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Wood Group says profits will be even more weighted to second half

Energy services group boasted a US$1bn new nuclear decommissioning contract with Sellafield and is promoting director Roy Franklin to chairman of the board

john wood group
John Wood Group committed to using cash to cut debt and maintain its progressive dividend

John Wood Group PLC (LON:WG.) pushed out two other announcements as it warned that trading was only “slightly ahead” of last year and that the full year result would be more than usually reliant on an improvement in the second half of the year.

The FTSE 100 energy services company, which historically has seen trading and cost cutting weighted towards the latter half of the year, said 2019 would see a further impact from phasing of projects towards the second half that it expected to result in around 60% of EBITDA being weighted to the second half of the year.

Management's overall outlook for 2019 was unchanged, with revenue expected to grow around 5% above US$1.03bn last year and to extract around US$60m of cost synergies to keep adjusted earnings in line with analyst forecasts, which are for adjusted EBITDA of US$932m and operating profit of US$489mln. As part of a target to strengthen the balance sheet, deleveraging is expected to continue in 2019, with cash conversion expected to remain strong at 80-85% and the dividend improved on a progressive basis.

READ: Wood sinks as Jefferies downgrades stock on increasing dividend risk

Ahead of its annual shareholder meeting, Wood also trumpeted a US$1bn extension to its nuclear decommissioning contract with Sellafield and said it was promoting senior independent director Roy Franklin to chairman of the board.

The Aberdeen-headquartered group said the better first-quarter performance was led by “relative strength” of the Asset Solutions Europe, Africa, Asia and Australia (ASEAAA) division, representing around 35% of group revenues, and from Environment & Infrastructure Solutions, which is less than half the size.

The ASEAAA arm was boosted by operational work in the Middle East and with growth in Asia Pacific expected to continue, while “moderate growth” is expected from the North Sea as the year progresses. Capital projects activity is expected to be broadly flat.

Asset Solutions in the Americas, representing another 35% of revenue, there was increased capital projects activity in downstream and chemicals, “good activity” in US shale and “improving visibility” on early stage offshore engineering projects. Solar and wind project awards were said to be offsetting the completion of coal combustion residual treatment projects and will contribute to increased activity in the second half.

Among the smaller divisions, Environment & Infrastructure Solutions, representing 15% of turnover, the first quarter benefitted from government and industrial spending increases in the US and Canada, which management expect to continue supporting activity, while earnings are benefitting from a prior decision not to pursue certain higher risk, fixed price contracts.

READ: Wood Group losses narrow as annual revenues rise strongly

Over in the Specialist Technical Solutions business, another 15% of group sales, there has been growth in subsea and technology & consulting, with a tailing off of activity from the Gruyere Gold minerals processing contract and Tengizchevroil automation project but earnings are expected to benefit from margin improvement initiatives.

Specialist Technical was also the beneficiary of the new US$1bn contract, where Wood has been selected to help with the decommissioning of the UK’s Sellafield nuclear power site, where it has worked on many projects before.

Sellafield Ltd, a wholly-owned subsidiary of the Nuclear Decommissioning Authority, has selected Wood to carry out front-end design and engineering services for various elements of the whole project, as well as site wide-project delivery improvements. 

Wood also said that following current chairman Ian Marchant’s announced retirement, Franklin will take up the reins from September. Franklin had been a director of Amec Foster Wheeler, which Wood acquired in late 2017, since January 2016, following a four-decade career in the energy industry, including 18 years at BP.

Shares in the company were down almost 2% to 438.7p after an hour’s trading on Thursday, close to their lowest level since late 2010.

Quick facts: Wood Group (John) PLC

Price: 368 GBX

Market: LSE
Market Cap: £2.52 billion

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