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RNS Number : 0928X Wood Group (John) PLC 14 February 2025
Business update
14 February 2025
This
announcement contains inside information
FY24 trading, independent review, updated outlook and refinancing
John Wood Group PLC ('Wood' or 'the Group' or 'the Company') announces a
trading update for the year ended 31 December 2024 ('FY24'), an update on the
independent review, an updated outlook, and an update on refinancing.
The outline results presented here are draft and subject to the conclusion of
the independent review and full year audit, including the treatment of any
prior year adjustments. This trading update is not a preliminary statement of
annual results and has not, therefore, been reviewed by the Company's
auditors. An update on the timing of our full year results will follow in due
course.
Trading headlines
· Delivery of 2024 guidance supported by actions taken in Q4
o FY24 adjusted EBITDA(1) of around $450 million to $460 million
o FY24 adjusted EBIT(2) of c.$205 million to c.$215 million
o Actions taken to mitigate weaker-than-expected trading in Q4, including
cancelling executive and employee bonuses and actively managing working
capital at year end
o Completed sale of EthosEnergy for net cash proceeds of $138 million
o Net debt excluding leases at 31 December 2024 of around $690 million(3)
(31 December 2023: $694 million) and average net debt in 2024 of c.$1.1
billion
· Order book increased to c.$6.2 billion at 31 December 2024,
significantly improved on c.$5.4 billion at 30 September 2024
o Large wins in Projects and Operations including bp, OMV Petrom and Esso
Australia
o Improved order book underpins outlook for the business and long-term
growth potential
Independent review ('Review')
· The Review is continuing and Deloitte's work and assessment will
need to be complete before any conclusions can be reached. However,
significant work has been undertaken and based on that:
o The Company does not expect that the findings of the Review will have a
material impact on the Group's cash position or its ability to generate cash
in the future
o Following provisional indications from the Review, the Company is
evaluating the extent of prior year adjustments which the Company expects will
be required in relation to the Projects business unit and their impact on
previously reported adjusted EBITDA for FY23 and any prior periods
o The Company is initiating steps to strengthen significantly the Group's
financial culture, governance and controls in light of material identified
weaknesses and failures
Continuing the transformation of Wood
· De-risked the future business away from lump sum turnkey ('LSTK')
o No such work in our revenue, order book or pipeline today
o This de-risking has reduced revenue and left legacy claims liabilities to
address
· Further cost saving actions to right size Wood for the future
o Simplification programme launched in March 2024 on track to deliver
annualised savings of c.$60 million in FY25 (with cash costs to complete of
c.$15 million in FY25)
o Programme now extended to target a further c.$85 million of annualised
savings from FY26 onwards, with c.$60 million benefit in FY25 (with
exceptional cash costs to complete of c.$30 million in 2025)
o In aggregate, these actions will reduce our cost base by c.$145 million
from 2023 to 2026
· Following these actions, the business will be on a firmer
operational footing, but cash generation has yet to materialise and financial
strength needs significant improvement
Updated 2025 outlook
· Continue to expect good growth in 2025 supported by cost actions
o We expect double-digit adjusted EBITDA and adjusted EBIT growth (excluding
the impact of disposals)(4) in 2025
o This remains in line with market expectations, though our pathway to this
now includes taking additional cost reduction measures as outlined above
· Now expect negative free cash flow of $(150) million to $(200)
million in 2025, including:
o (i) The impact of weaker trading
§ Lower expected underlying EBITDA growth in 2025, with incremental cost
reduction actions to underpin growth (exceptional cash costs of c.$30 million)
§ One-off working capital unwind in 2025 as a result of actively managing
working capital at the 2024 year end (c.$70 million)
o (ii) Impacts related to the Review
§ Deferral of expectation to realise cash inflow from pension surplus (c.$50
million)
§ Professional costs relating to the Review and implementing enhancements
(estimated to be c.$10 million)
o (iii) Legacy claims liabilities
§ Quantum and timing of potential cash payments (c.$50 million)
· Targeting proceeds from disposals in 2025 of $150 million to $200
million to offset the negative free cash outflow in 2025 and maintain debt
levels at 2024 levels
· Average net debt in 2025 expected to be in line with 2024 levels
of around $1.1 billion (before disposals)
· Estimated total cash costs of legacy claims liabilities remain
around $150 million(5), which we expect to pay and extinguish over the next
three years
· We had previously expected to broadly offset these payments with
cash inflows associated with our pension surplus over the next three years.
