisation

ISO 9001 – A global certification administered by theInternational Organisation for Standardisation confirmingefficient and effective production processes

km – Kilometres

nKm – A normalised km is based on the work centre hoursrequired to produce a standard eight inch ID offshore pipeor a standard four inch ID onshore pipe. A relative time factoris applied to other pipes, where applicable, to convert actualproduction lengths and composition into normalised km

OHSAS 18001 – An international occupational healthand safety management system specification

PA12 – A new grade of nylon polymer developed jointlyby Wellstream International Limited and Degussa, usingDegussa’s trademarked product VESTAMID_ LX9020

PVDF – polyvinylidene fluoride

Reels – Devices around which lengthy continuous itemssuch as cables or flexible pipes are wrapped for transportationor storage

Revenue Backlog – Is the aggregate of revenue that hasnot been recognised in the accounts from contracts thathave been entered into and from contracts that the directorsare confident will be entered into and revenue that thedirectors are confident will arise in the next year from thePetrobras Framework Agreement. Further revenue fromthe Framework Agreement and orders from customersin the form of limited or non-binding commitments arenot included in revenue backlog

Riser – A pipe or assembly of pipes used to transferproduced fluids from the seabed to the surface facilitiesor to transfer injection fluids, control fluids or lift gas fromthe surface facilities and the seabed. Risers can be flexibleor hybrids of flexible and rigid pipe

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ANNUALGENERALMEETINGTOBEHELDAT 11AMON 12MAY 2009The Notice of Annual General Meeting of Wellstream Holdings PLC (the “Company”),to be held at 11am on Tuesday, 12 May 2009 at Credit Suisse, Times Place, 45 Pall Mall,London SW1Y 5JG, is set out on pages 90 to 97.

The action to be taken by Shareholders is set out on page 92.

THISDOCUMENT IS IMPORTANTANDREQUIRESYOUR IMMEDIATEATTENTIONIf you are in any doubt as to what action you should take, you are recommended to consultimmediately your stockbroker, bank manager, solicitor, accountant or other independent financialadvisor duly authorised under the Financial Services and Markets Act 2000 if you are resident inthe United Kingdom or, if you reside elsewhere, another appropriately authorised financial advisor.

If you have sold or otherwise transferred all your ordinary shares in the Company please forwardthis document, together with the accompanying documents to the purchaser or transferee of yourordinary shares or to the bank, stockbroker or other agent through whom the sale or transfer waseffected, for transmission to the purchaser or transferee.

NOTICEOFANNUALGENERALMEETING

WELLSTREAM HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2008NOTICE OF AGM

LETTER FROM THE CHAIRMANDear Shareholder

2009 Annual General MeetingIt is my great pleasure to be writing to you enclosing the Notice convening the Annual General Meeting of the Company,to be held at 11am on Tuesday, 12 May 2009 at Credit Suisse, Times Place, 45 Pall Mall, London SW1Y 5JG. The Noticedetails the business to be considered at the meeting and is set out on pages 90 to 97 of this document. The purpose ofthis letter is to explain certain elements of that business to you. A summary of the action to be taken by Shareholders isset out at the end of this letter, on page 92.

This year, as well as the ordinary business usually dealt with at an Annual General Meeting (“AGM”), there are five additionalitems of special business (Resolutions 9 to 13). The ordinary business includes motions to re-elect individually Mr. GordonChapman, Mr. Christopher Gill and Mr. Neil Gaskell and to elect Mr. Luis Araujo to the Board. Under the Company’s Articlesof Association, at each AGM of the Company one third of the directors retire by rotation. Short biographical details of eachdirector appear on pages 34 and 35 of the Annual Report. Having considered the performance of and contribution madeby each of the directors, the Board remains satisfied that the performance of each director continues to be effective andto demonstrate commitment to the role and, as such, recommends their re-election or election as the case may be.

The five additional items of special business for consideration at the AGM, of which resolutions 11, 12 and 13 will be proposedas special resolutions, are explained in this letter:

Resolution 9 – Increase in authorised share capitalThis resolution proposes that the authorised share capital of the Company be increased from £1,500,000 to £1,750,000,representing a percentage increase of approximately 17%. This increase is being sought in order to give the Companysufficient authorised share capital to take full advantage of the ability to allot ordinary shares under the authorities proposedin resolution 10.

