TIDMWG.
RNS Number : 9530Z
Wood Group (John) PLC
16 January 2020
16 January 2020
Trading update for the year ended 31 December 2019
"Our full year 2019 results will demonstrate earnings growth,
margin improvement and strong operational cash generation,
resulting in a reduction in net debt. In Q4 we outlined our clear
strategy to focus on higher margin project management, operations
and consulting activities and announced the formation of our
Technical Consulting Solutions business. We also continue to make
good progress on portfolio rationalisation. Looking ahead, our
business is well positioned across its energy and built environment
markets and we expect to deliver earnings growth in 2020." - Robin
Watson, Chief Executive
Highlights(1)
-- Adjusted EBITDA(2, 3) of $850m to $860m and operating profit before
exceptionals of $410m to $420m, in line with current market expectations(4)
-- Like for like(5) : adjusted EBITDA (pre-IFRS 16) up c6% and operating
profit before exceptionals (pre-IFRS 16) up c20%; including c$60m
of cost synergy delivery
-- Revenue of around $10bn, in line with 2018, reflecting generally
robust activity
-- Better than anticipated cash generation in H2 delivering reduction
in net debt(6) to below $1.5bn at 31 December 2019 (2018: $1.51bn)
-- Previously announced disposal of nuclear business for c$325m on
track to complete in Q1 2020
-- 2020 Outlook: Modest revenue growth and margin improvement strategy
supporting growth in adjusted EBITDA
FY 2019 trading performance
Full year results will demonstrate underlying earnings growth
and margin improvement, underpinned by generally robust activity
and the delivery of cost synergies of c$60m. A stronger second half
benefitted from growth in operations work in the Middle East,
Caspian and Asia Pacific, and excellent execution in Asset
Solutions EAAA ("ASEAAA") as well as solid activity levels in built
environment markets in Technical Consulting Solutions ("TCS") and
our typical second half bias. From Q3, we saw an impact on activity
generally of a slowing macro environment, together with challenges
on certain projects in Asset Solutions Americas ("ASA") and weaker
Specialist Technical Solutions ("STS") performance in TCS. In
response to the market developments we took additional cost
reduction measures and accelerated synergies from the formation of
TCS, our leading consulting business, in the fourth quarter.
Full year revenue will be in line with 2018 at around $10bn.
Including the impact of IFRS 16, full year adjusted EBITDA will be
around $850m to $860m and operating profit before exceptionals will
be around $410m to $420m, in line with current market expectations.
On a like for like basis(5) , adjusting for disposals executed in
2019, we expect to deliver adjusted EBITDA growth of c6% and strong
growth in operating profit before exceptionals of c20%, both on a
pre-IFRS 16 basis. Growth in like for like operating profit before
exceptionals (pre-IFRS 16) reflects growth in EBITDA together with
a reduction in depreciation and amortisation.
Asset Solutions Americas ("ASA") (c35% of Revenue)
Revenue in ASA is up on 2018, benefitting from increased capital
projects activity in midstream and downstream & chemicals,
offsetting lower activity in renewables/other energy. Adjusted
EBITDA(7) is down due to cost overruns on certain projects and a
slow down in activity in shale in H2. This was partly offset by the
benefit of final close out on a number of completed projects.
Asset Solutions EAAA ("AS EAAA") (c35% of Revenue)
ASEAAA has delivered growth in adjusted EBITDA(7) despite
slightly lower revenues. Highlights included excellent execution
across the portfolio and growth in operations work in the Middle
East, Caspian and Asia Pacific. Capital Projects also performed
well, albeit with reduced levels of procurement activity.
Technical Consulting Solutions ("TCS") (c30% of Revenue)
The formation of TCS in the fourth quarter brought together the
capabilities of STS and Environment and Infrastructure Solutions
("E&IS") into a combined, more efficient, global and industry
leading consulting offering. Revenue in E&IS remained robust
and adjusted EBITDA margins(7) benefitted from improved execution.
In STS, revenue will be lower than anticipated principally due to
lower volumes in the automation business. Adjusted EBITDA margin(7)
for TCS is up on 2018, benefitting from margin improvement
initiatives and changes in sales mix as the TCO contract rolls
off.