However, the current uncertainty around the Review has deferred our
expectation of realising cash from this pension surplus
Actions in 2025 will underpin positive free cash flow in 2026
· Positive free cash flow expected in 2026 (before disposals)
reflecting:
o Continued improvements in operating cash flow(6), which has improved from
$(66) million in FY22 to c.$275 million in FY24, helped by working capital
improvements, including the absence of the 2025 working capital unwind (c.$70
million)
o Growth in adjusted EBITDA and adjusted EBIT from underlying business
growth
o Incremental benefit of cost savings in FY26 (c.$25 million)
o Reduction in cash exceptionals from c.$100 million in FY25 (consisting of
asbestos, restructuring costs and advisor fees) to c.$40 million in FY26 (only
asbestos)
· Note that legacy claims cash payments are expected to be broadly
similar in FY25 and FY26 and will be reported separately to exceptional cash
costs
Refinancing
· As previously disclosed, the majority of the Group's debt
facilities mature in October 2026
· We are therefore undertaking a detailed, holistic assessment of
all potential refinancing options
· As part of this, we are engaging with the Group's lenders on these
options together with any potential implications of prior year adjustments
which may arise from the independent review
Ken Gilmartin, CEO, said:
"This is a difficult announcement amid our transformation. While we have made
progress, I am disappointed in our financial performance. Consequently, we are
taking decisive actions to ensure we can meet the opportunities we have in
growing markets, principally energy.
"While the likely findings from the independent review are expected to have no
material impact on the Group's cash position and future cash generation, it
clearly gives us areas to focus on and we are initiating steps now to further
improve our financial culture, governance and controls.
"We have announced further actions to address the cost base of the business to
right size Wood for the future, and have laid out a very clear route to
positive free cash flow in 2026.
"As we look ahead, notwithstanding the challenges today, I am confident the
fundamentals of this company remain strong - we are in growing markets, with
considerable in-demand engineering skills, trusted client relationships, and
we're well positioned to grow the business".
Conference call
A conference call will be held today at 8:00am (UK time) with Ken Gilmartin
(CEO) and Arvind Balan (CFO). The webcast will be live at
https://edge.media-server.com/mmc/p/6dac2dta
(https://edge.media-server.com/mmc/p/6dac2dta) .
To join the conference call, and ask any questions, please register via:
https://register.vevent.com/register/BIf7a68eca19b041999b05912e3fbf80fc
(https://register.vevent.com/register/BIf7a68eca19b041999b05912e3fbf80fc) .
The webcast and transcript will be available after the event at
www.woodplc.com/investors (http://www.woodplc.com/investors) .
For further information:
Simon McGough, President, Investor Relations
+44 (0)7850 978 741
Alex Le May / Ariadna Peretz / Nick Hasell, FTI Consulting +44
(0)20 3727 1340
The person responsible for arranging the release of this announcement on
behalf of Wood is John Habgood, Group Company Secretary.
DETAILED BUSINESS UPDATE
Update on the Independent Review
As announced in the Q3 trading update on 7 November 2024, following the
exceptional contract write offs relating to the exit from lump sum turnkey and
large-scale EPC reported at the half year 2024 results, and in conjunction
with the auditor's ongoing work, the Board, in response to dialogue with its
auditor, agreed to commission the Review to be performed by Deloitte.
The focus of the Review remains as previously disclosed, being on reported
positions on contracts in our Projects business unit, accounting, governance
and controls, including whether any prior year restatement may be required.
The Review is continuing and Deloitte's work and assessment will need to be
complete before any conclusions can be reached. However, significant work has
been undertaken and based on that:
· The Company does not expect that the findings of the Review will
have a material impact on the Group's cash position or its ability to generate
cash in the future
· Following provisional indications from the Review, the Company is
evaluating the extent of prior year adjustments which the Company expects will
be required in relation to the Projects business unit and their impact on
previously reported adjusted EBITDA for FY23 and any prior periods
· The Company is initiating steps to strengthen significantly the
Group's financial culture, governance and controls in light of material
identified weaknesses and failures
A further update in relation to the Review's findings, and any impact the
timing of the Review may have on the timetable for publication of the
Company's preliminary results and annual report and accounts will be provided
when appropriate.
FY24 trading update
Group performance
Group revenue was around $5.7 billion with good growth in Operations offset by
lower revenue in Consulting and Projects.
