TIDMWG.
RNS Number : 4359Q
Wood Group (John) PLC
19 June 2020
19 June 2020
This announcement contains inside information
John Wood Group PLC ('Company')
LEI: 549300PLYY6I10B6S323
Trading Update for the six months ended 30 June 2020
"The global engineering and consultancy market is facing unique
and unparalleled challenges in 2020 from Covid-19 and volatility in
oil prices. The safety of our people, clients and suppliers remains
our top priority through this period. Despite the disruption, we
are continuing to successfully win and execute work, supported by
our strategy of broadening the business across the global energy
market & the built environment. The relative strength we are
seeing in chemicals & downstream, the built environment and
renewables, where we will double our revenues in 2020, is helping
to mitigate the impact of challenging conditions in upstream and
midstream oil & gas. We have a proven track record of
leveraging our flexible, asset light model at pace to protect
margin and in Q2 completed the actions required to deliver overhead
cost savings of over $200m in FY 2020" - Robin Watson, Chief
Executive
Highlights
-- Focus on safety and service delivery: 40,000 people successfully
working remotely and site- based employees enabled to work
safely
-- Commitment to reduce scope 1 and 2 greenhouse gas emissions
by 40% by 2030
-- Protecting margin: early actions taken to maintain utilisation
and align overheads with reduced activity levels. H1 margins
on a like for like basis down c70bps. Adjusted EBITDA margins
in ASEAAA maintained and improved in TCS. ASA margins impacted
by cost overruns on the legacy energy projects. Actions to
deliver >$200m overhead savings in FY 2020 already complete
-- Continuing to execute work: Like for like(2) H1 revenues
down c11% and adjusted EBITDA down c19%. Relatively robust
activity in chemicals & downstream and built environment
markets. Increased renewables activity
-- Continuing to win work: Secured $1.3bn of new orders in April
and May reflecting the breadth of our business. Evidenced
by EPC work for GSK, onshore wind and solar EPC awards in
the US, EPCm award to increase production of an oilfield
in Iraq, LNG renewal in Asia Pacific and a five year framework
agreement with the US Navy for engineering, design and maintenance
of fuel installations
-- Strategy to broaden business reflected in changing profile.
Renewables activity up 4% and upstream & midstream activity
down 5%
-- Strong balance sheet and liquidity. Expect net debt(3) at
30 June 2020 to reduce from $1.43bn at December 2019 following
Q1 disposals
-- FY2020 outlook: Remain focused on protecting our margin in
line with our strategic objectives whilst prepared for a
broad range of outcomes on activity
Focus on safety and service delivery
The safety of our people, clients and suppliers is our top
priority. Since the start of April, we have had over 40,000 people
successfully working remotely. Their effectiveness in delivering
for customers is supporting continued demand for our services and
informs our cautious approach to plans for returning to the
workplace. In addition, Wood employees continue to work safely at
customer sites supporting vital services across the world.
Protecting margin: completed actions to deliver overhead
reductions of >$200m in FY2020
We have a proven track record of protecting margin by leveraging
our flexible asset light model in response to changing market
conditions. In the second quarter we have taken swift action to
make significant adjustments to the overhead cost base in
anticipation of reduced activity levels, and have accelerated the
strategic margin improvement initiatives committed to in our
Capital Markets presentation in November 2019.
With a focus on pace of delivery, we have completed the actions
required to deliver overhead costs saving of over $200m for FY
2020. These early and decisive actions have allowed us to mitigate
the impact of reduced activity. The full benefit will be recognised
in H2 leading to a stronger second half margin performance. The
actions taken include:
-- Voluntary Salary Reductions. The Board, executive directors,
senior leaders and others elected to take a temporary 10%
reduction in base salary effective from 1 April for 9 months.
-- Headcount reductions, temporary furloughing, reduced working
hours, unpaid leave and operational salary reductions.
-- Other overhead cost reductions including the stoppage of
discretionary spend, travel costs and increased utilisation
of shared service centres and high value engineering centres.
Continuing to win and execute work: H1 2020 trading
performance
In the first half we have seen the effect on our business of the
unprecedented events of Covid-19, its impact on the global economy,
and significant levels of oil price volatility. This has reinforced
our view that our strategy to substantially broaden our consulting,
projects and operations business across diverse energy and built
environment markets has been the right one. Around 85% of our
business is energy related, of which c35% is upstream and midstream
oil & gas, c25% is chemicals & downstream and c25% is
renewables and other energy. The built environment market accounts
for around 15% of activity.
On a like for like basis(2) , adjusting for the disposals of the
nuclear and industrial services businesses in Q12020, first half
revenues will be down around 11% on H1 2019 demonstrating the
resilience of demand for our services across a diverse market
footprint. Reflecting the timing of macro challenges, the fall in
H1 revenues was heavily weighted to the second quarter. Revenue in
the second quarter is expected to be $2.0bn. First half revenue
included increased renewables activity and relatively robust
activity in chemicals & downstream and built environment
markets. Adjusted EBITDA on a like for like basis will be down
around 19% with margins down c70bps. This reflects the benefit of
our actions to protect margins, together with the impact of cost
overruns of on the legacy energy projects in ASA.
On a reported basis, revenue will be around $4.1bn, adjusted
EBITDA will be around $295m to $305m and operating profit before
exceptionals will be around $80m to $90m.