Resolution 10 – Directors’ power to allot sharesParagraph (A) of this resolution would give the directors the authority to allot ordinary shares up to an aggregate nominalamount equal to £332,140 (representing 33,214,000 ordinary shares of £0.01 each). This amount represents approximatelyone-third of the issued ordinary share capital of the Company as at 31 March 2009.

In line with recent guidance issued by the Association of British Insurers (the “ABI”), paragraph (B) of this resolution wouldgive the directors authority to allot ordinary shares in connection with a rights issue in favour of ordinary shareholders up to anaggregate nominal amount equal to £664,280 (representing 66,428,000 ordinary shares), as reduced by the nominal amountof any shares issued under paragraph (A) of this resolution. This amount (before any reduction) represents approximatelytwo-thirds of the issued ordinary share capital of the Company as at 31 March 2009. If this authority is exercised, thedirectors intend to follow ABI guidance issued from time to time (including as to the re-election of directors).

The authorities sought under paragraphs (A) and (B) of this resolution will expire at the earlier of 30 June 2010 (the last dateby which the Company must hold an Annual General Meeting in 2010) and the conclusion of the Annual General Meetingof the Company held in 2010.

The directors have no present intention to exercise either of the authorities sought under this resolution.

As at the date of the Notice, no ordinary shares are held by the Company in treasury.

Resolution 11 – Dis-application of pre-emption rightsThis resolution will be proposed as a special resolution, which requires a 75% majority of the votes to be cast in favour.It would give the directors the authority to allot ordinary shares (or sell any ordinary shares which the Company elects tohold in treasury) for cash without first offering them to existing shareholders in proportion to their existing shareholdings.

Wellstream Holdings PLCWellstream HouseWincomblee RoadWalker Riverside

Newcastle upon TyneNE6 3PF

Tel: +44 (0)191 295 9000Fax: +44 (0)191 295 9001

31 March 2009

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Except as provided in the next paragraph, this authority would be, similar to previous years, limited to allotments or salesin connection with pre-emptive offers and offers to holders of other equity securities if required by the rights of those sharesor as the Board otherwise considers necessary, or otherwise up to an aggregate nominal amount of £49,821 (representing4,982,100 ordinary shares). This aggregate nominal amount represents approximately 5% of the issued ordinary sharecapital of the Company as at 31 March 2009. In respect of this aggregate nominal amount, the directors confirm theirintention to follow the provisions of the Pre-Emption Group’s Statement of Principles regarding cumulative usage ofauthorities within a rolling 3-year period where the Principles provide that usage in excess of 7.5% should not take placewithout prior consultation with shareholders.

Allotments made under the authorisation in paragraph (B) of resolution 10 would be limited to allotments by way of a rightsissue only (subject to the right of the Board to impose necessary or appropriate limitations to deal with, for example,fractional entitlements and regulatory matters).

The authority will expire at the earlier of 30 June 2010 (the last date by which the Company must hold an Annual GeneralMeeting in 2010) and the conclusion of the Annual General Meeting of the Company held in 2010.

Resolution 12 – Power to purchase sharesResolution 12 will be proposed as a special resolution which requires a 75% majority of the votes to be cast in favour.It would enable the Company to purchase in the market up to a maximum of 9,964,225 ordinary shares (representing 10%of the Company’s issued ordinary share capital on 31 March 2009) for cancellation at a minimum price of £0.01 per shareand a maximum price of not more than 5% above the average of the middle market quotations for an ordinary share asderived from The London Stock Exchange Daily Official List for the five business days immediately preceding the day onwhich that ordinary share is purchased.

The authority will expire at the earlier of 30 June 2010 (the last date by which the Company must hold an Annual GeneralMeeting in 2010) and the conclusion of the Annual General Meeting of the Company held in 2010.

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

Resolution 13 – Notice of general meetingsResolution 13 will be proposed as a special resolution which requires a 75% majority of the votes to be cast in favour.This resolution is required to reflect the proposed implementation in August 2009 of the Shareholder Rights Directive.The regulation implementing this Directive will increase the notice period for general meetings of the Company to 21 days.The Company is currently able to call general meetings (other than an AGM) on 14 clear days’ notice and would like topreserve this ability. In order to be able to do so after August 2009, shareholders must have approved the calling of meetingson 14 days’ notice. Resolution 13 seeks such approval. The approval will be effective until the Company’s next AnnualGeneral Meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet therequirements for electronic voting under the Directive before it can call a general meeting on 14 days’ notice.