Capital structure and cashflow
We remain committed to a strong balance sheet and to achieving
our target leverage of 1.5x net debt to adjusted EBITDA on a
pre-IFRS 16 basis. Our strong focus on operating cashflow has
delivered better than anticipated cash generation in the second
half reducing net debt(6) to below $1.5bn at 31 December 2019
(c2.0x 2019 EBITDA pre-IFRS 16). This compares to net debt at 31
December 2018 of $1.51bn and net debt at 30 June 2019 of
$1.77bn.
Disposals
We continue to make good progress on our portfolio
rationalisation strategy as we focus on premium, differentiated,
higher margin activities. The agreed sale of our nuclear business
for c$325m is on track to complete in Q1 2020 and will accelerate
progress to our target leverage. We are also active on other sales
processes.
FY 2020 Outlook
We are well positioned for growth opportunities presented by
trends in energy security & transition and sustainable
infrastructure development across energy and built environment
markets.
In the Eastern hemisphere we expect growth in upstream oil &
gas activity in Asia Pacific and in the Middle East, although there
is some risk from geopolitical developments in the region. Capital
discipline remains prominent in our customers' development
decisions and this is evident in the Americas both in US onshore
and offshore.
The outlook for renewables is positive and we have a robust
opportunity pipeline in US solar. We are also observing an
encouraging opportunity pipeline for downstream & chemicals
work in the Middle East and Far East.
Our Built Environment markets are expected to show further
growth in 2020 as demand for environment and infrastructure
solutions in the US remains robust.
Overall, we expect modest revenue growth in 2020 and growth in
adjusted EBITDA to reflect a continued focus on our medium term
margin improvement strategy.
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 20 7192 8000
Conference ID: 1498869
- ends -
1. All figures in this trading update are unaudited, audited
amounts will be included in our full year results announcement on
10 March 2020.
2. Wood's primary reporting metrics are Revenue, aligned with
the IFRS definition, and Operating Profit (pre-exceptional
items).
Adjusted EBITDA (pre-exceptional items, including Wood's share
of joint venture EBITDA) is adopted as an additional non-statutory
/'non-GAAP' measure of profit. 2019 adjusted EBITDA includes EBITDA
from our nuclear business, the disposal of which is expected to
complete in Q1 2020.
3. Adjusted EBITDA includes the impact of IFRS 16 Leases, which
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 are now 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. The adoption of IFRS 16
increases 2019 EBITDA by c$148m. A lease liability of around $570m
was recognised on the balance sheet at 30 June 2019. All financing
covenants are set on a frozen GAAP basis and are not impacted by
the adoption of the standard.
4. Company compiled, publicly available consensus comprises 12
analysts who have published estimates since our November 2019
trading update and includes forecasts that reflect both changes to
our reporting metrics and the impact of IFRS 16: Bank of America
Merrill Lynch, Barclays, Berenberg, Citigroup, Exane BNP Paribas,
Goldman Sachs, Investec, Jefferies, JP Morgan Cazenove, Morgan
Stanley, Numis and UBS.
Consensus 2019 Adjusted EBITDA, including the impact of IFRS 16
is $864m (Range: $850m-$879m), Consensus Operating Profit
(pre-exceptional items) is $418m (Range: $387m-$448m) and Consensus
AEPS is 46.6c (Range: 41.2c-53.0c).
(https://www.woodplc.com/investors/analyst-consensus-and-coverage)
5. Adjusted EBITDA and operating profit before exceptionals on a
like for like basis excludes the contribution from disposals
executed in 2019 which consist of Terra Nova Technologies, the
legacy AFW power machinery businesses and our joint venture
interests in Voreas and other infrastructure assets
6. Net debt is stated excluding liabilities related to leases,
including those recognised under IFRS 16.
7. References to adjusted EBITDA and adjusted EBITDA margins for
each of the business units excludes the impact of IFRS 16 to
facilitate comparison to the prior year.
Note to Editors:
Wood is a global leader in the delivery of projects, operations
and consulting services to energy and built environment customers.
We operate in more than 60 countries, employing around 60,000
people, with revenues of around $10 billion. www.woodplc.com
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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