Asset Solutions Americas ("ASA") (c40% of H1 Revenue)
Revenues have remained relatively robust in H1, down c8% on H1
2019. This reflects continued strength in capital projects activity
in chemicals & downstream as projects, including the YCI
methanol plant and the GCGV plastics facility, continue to progress
well. We are also seeing higher activity in solar and wind work.
Market conditions in upstream and midstream work are challenging.
Adjusted EBITDA margins will be down on H1 2019. This reflects
lower activity generally and cost overruns of c$30m on the legacy
energy projects from 2019 which we are progressing to completion,
partially offset by overhead cost reductions.
Asset Solutions EAAA ("AS EAAA") (c30% of H1 Revenue)
Like for like revenue, adjusting for the disposal of the
industrial services business, is down c11% on H1 2019. Robust
activity levels on capital projects work in chemicals &
downstream is being more than offset by lower levels of upstream
oil & gas work. Adjusted EBITDA margins are in line with H1
2019 reflecting the benefits of swift action on utilisation and
cost management in response to lower activity.
Technical Consulting Solutions ("TCS") (c30% of H1 Revenue)
In Q4 2019, the formation of TCS brought together the
capabilities of STS and E&IS into a combined, more efficient,
global and industry leading consulting offering. Like for like
revenue, adjusting for the disposal of the nuclear business is down
c15% on H1 2019. The reduction in revenues reflects the decision
not to pursue higher risk and lower margin construction contracts
and the expected roll off of automation work on TCO. Activity in
the built environment market, which accounted for around 45% of
revenues in the first half, was relatively resilient. Adjusted
EBITDA margins are up on H1 2019 benefitting from our strategic
margin focus and the synergy delivery initiatives which started in
Q4 2019.
Strong balance sheet & liquidity
Wood has considerable financial headroom. Our financing
facilities of over $3bn include bilateral term loans of $300m, a
revolving credit facility of $1.75bn and US private placement debt
of c$880m. The bilateral and revolving credit facilities have a
maturity date of May 2022. The US private placement debt has a
variety of maturity dates between 2021 and 2031 with first maturity
of $77m in late 2021 and the majority weighted to later dates.
Covenants are set at 3.5x pre-IFRS 16 EBITDA.
At 31 December 2019 net debt was $1.42bn (2.0x pre-IFRS 16
EBITDA). In the first half of 2020:
-- The disposals of our nuclear and industrial services businesses
generated proceeds of c$399m
-- The Board withdrew its recommendation to approve the final
dividend of c$160m
-- The current trading environment presents inherent challenges
to forecasting working capital movements and we are closely
monitoring customer payments. As we set out in our previous
guidance, we expect an unwind of advance payments and our
typical H1 movement will result in a working capital outflow
-- Capex reductions in relation to ERP and other discretionary
spend were implemented
-- Cash exceptional costs of c$55m were incurred relating
to the actions taken to deliver overhead cost savings in
response to market conditions, regulatory investigations
and prior year onerous leases
Overall, we expect net debt(3) at 30 June 2020 to reduce from
the December 2019 position of $1.42bn.
FY 2020 Outlook
We are focused on protecting our margin in line with our
strategic objectives by managing operational utilisation and
delivering >$200m of overhead cost reductions to deliver
significantly stronger second half margin performance.
Order book at the end of May was $7.0bn, down c11% since
December 2019, of which c$3.5bn is due to be delivered in 2020.
During April and May, we booked new orders of $1.3bn including;
engineering, procurement and construction work for GSK, onshore
wind and solar EPC awards in the US, EPCm to increase production of
an oilfield in Iraq, and an LNG renewal in Asia Pacific. We also
secured a five year framework agreement with the US Navy for
engineering, design and maintenance of fuel installations.
Typically, around 80% of our full year revenues are either
delivered or secured at this point in the year. However, in 2020
the risk of further delays and postponements persists and we are
prepared for a wider range of outcomes depending on activity across
our broad end markets. Our completed actions to protect margin give
us confidence in delivering significantly stronger margins in the
second half.
Notes:
1. All figures in this trading update are unaudited.
2. Adjusted EBITDA on a like for like basis is calculated
as adjusted EBITDA less the adjusted EBITDA from disposals
executed in the first half of 2020, and is presented as
a measure of underlying business performance excluding
businesses disposed. In the first quarter of 2020, executed
disposals consisted of our nuclear and industrial services
businesses. 2019 H1 revenue of $4,788m included $235m
relating to businesses disposed. 2019 H1 adjusted EBITDA
included $23m relating to businesses disposed.
3. Net debt is stated excluding liabilities related to leases,
including those recognised under IFRS 16 .
Conference call
A telephone conference call for analysts will be held at 8.30am
today; participant dial-in details below:
Dial in details:
UK: 0800 376 7922
International: +44 2071 928 000
Conference ID: 4389856
You can also listen to the call via an audio-only webcast using
the link below:
https://edge.media-server.com/mmc/p/nh7sf8xu
Notification authorised by:
Martin J McIntyre
Group General Counsel and Company Secretary
Note to Editors:
Wood is a global leader in consulting, projects and operations
solutions in energy and the built environment . www.woodplc.com
Wood
Andrew Rose - Group Head of Investor 01224 532
Relations 716
Ellie Dixon - Investor Relations Senior 01224 851
Manager 369
Citigate Dewe Rogerson
020 7638
Kevin Smith 9571
Chris Barrie
Wood's financial advisers are not responsible to anyone other
than the Company
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END
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