Action to be taken by ShareholdersAccompanying this document are the Annual Report and Accounts 2008 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 11am on Friday 8 May 2009.

A map showing how to get to Credit Suisse, Times Place, 45 Pall Mall, London SW1Y 5JG has also been included.

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

John KennedyChairman

NOTICEOFANNUALGENERALMEETING


NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of Wellstream Holdings PLC (the “Company”) will beheld at Credit Suisse, Times Place, 45 Pall Mall, London SW1Y 5JG on Tuesday, 12 May 2009 at 11am. Resolutions 11,12 and 13 will be proposed as Special Resolutions and the remainder as Ordinary Resolutions. Pursuant to the Company’sArticles of Association, items 1 to 8 are Ordinary Business and items 9 to 13 are deemed Special Business.

RESOLUTION 1To receive the Company’s annual accounts for the financial year ended 31 December 2008, together with the Directors’Report, the Directors’ Remuneration Report and the Auditors’ Report on those accounts and on the auditable part of theDirectors’ Remuneration Report.

RESOLUTION 2To reappoint Deloitte LLP as auditors to hold office from the conclusion of this meeting until the conclusion of the nextgeneral meeting of the Company at which accounts are laid and to authorise the directors to fix their remuneration.

RESOLUTION 3To re-elect Mr. Gordon Chapman as a director of the Company.

RESOLUTION 4To re-elect Mr. Christopher Gill as a director of the Company.

RESOLUTION 5To re-elect Mr. Neil Gaskell as a director of the Company.

RESOLUTION 6To elect Mr. Luis Araujo as a director of the Company.

RESOLUTION 7To approve the Directors’ Remuneration Report for the financial year ended 31 December 2008.

RESOLUTION 8To declare a final dividend for the year ended 31 December 2008 of 6 p per ordinary share payable to shareholderson the register at the close of business on 22 May 2009.

RESOLUTION 9THAT the authorised share capital of the Company be and is hereby increased from £1,500,000 to £1,750,000 by thecreation of an additional 25,000,000 ordinary shares of £0.01 each in the Company.

RESOLUTION 10THAT, in substitution for all existing authorities, the directors be generally and unconditionally authorised to exerciseall the powers of the Company to allot:

(A) relevant securities (as defined in the Companies Act 1985) up to an aggregate nominal amount of £332,140; and

(B) relevant securities comprising equity securities (as defined in the Companies Act 1985) up to an aggregate nominalamount of £664,280 (such amount to be reduced by the aggregate nominal amount of relevant securities issuedunder paragraph (A) of this resolution 10) in connection with an offer by way of a rights issue:

(i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and

(ii) to holders of other equity securities as required by the rights of those securities or, subject to such rights,as the directors otherwise consider necessary,

and so that the directors may impose any limits or restrictions and make any arrangements which they considernecessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory orpractical problems in, or under the laws of, any territory or any other matter,

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NOTICEOFANNUALGENERALMEETINGsuch authorities to apply until the end of the Company’s next Annual General Meeting after this resolution is passed (or, ifearlier, until the close of business on 30 June 2010) but, in each case, so that the Company may make offers and enter intoagreements before the authority expires which would, or might, require relevant securities to be allotted after the authorityexpires and the directors may allot relevant securities under any such offer or agreement as if the authority had not expired.

RESOLUTION 11THAT, in substitution for all existing powers and subject to the passing of resolution 10, the directors be generally empoweredto allot equity securities (as defined in the Companies Act 1985) for cash pursuant to the authority granted by resolution 10and/or where the allotment constitutes an allotment of equity securities by virtue of section 94(3A) of the Companies Act1985, in each case free of the restriction in section 89(1) of the Companies Act 1985, such power to be limited:

(A) to the allotment of equity securities in connection with an offer of equity securities (but in the case of an allotmentpursuant to the authority granted by paragraph (B) of resolution 10, such power shall be limited to the allotment ofequity securities in connection with an offer by way of a rights issue only):

(i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and

(ii) to holders of other equity securities, as required by the rights of those securities or, subject to such rights,as the directors otherwise consider necessary,

and so that the directors may impose any limits or restrictions and make any arrangements which they considernecessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory orpractical problems in, or under the laws of, any territory or any other matter; and

(B) to the allotment of equity securities pursuant to the authority granted by paragraph (A) of resolution 10 and/or anallotment which constitutes an allotment of equity securities by virtue of section 94(3A) of the Companies Act 1985(in each case otherwise than in the circumstances set out in paragraph (A) of this resolution 11) up to a nominalamount of £49,821.

such power to apply until the end of the Company’s next Annual General Meeting after this resolution is passed (or, if earlier,until the close of business on 30 June 2010) but so that the Company may make offers and enter into agreements beforethe power expires which would, or might, require equity securities to be allotted after the power expires and the directorsmay allot equity securities under any such offer or agreement as if the power had not expired.

