John Wood Group has reported revenue rising by 3% to around $5.4bn, including an adverse impact of around $275m from foreign exchange rate movements.
In a trading update for the year ended 31 December 2022, the Aberdeen-based business noted that growth in its consulting and operations divisions was offset by the expected full year decline in projects.
Adjusted earnings before tax came in at between $375m to $385m, in line with guidance and including an adverse impact of around $15m from foreign exchange rate movements. This comes at an earnings margin of around 7.1%, compared to 7.7% last year, including the impact of lower margins in operations and a lower margin in consulting which partly reflects the impact from exiting work in Russia.
Net debt, excluding leases, at the end of last year stood at around $350m to $400m.
Wood's order book is worth around $6bn, with projects set for delivery in 2023 up by the mid to high single digit percentage on the position a year ago.
The group anticipates a material improvement in underlying operating cash flows in 2023, which will be outweighed in the short term by defined payments on legacy liabilities, before a return to positive free cash flow in 2024.
Chief executive Ken Gilmartin said: "We are focused on growth in energy and materials, both with structural growth drivers - energy security, energy transition, net zero and the circular economy - which create long term growth opportunities for Wood.
"Significant contracts won in the second half of the year include a five-year engineering services contract renewal with BP, a three-year contract renewal with Shell in the UK North Sea, and a four-year contract with INEOS to deliver a petrochemicals complex in Belgium.
"This is a new Wood, led by a new team, and the strategy we recently shared at our Capital Markets Day will enable us to deliver sustainable returns," he continued, adding: "We have attractive growth prospects in our core markets, we are trusted by our clients, and we have the talent and solutions to enable a net zero future."
Across the group's different divisions, consulting saw revenue growth of around 4% to around $600m, alongside adjusted earnings before tax 9% lower at around $70m. This reflects a lower margin of circa 11.3%, compared to 13% last year, due to weaker performance in Applied Intelligence, the impact of exiting high-margin work in Russia and some cost pressures from staff retention and recruitment.
Projects saw a decline in revenue of around 7% over the year to around $2.2bn. The business returned to revenue growth in the second half of the year, with much of this coming from a services-led approach, following the strategic decision to move away from riskier lump sum turnkey work. Adjusted earnings before tax were slightly higher, at around $170m, with a margin improvement of around 0.7%, as overall project performance improved.
Operations saw revenue growth of around 14% to around $2.4bn, partly reflecting continued higher activity from stronger market conditions in conventional energy, especially in Europe and the Middle East. Adjusted earnings before tax came in lower year-on-year, down around 12% to around $150m, given a lower level of contract close-out benefits in the year.
Investment services revenue of around $200m was broadly flat compared to last year, with adjusted earnings - now including the Turbines joint ventures - slightly higher at around $70m.
The sale of Wood's built environment consulting business resulted in a significant exceptional gain on sale of around $600m in the period, however there is an impairment risk around goodwill and intangibles on the balance sheet, given the sale and movement in discount rates.
Stuart Lamont, investment manager at RBC Brewin Dolphin, commented: “It has been a tough spell for Wood, with the share price now back at levels last seen in 2005.
“However, the company has been boosted by some recent analyst upgrades and today’s results highlight a few of the reasons why.
“Revenue continues to grow and debt, a perennial issue for the company in recent years, is coming down, helped by the sale of the built environment operation last year.“
He added: “There are also positives to take from a relatively strong order book, nevertheless margins remain under pressure and, given the rising cost of debt, the market will want to see even more action to bring it down.”
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