TIDMWG.
RNS Number : 4149D
Wood Group (John) PLC
26 June 2019
26 June 2019
Pre-close trading update for the six months to 30 June 2019
Delivering significant growth in operating profit and margin
improvement
"Our first half performance is ahead of prior year. We have
delivered significant growth in operating profit together with
EBITDA margin improvement. This has been led by our activities in
energy markets in the eastern hemisphere and our environment and
infrastructure operations in North America, together with the
delivery of further cost synergies. Our expectation of revenue
growth, strong earnings growth and cash generation in 2019 is
unchanged."
Robin Watson, Chief Executive
Trading performance and outlook
Performance in the first half is up on the prior year. Revenue
is line in with H1 2018 and we have delivered earnings growth and
margin improvement. Our operational margin improvement has been led
by relative strength in energy related activity in Asset Solutions
EAAA and in built environment activity within Environment &
Infrastructure Solutions, together with further cost synergy
delivery. Excluding the impact of IFRS 16, adjusted EBITDA(2)
("EBITDA") in the first half will be up around 7% and operating
profit(2) (pre-exceptional items) will be up around 25% on H1
2018.
Our full year outlook is unchanged, despite the impact of
disposals completed in H1 which contributed EBITDA of over $20m in
2018. Revenue growth in the region of 5% weighted to the second
half, together with the benefit of cost synergies of around $60m,
is expected to lead to growth in adjusted EBITDA in line with
market expectations(1) .
As expected, net debt (excluding the impact of IFRS 16) at the
end of June will be c$1.6bn, broadly in line with the 2018 year end
position. This reflects the benefit of first half earnings growth
and our continued focus on the active management of working capital
offset by the final dividend payment of $159m in May, the payment
of known exceptionals and cash outflows on contract provisions
including Aegis, as expected.
There is no change to our expectations on cash conversion and
net debt guidance for the full year. We expect a modest reduction
in absolute net debt excluding the impact of disposals.
Current trading across our business units is set out below. Our
activities address four main markets across energy and the built
environment. Around 40% of our activity is in upstream &
midstream, c20% in chemicals & downstream and around 25% of our
business is in renewables & other energy. The built environment
accounts for the remaining 15%.
Asset Solutions Americas ("ASA") (c35% of Revenue)
As anticipated, revenue in ASA is up on H1 2018. EBITDA is
slightly down due to cost overruns in heavy civils and pipeline
work related to weather delays and execution issues in the first
quarter. We are seeing increased activity in downstream and
chemicals from our EPC scope for a Gulf Coast plastics
manufacturing facility and the YCI methanol plant. There is good
activity in US shale focused on facilities and pipelines in the
Permian and Niobrara. We have improving visibility on early stage
concept and FEED projects in offshore upstream work. Solar and wind
project awards will contribute to increased activity in H2.
Operations solutions activity levels are expected to be up on 2018
although the market remains competitive.
Asset Solutions Europe, Africa, Asia and Australia ("ASEAAA")
(c35% of Revenue)
ASEAAA generated revenue in line with H1 2018 and delivered good
EBITDA growth. Underlying margins benefitted from good execution,
changes in revenue mix which included lower procurement revenues,
and cost synergies. We saw relative strength from operations
solutions work in the Middle East, driven by Iraq and the Caspian
and growth in Asia Pacific, from Papua New Guinea and Australia,
which is expected to continue. We also delivered stronger
performance in our turbine joint ventures including EthosEnergy.
Capital Projects performance in H1 reflected lower procurement
activity and benefitted from work on the FEED and project
management consultancy scopes for Aramco, on both the Marjan field
and the integrated crude oils to chemicals complex. Increased
activity is anticipated in H2 across ASEAAA led by Capital
Projects, Middle East and Caspian.
Specialist Technical Solutions ("STS") (c15% of Revenue)
Revenue and EBITDA performance in STS is in line with H1 2018.
We are seeing good revenue growth in our subsea and technology
& consulting activities. Activity on the STS-led scope of the
TCO Automation project is reducing as expected, as the contract
progresses towards the next phase. We continue to expect earnings
to benefit from margin improvement initiatives. These will more
than offset the reduction in earnings following the disposal of
Terra Nova Technologies in May, which contributed adjusted EBITDA
of around $7m in 2018.
Environment and Infrastructure Solutions ("E&IS") (c15% of
Revenue)
E&IS delivered good growth in revenues and an improved
margin performance in the first half of 2019, benefitting from
government and industrial spending increases in the US and Canada,
which are expected to continue supporting activity. EBITDA is
benefitting from improved performance in capital projects due to
our decision not to pursue certain higher risk, fixed price
contracts. We continue to expect the Aegis project to be
substantially complete around the end of 2019 with commercial close
out expected in 2021.
