Pre-close trading update for the year to 31 December 2017
"Focused on operational delivery and transformational change to create a platform for long term growth"
- Acquisition of Amec Foster Wheeler completed on 9 October to create Wood, a global leader in project, engineering and technical services delivery to energy and industrial markets
- Integration progressing ahead of schedule with sustainable annualised cost savings already achieved ahead of plan
- Currently estimate that 2017 Proforma Wood EBITA from continuing businesses will be in the region of $590m to $610m
- Net debt at 31 December expected to be around $1.8bn
We entered 2017 in a strong market position with a structurally lower overhead cost base reflecting our cautious near term outlook in our core oil & gas market that continued to present challenges. We retained our focus on M&A and accelerated delivery of our strategic objectives including broadening our end market exposure. Following shareholder and competition approval we completed the acquisition of Amec Foster Wheeler (“AFW”) on 9 October 2017 to create Wood, a global leader in project, engineering and technical services delivery to energy and industrial markets. Customer reaction has been positive, we have momentum in contract awards and see good opportunities for future revenue synergies.
As previously announced, full year results will be released on 20 March 2018, later than usual to accommodate the reporting and auditing process for the enlarged business. There is no change to our proportionally consolidated approach which includes the contribution from joint ventures. EBITA and AEPS will be retained as our principal profit measures. EBITA will be stated after costs relating to asbestos. Reported full year actual results will comprise the heritage Wood Group business and a contribution from AFW for the period from completion on 9 October 2017 to 31 December 2017. Results will also be presented on a Proforma basis to provide better insight into the underlying continuing business performance.
There have been no material developments in Wood Group’s internal investigation into historical engagement with Unaoil since the update provided in the half year results.
We continue to cooperate with the investigation by the SFO and voluntary requests for information from the DOJ and SEC regarding AFW’s past use of third party agents.
Heritage Wood Group Trading
Our core oil & gas market continued to present challenges in 2017.
In Asset Solutions EAAA we saw improved activity in the second half as expected, led by work in the Asia Pacific region including Exxon PNG and Malaysia and commencement of our SAGE operating partner contract with Ancala. In Saudi Arabia work under our GES Plus contract continues to be released at a slow rate.
In Asset Solutions Americas, hook up and commissioning work on Hebron made a good contribution and reached completion in the second half. We have seen modest growth in US onshore construction and infrastructure work and are at an advanced stage of engineering delivery on our upstream greenfield projects including Husky White Rose, Peregrino, Leviathan and Mad Dog 2. Performance in US onshore engineering has been weaker than anticipated.
In Specialist Technical Solutions, automation is delivering growth but this is more than offset by the reduction in Subsea where activity levels are down on 2016.
Amec Foster Wheeler Integration and Trading
Integration is progressing ahead of schedule with significant progress being made, utilising the lessons learned from the Wood Group 2016 transformation programme. The operating structure and executive leadership team of Wood was in place prior to completion and we have since announced a further two levels of organisational leadership. At the leadership levels alone, we have already delivered sustainable annualised cost savings ahead of plan since completion in October. We have also made good progress on real estate rationalisation, merged bidding pipelines and aligned tendering and delivery governance. We remain very confident of delivering cost synergies of over $170m by the end of the third year following completion.
Since completion, a number of themes highlighted in the AFW half year results have been evident in our review of the business post close. In the second half we have seen a better than anticipated outcome on certain oil & gas projects, offset by delays and cost overruns on a small number of fixed price contracts in the legacy Transmission & Distribution and Environment & Infrastructure businesses.
Wood – Reported FY 2017 Actual Results
We currently estimate that 2017 full year EBITA comprising the heritage Wood Group business and a contribution from AFW for the period from 9 October to 31 December will be in the region of $335m to $355m.
Wood – Proforma H1 2017 and FY2017
We previously outlined our approach to proforma financial metrics and segmental reporting1. Proforma 2017 will include the results of AFW and heritage Wood Group from 1 January. It will exclude the results of businesses disposed; principally the AFW North Sea upstream business, the AFW North American nuclear operations and the disposed elements of GPG.
In the first half of 2017, Wood generated EBITA of $264m from revenues of $4.7bn on a proforma basis. Margins continued to be impacted by challenges in oil & gas markets overall and the anticipated reduction in AFWs solar activity from record levels in 2016. These challenges were largely offset by growth elsewhere including Environment and Infrastructure, improvements in US offshore greenfield engineering and the impact of cost reduction programmes.
Reflecting the current trading conditions and typical second half weighting of profit in both heritage Wood Group and AFW, we currently estimate that 2017 Proforma EBITA from continuing businesses will be in the region of $590m to $610m.
Net Debt and Financing
As expected, net debt to trailing Proforma EBITDA at completion was c. 2.2x and net debt was $2.0bn. The disposal of the AFW UK upstream business has reduced net debt by c $300m, although this is partly offset by expected transaction and synergy delivery costs. Net debt at 31 December is expected to be around $1.8bn2. There is no change to our preferred long term capital structure and reducing debt to below 1.5x EBITDA remains our preferred use of free cashflow.
We retain our progressive dividend policy and increased the first half dividend by 3%. Former AFW holders will be entitled to the full year dividend.
Wood is a global leader in the delivery of project, engineering and technical services to energy and industrial markets. We operate in more than 60 countries, employing around 55,000 people, with revenues of around $10 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. We strive to be the best technical services company to work with, work for and invest in. www.woodplc.com
1 We disclosed our proposed operating structure in August. Proportionally consolidated EBITA and AEPS remain our principal profit measures. Wood has four reportable segments, Asset Solutions (Americas), Asset Solutions (EAAA), Specialist Technical Solutions and Environment and Infrastructure Solutions. Revenue, EBITA, Margin and headcount will continue to be disclosed for our Reportable Segments. In addition our presentation on Financial Metrics and Segmental Reporting in November can be found here. (https://www.woodplc.com/__data/assets/pdf_file/0014/32720/2017-financial-reporting-and-revised-segments-analyst-update.pdf)
2 For the purpose of comparing net debt at 31 December 2017 to EBITDA, estimated 2017 proforma EBITA in the region of $590m to $610m should be adjusted by an amount of around $100m to calculate EBITDA.