Group adjusted EBITDA was around $450 million to $460 million, broadly in-line
with guidance although supported by actions taken in Q4. We had previously
expected a very strong trading performance in Q4 but this failed to
materialise, so the decision was taken to cancel the annual executive and
employee bonus for 2024. This resulted in a $36 million benefit to adjusted
EBITDA in Q4, spread across all business units.
Group adjusted EBIT was around $205 million to $215 million. Our adjusted EBIT
is significantly lower than our adjusted EBITDA primarily as it includes two
large fixed costs in our business: leases and capitalised IT spend. Going
forward, we will provide greater focus on adjusted EBIT to enhance
understanding of our business performance and cash generation.
Net debt (excluding leases) was around $690 million(3), in line with our
guidance of around flat year-on-year (31 December 2023: $694 million). Our net
debt position at 31 December 2024 was helped by:
· Net proceeds of $138 million from EthosEnergy disposal, which
completed on 31 December 2024
· Active management of receivables, with a focus on collection
towards the end of the year
· Active management of payables
The Group's average net debt during 2024 was c.$1.1 billion. Reducing this is
a key focus going forward.
Operational highlights
We continue to have confidence in the strength of the underlying business, our
end markets, and the Company's growth potential, as evidenced by the
significant growth in our order book.
Wood remains well placed to benefit from significant long-term growth drivers
across the energy and materials markets, supported by our technical expertise
and long-term client relationships. The global demand for energy security is a
key driver of expected market growth across upstream and downstream oil and
gas, where Wood is particularly strong.
Our order book at 31 December 2024 was around $6.2 billion, significantly
improved on the $5.4 billion position at 30 September 2024, reflecting the
expected significant work awarded in Projects and Operations.
Business wins in the fourth quarter included:
· Three major agreements with bp for their capital projects
worldwide
· A significant EPCm contract with OMV Petrom for a sustainable
aviation fuel facility in Romania, our first major win in this growing
materials space
· Significant engineering maintenance contract with Esso for
onshore and offshore assets in Victoria, Australia, displacing an
incumbent competitor
· Contract to improve efficiency and reduce emissions for a
manufacturing plant in the Middle East
· FEED contract for the development of Singapore's second LNG
terminal
Our pipeline in the Projects business increased significantly in the fourth
quarter as we have seen increased visibility on some large EPCm (engineering,
procurement and construction management) opportunities expected to come to
market.
FY24 performance across businesses
Consulting revenue was c.$670 million with lower activity levels in our
technical consulting business. This reflects delays and changes in some large
client programmes, general client hesitancy around the regulatory and
political environment for investment and some impact from client cost saving
programmes.
Adjusted EBITDA was c.$85 million with a higher margin offsetting the lower
revenue. This partly reflects improved business mix and pricing.
Projects revenue was lower as expected at c.$2.2 billion reflecting the exit
from LSTK work, and continued weakness in our minerals and life sciences
businesses. We continue to see strong growth in oil and gas but trading in
chemicals was broadly flat, partly reflecting some project delays as
previously indicated.
Adjusted EBITDA was c.$200 million, supported by cost reductions and the
successful completion of a number of contracts. The performance in the fourth
quarter was also helped by a significant contract completion incentive payment
of c.$10 million following a strong performance from Wood on a downstream
project.
Operations revenue was c.$2.6 billion, reflecting higher activity levels
across Europe and the Middle East. The business won a series of major
contracts in 2024, both renewals and new work, including major contracts with
Esso Australia, BSP, bp, Shell and Equinor.
Adjusted EBITDA was c.$185 million with an improved margin. Performance was
helped by good operational performance.
Investment Services revenue was c.$290 million, lower than last year mainly
due to the run-down of our facilities business as planned.
Adjusted EBITDA was c.$65 million, including a contribution of around $65
million from the two Turbines joint ventures.
Central costs were around $70 million with the benefits of our Simplification
programme partly offset by costs related to the independent review.
Sale of EthosEnergy
We completed the sale of EthosEnergy, a joint venture focused on rotating
equipment, for net cash proceeds of $138 million on 31 December 2024. The
amount of cash received was higher than previously guided as planned loan
notes were replaced by additional cash consideration.
Impairment of goodwill and intangibles
Our impairment review is ongoing as part of the full year results process. It
is expected that a significant goodwill and intangibles impairment charge will
be recognised as part of these results, in addition to the $815 million
impairment recognised at our Half Year results in August 2024. This will be
treated as an exceptional item and will have no cash impact.