Capital structure
We remain committed to a strong balance sheet and achieving our
target leverage of 1.5x net debt to adjusted EBITDA on a pre-IFRS
16 basis. There is no change to our full year guidance; we expect a
modest reduction in absolute net debt excluding the impact of
disposals. We continue to expect cash conversion, post exceptional
items, to remain strong at 80-85% for the full year, taking into
consideration the structural improvement in working capital
management, lower cash exceptionals of c$100m and the anticipated
cash outflows on Aegis of c$80m. Cash exceptionals and cash
outflows on Aegis are expected to reduce significantly in 2020.
We have made further progress on disposals in the period with
proceeds of $38m relating to the sale of Terra Nova Technologies
received in May. A number of active sales processes are underway
and we remain confident of generating proceeds in aggregate of
$200m to $300m.
As expected, net debt (excluding the impact of IFRS 16) at the
end of June will be c$1.6bn, broadly in line with the 2018 year end
position. This reflects the benefit of first half earnings growth
and our continued focus on the active management of working capital
offset by the final dividend payment of $159m in May, the payment
of known exceptionals and cash outflows on contract provisions
including Aegis, as expected.
Financing
Following a $140m part refinancing in Q1 2019, we have made
further progress with the refinancing of our existing term loan
facility which is due to mature in October 2020, securing $364m
from US private placement providers in June. This extends the
maturity of our debt profile and further diversifies our sources of
long term finance at competitive rates, with the majority
comprising a mix of seven to 12 year redemption dates at a fixed
rate of around 5%. The refinancing has no material impact on our
expectations for the full year interest expense.
Adoption of IFRS 16
IFRS 16 Leases became effective on 1 January 2019. The most
significant change for Wood is the accounting for property leases.
Rental charges that were previously recorded in operating costs in
respect of these leases will now be replaced with depreciation and
an interest charge. We have chosen to apply the modified
retrospective approach on adoption of IFRS 16 and, using this
approach, there is no restatement of 2018 comparatives in 2019. We
anticipate that 2019 adjusted EBITDA will increase by c$170m due to
these accounting changes. Overall we expect the impact on the
profit/ (loss) for the year from continuing operations to be
immaterial. A lease liability of around $570m will be recognised on
the balance sheet. All of our financing covenants are set on a
frozen GAAP basis, so will not be impacted by the adoption of the
standard.
Conference call
A telephone conference call for analysts will be held at 8.30am
today; participant dial-in details below:
UK: 0800 376 7922
International: +44 2071 928 000
Conference ID: 3684429
- ends -
1. Company compiled, publicly available consensus comprises seven
analysts who have published estimates since our 2019 results announcement
on 19 March 2019 that reflect both changes to our reporting metrics
and the impact of IFRS 16: Bank of America Merrill Lynch, Morgan
Stanley, UBS, Redburn, Jefferies, HSBC and Berenberg. Consensus
Adjusted EBITDA, including the impact of IFRS 16 is $927m, Consensus
Operating Profit (pre exceptional items) is $457m and Consensus
AEPS is 55.6c.
(https://www.woodplc.com/investors/analyst-consensus-and-coverage)
2. Changes to profit reporting in 2019 - As disclosed at the full
year results in March, Wood will simplify its reporting for the
reporting periods ending on 30 June 2019 onwards. These changes
align Wood's principal reporting metrics with IFRS measures and
facilitate comparison across peers. There will be no reduction
in the level of accounting disclosure at the Wood or business
unit level. At the Group level Wood's primary reporting metrics,
and the management discussion and analysis of those metrics in
reporting, will align with IFRS definitions of revenue and profit,
that is, Operating Profit (pre-exceptional items). Wood will no
longer report proportionally consolidated results.
Adjusted EBITDA (pre-exceptional items, including joint ventures)
will be adopted as an additional non-statutory /'non-GAAP' measure
of profit. This will be presented at the Group and Business Unit
level to report underlying financial performance and facilitate
comparison with peers.
Adjusted Diluted EPS will also be presented, defined as "earnings
before exceptional items and amortisation relating to acquisitions,
net of tax, divided by the weighted average number of ordinary
shares in issue during the period". In contrast to previous reporting,
the measure will be stated before amortisation arising from acquisitions
only and not amortisation relating to other intangibles such as
software costs.
Notes to editors
Wood is a global leader in the delivery of project, engineering
and technical services in energy, industry and the built
environment. We operate in more than 60 countries, employing around
60,000 people, with revenues of around $11 billion. We provide
performance-driven solutions throughout the asset life-cycle, from
concept to decommissioning across a broad range of industrial
markets including the upstream, midstream and downstream oil &
gas, power & process, environment and infrastructure, clean
energy, mining, nuclear and general industrial sectors.
www.woodplc.com
For further information contact:
Wood
Andrew Rose - Group Head of Investor Relations 01224 532 716
Ellie Dixon - Investor Relations Senior
Manager 01224 851 369
Citigate Dewe Rogerson
Kevin Smith 020 7638 9571
Chris Barrie
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END
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