Company Announcements

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

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:

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 basis², 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:

Overall, we expect net debt³ 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:

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's financial advisers are not responsible to anyone other than the Company