Updated 2025 outlook
Continue to expect good growth in 2025 supported by cost actions
We expect double-digit adjusted EBITDA and adjusted EBIT growth (excluding the
impact of disposals)(4) in 2025. This remains in line with market
expectations, though our pathway to this now includes taking additional cost
reduction measures as outlined below.
This growth is underpinned by extended cost reduction actions:
· Simplification programme launched in March 2024 on track to
deliver annualised savings of c.$60 million in FY25 (with cash costs to
complete of c.$15 million in FY25)
· Programme now extended to target a further c.$85 million of
annualised savings from FY26 onwards, with c.$60 million benefit in FY25
(with exceptional cash costs to complete of c.$30 million in 2025)
· In aggregate, these actions will reduce Wood's cost base by
c.$145 million from 2023 to 2026
Now expect negative free cash flow of $(150) million to $(200) million in 2025
We are flagging today certain factors that impact our 2025 cash flow outlook:
· (i) The impact of weaker trading
o Lower expected underlying EBITDA growth in 2025, with incremental cost
reduction actions to underpin growth (exceptional cash costs of c.$30 million)
o One-off working capital unwind in 2025 as a result of actively managing
working capital at the 2024 year end (c.$70 million)
· (ii) Impacts related to the Review
o Deferral of expectation to realise cash inflow from pension surplus (c.$50
million)
o Professional costs relating to the Review (estimated to be c.$10 million)
· (iii) Cash costs of legacy claims liabilities
o Quantum and timing of potential cash payments (c.$50 million)
As a result of all of these factors, we now expect negative free cash flow in
2025 of around $(150) million to $(200) million. We plan to mitigate this cash
outflow through business disposals.
As a result, net debt at 31 December 2025 is expected to be in line with 2024
levels, with the negative free cash flow in 2025 mitigated by business
disposals. Average net debt in 2025 is also expected to be in line with 2024
levels of around $1.1 billion.
Cash costs of legacy claims liabilities
Estimated total cash costs of legacy claims liabilities remain around $150
million(5), which we expect to pay and extinguish over the next three years.
As such, we assume a cash outflow for legacy claims from FY25 to FY27 of
around $50 million per annum.
We had previously expected to broadly offset these payments with cash inflows
associated with our pension surplus over the next three years. However, the
current uncertainty around the Review has deferred our expectation of
realising cash from this pension surplus.
Disposals
We continue to review our portfolio in line with our strategic priorities to
be selective in our markets and capabilities, and to simplify our business. We
are targeting disposal proceeds of $150 million to
$200 million in 2025.
Actions in 2025 will underpin positive free cash flow in 2026
Positive free cash flow from 2026 onwards (before disposals)
The key drivers of our conviction in delivering positive free cashflow in 2026
are:
· Continued improvements in operating cash flow(6), which has improved
from $(66) million in FY22 to c.$275 million in FY24, helped by working
capital improvements, including the absence of the 2025 working capital unwind
(c.$70 million)
· Growth in adjusted EBITDA and adjusted EBIT from underlying
business growth
· Incremental benefit of cost savings in FY26 (c.$25 million)
· Reduction in cash exceptionals from c.$100 million FY25 (consisting of
asbestos, restructuring costs and advisor fees) to c.$40 million in FY26 (only
asbestos)
Note that legacy claims payments are expected to be broadly similar in FY25
and FY26 and will be reported separately to exceptional cash costs.
Refinancing
As previously disclosed, the majority of the Group's debt facilities mature in
October 2026.
We are undertaking a detailed, holistic assessment of all potential
refinancing options.
As part of this, we are engaging with the Group's lenders on these options
together with any potential implications of prior year adjustments which may
arise from the Review.
Notes
1. Adjusted EBITDA shows the Group's adjusted results before interest,
tax, depreciation, and amortisation.
2. Adjusted EBIT shows the Group's adjusted EBITDA after depreciation
and amortisation. This measure excludes amortisation of acquired intangibles.
3. Excluding lease liabilities of $373 million (31 December 2023: $401
million). This measure excludes the Group's receivable financing facility
which is non-recourse to the Group. The amount utilised at 31 December 2024
was c.$200 million.
4. Adjusted EBITDA for FY24 excluding CEC Controls and EthosEnergy was
around $410 million to $420 million.
5. Current estimate based on risk-adjusted probability of litigation
outcomes
6. Refers to adjusted operating cash flow before claims payments. This
metric excludes capex.
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