RESOLUTION 12THAT the Company be generally and unconditionally authorised to make one or more market purchases (within themeaning of section 163(3) of the Companies Act 1985) of ordinary shares of £0.01 each in the capital of the Company(“ordinary shares”) provided that:

(a) the maximum aggregate number of ordinary shares authorised to be purchased is 9,964,225 (representing10% 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% of the average of themiddle market quotations for an ordinary share as derived from The London Stock Exchange Daily Official Listfor the five business days immediately preceding the day on which that ordinary share is purchased;

(d) this authority expires the date of the next Annual General Meeting of the Company after the passing of this resolutionor, if earlier, 30 June 2010; and the Company may make a contract to purchase ordinary shares under this authoritybefore the expiry of the authority which will or may be executed wholly or partly after the expiry of the authority, andmay make a purchase of ordinary shares in pursuance of any such contract.


RESOLUTION 13THAT a general meeting other than an Annual General Meeting may be called on not less than 14 clear days’ notice.

By order of the BoardRob LambCompany Secretary31 March 2009

Registered Office:Wellstream HouseWincomblee RoadWalker RiversideNewcastle upon TyneNE6 3PFRegistered in England and Wales No. 4601199

NOTES1. 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 proxyis appointed to exercise the rights attached to different shares. A proxy need not be a member of the Company.

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

3. To be effective, the proxy form or instrument appointing a proxy and any authority under which it is executed (or anotarially certified copy of such authority) must be deposited at the Company’s registrars, Equiniti, at Aspect House,Spencer Road, Lancing BN99 6ZR by 11am on Friday 8 May 2009. A form of proxy is enclosed with this Notice. Deliveryor receipt of an appointment of proxy does not prevent a member attending and voting in person at the meeting.

4. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members enteredon the relevant register of members of the Company as at 6pm on 10 May 2009 shall be entitled to attend or voteat the meeting in respect of the number of shares registered in their name at that time. Changes to entries on therelevant register of members after 6pm on 10 May 2009 shall be disregarded in determining the rights of any personto attend or vote at the meeting.

5. The register referred to in note 4 means the issuer register of members and the operator register of membersmaintained in accordance with Regulation 20 of the Uncertificated Securities Regulations 2001.

6. Copies of the letters of appointment for the non-executive directors of the Company will be available for inspectionat the Company’s registered office, Wellstream House, Wincomblee Road, Walker Riverside, Newcastle upon Tyne,NE6 3PF, and at Clifford Chance LLP, 10 Upper Bank Street, London E14 5JJ, during usual business hours on anyweekday (public holidays excluded) from the date of this Notice until the close of the AGM and will also be availablefor inspection at Credit Suisse, Times Place, 45 Pall Mall, London SW1Y 5JG from 10am on Tuesday, 12 May 2009until the end of the meeting.

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NOTICEOFANNUALGENERALMEETING7. At 31 March 2009 (being the last business day prior to the publication of this Notice) the issued share capital of the

Company consists of 99,642,250 ordinary shares, carrying one vote each. Therefore, the total voting rights in theCompany as at 31 March 2009 are 99,642,250.

8. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meetingso that: (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate representative withinstructions to vote on a poll in accordance with the directions of all of the other corporate representatives for thatshareholder at the meeting, then on a poll those corporate representatives will give voting directions to the Chairmanand the Chairman will 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 the meeting but the corporateshareholder has not appointed the Chairman of the meeting as its corporate representative, a designated corporaterepresentative will be nominated, from those corporate representatives who attend, who will vote on a poll and theother corporate representatives will give voting directions to that designated corporate representative. Corporateshareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators onproxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. The guidance includesa sample form of representation letter if the Chairman is being appointed as described in (i) above.


WELLSTREAM HOLDINGS PLC

Wellstream House,Wincomblee Road,Walker Riverside,Newcastle upon Tyne NE6 3PF

Telephone: +44 (0) 191 295 9000www.wellstream.com

Company Number 4601199

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