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Interim Results

Wood Group operational profit falls

22 August 2017 07:54

Wood Group said operational profit fell 32.1% to $72m in the six months to 30 June 2017.

In December 2016, we highlighted challenges in our core oil & gas market that we felt were likely to persist in 2017.

We expected to see indications of recovery in certain markets - US onshore including shale, offshore upstream engineering and automation. We also noted the commercial close out of a number of projects in 2016.

Overall, these themes have played out largely as expected in the first half although the macro environment has been more volatile.

As a result we have seen an increasing focus on efficiency by operators and some evidence of further deferrals in customer spending, which has decreased for a third successive year.

In the first half total revenue fell by 11% and total EBITA was down 23%. Robust performance in the West including, improved activity in offshore greenfield project engineering and commissioning and modest improvement in US onshore activity, was more than offset by weaker activity in the East, where we have seen a significant reduction in projects & modifications work, particularly in the North Sea.

In Specialist Technical Solutions, growth in automation and robust activity in technology related work was offset by weaker performance in subsea.

Our continued focus on utilisation and the enduring benefit of our actions in the last 30 months around reorganisation and back office efficiency are delivering sustainable structural cost reductions. Overheads were $44m lower than H1 2016.

We remain focused on managing utilisation in light of prevailing market conditions. Underlying headcount, excluding acquisitions, is down 34% since the start of 2015. We have seen a modest increase in headcount since the start of the year.

Profit for the period was impacted by exceptional costs of $47.6m. This included $25.2m in respect of costs relating to the acquisition of Amec Foster Wheeler, comprising advisory fees of $19.7m and underwriting fees in respect of new debt facilities of $5.5m.

We also made a provision for $15.9m in relation to an ongoing subcontractor dispute on the Dorad contract which was substantially completed prior to the formation of EthosEnergy.

In May we acquired CEC in the US for an initial consideration of $49.8m, further enhancing our automation process & control capabilities in the automotive, aerospace, logistics, water, and pharmaceuticals sectors. We have continued to progress our strategic options for EthosEnergy and have commenced a disposal process.

Our internal investigation into Wood Group's historical engagement of Unaoil is substantially progressed and we will be proceeding to share our findings with the Crown Office on a voluntary basis.

As previously disclosed, this investigation has confirmed that a Wood Group joint venture made payments to Unaoil.

The investigation has not confirmed that the payments made were used by Unaoil in ways that would amount to bribery, corruption or money laundering offences or that there was any involvement in or knowledge of bribery, corruption or money laundering offences on the part of Wood Group companies, the joint venture or their personnel.

The Group is in a strong financial position. Net debt was $490m and Net debt : EBITDA is 1.2x.

We have seen a slight improvement in Days Sales Outstanding as administrative and billing issues with certain of our customers were resolved during the first half and we expect further improvement to lead to a better working capital position in the second half.

We have declared an interim dividend of 11.1 cents per share which will be paid on 28 September 2017 to shareholders on the register on 1 September 2017.

This is an increase of 3% in line with our progressive dividend policy.

OUTLOOK

Our view on the full year has not changed from the half year trading update.

The themes identified in December 2016 have played out largely as expected in the first half and although the market continues to present challenges, we do anticipate a stronger second half performance in 2017.

Further growth in US onshore operations in ALCS Western Region and increased activity in Asia Pacific and the Middle East in ALCS Eastern Region are expected to contribute to a stronger second half.

In STS, growth is anticipated in automation where we continue to work on the Tengiz expansion project.

Whilst pricing on new work remains very competitive, group margins should benefit from further cost saving and business efficiency initiatives.

Story provided by StockMarketWire.com

Related Company: WG.

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