John Wood Group PLC (LON:JW) has today announced its half year results for the six months ended 30 June 2019.
“Strong margin improvement and profit growth in the first half was led by activities in energy markets in the eastern hemisphere and our environment and infrastructure operations in North America, together with cost synergies. We also made substantial progress on our non core asset disposal programme and have agreed the sale of our nuclear business for c$305m, with completion anticipated in Q1 2020. This will result in significant deleveraging and bring us close to our target leverage. With 87% of 2019 revenues delivered or secured we remain confident in our full year outlook and guidance is unchanged. Looking further ahead, we remain well positioned for growth across the energy and built environment markets.”
Robin Watson, Chief Executive
H1 Financial performance
- Revenue of $4.8bn reflects relatively robust activity levels with growth in built environment activity in E&IS offset by lower revenues in ASEAAA and STS
- Strong EBITDA and operating profit growth. In line with guidance, pre-IFRS 16 adjusted EBITDA increased by 7% and pre-IFRS 16 operating profit before exceptionals by 28%
- Pre IFRS 16 adjusted EBITDA margin improved to 6.6%, driven by improved execution, sales mix and cost synergies of c$30m
- On a like for like basis, adjusting for disposals executed in 2019, pre IFRS 16 adjusted EBITDA of $314m was up 12% and adjusted EBITDA margin was up 90 basis points
- The positive impact of the adoption of IFRS 16 on adjusted EBITDA was $70m, lower than originally anticipated
- Operating profit before exceptionals (including the impact of IFRS 16) was $168m after amortisation charges of $119m, depreciation of $88m and interest and tax on joint ventures of $9m
- Profit for the period of $13m includes the impact of post tax exceptional costs of $47m ($29m pre-tax), related to cost synergy delivery, investigation support costs and loss on disposal of TNT
- Agreed sale of nuclear business for c$305m (c12.4x 2018 EBITDA). Closing anticipated in Q1 2020 will accelerate progress to target leverage
- Net debt at 30 June of $1.77bn was adversely impacted by two cash receipts totalling $130m anticipated in June but received in early July (Net debt : adjusted EBITDA pre IFRS 16 of 2.5×5). No change to full year expectations on cash generation.
- Proposed interim dividend of 11.4c, up 1% in line with progressive dividend policy
- From revenue of $4.8bn, delivered significant growth in adjusted EBITDA and operating profit with improved margins across energy and built environment markets, driven by:
– Increased upstream oil & gas activities in energy markets and improved delivery and sales mix in ASEAAA
- Improved Turbine JV performance in ASEAAA
– Higher activity and good delivery in the built environment market in the Americas for E&ISFurther cost synergies of c$30m
Outlook for FY 2019
- Full year outlook is unchanged
- Order book of $9.2bn up on December 2018 of $9.1bn on a like for like basis. Good visibility over forecast 2019 revenues with 87% delivered or secured
- Growth in FY 2019 revenue in the region of 5% driven by:
– Capital projects activity in downstream & chemicals and onshore midstream in ASA
– Operations solutions work in the Middle East and Asia Pacific
– Continued strength in built environment activity in the Americas
- Anticipated revenue growth together with cost synergies of c$60m, improved sales mix and delivery, and our typical H2 earnings weighting is expected to deliver full year adjusted EBITDA in line with market expectations of adjusted EBITDA growth of c8% (excluding the impact of IFRS 16)6
- The positive impact of the adoption of IFRS 16 on adjusted EBITDA for the full year is now expected to be $143m. This is a reduction of $27m from our previous estimate of c$170m. There is no change to our expectations for underlying earnings growth
- Expect strong full year cash conversion to deliver modest reduction in net debt from the 31 December 2018 position
- Disposal of nuclear business to reduce net debt on a proforma basis close to 1.5x net debt : adjusted EBITDA pre-IFRS 16 target leverage on closing, in Q1 2020
1. As disclosed at the full year results in March, Wood has simplified its reporting for the periods ending on 30 June 2019 onwards. These changes align Wood’s principal reporting metrics with IFRS measures and facilitate comparison across peers. There is no reduction in the level of accounting disclosure at the Wood or business unit level. At the Group level, the results from joint ventures are accounted for in line with IFRS using the equity method and are no longer reported on a proportionally consolidated basis. Wood’s primary reporting metrics are Revenue, aligned with the IFRS definition, and Operating Profit (pre-exceptional items).
Adjusted EBITDA (pre-exceptional items, including Wood’s share of joint venture EBITDA) is adopted as an additional non-statutory /’non-GAAP’ measure of profit. This is presented at the Group and Business Unit level to report underlying financial performance and facilitate comparison with peers.
Adjusted Diluted EPS is also presented, defined as “earnings before exceptional items and amortisation relating to acquisitions, net of tax, divided by the weighted average number of ordinary shares in issue during the period”. In contrast to previous reporting, the measure is stated before amortisation arising from acquisitions only and not amortisation relating to other intangibles such as software costs.
Comparative figures for 2018 are shown on the same basis.
2. We have chosen to apply the modified retrospective approach to the adoption of IFRS 16 and as such there is no restatement of 2018 comparatives in 2019. The movements between 2019 metrics and 2018 comparatives that have not been restated are shown as not applicable (n/a).
3. Net debt at 30 June 2019 is stated excluding liabilities related to leases. The adoption of IFRS 16 has resulted in an increase in net debt at 30 June 2019 due to the recognition of a lease liability on the balance sheet of $582m.
4. Order book comprises revenue that is supported by a signed contract or written purchase order for work secured under a single contract award or frame agreements. Work under multi-year agreements is recognised in order book according to anticipated activity supported by purchase orders, customer plans or management estimates. Where contracts have optional extension periods, only the confirmed term is included. Order book disclosure in H1 2019 is aligned with the IFRS definition of revenue and no longer includes Wood’s proportional share of joint venture order book. Order book for H1 2018 is presented on a like for like basis and no longer includes Wood’s proportional share of joint venture order book and excludes businesses disposed. Order book at 31 December 2018 on this basis was $9.1bn.
5. Net debt : adjusted EBITDA ratio is calculated on the existing basis prior to the adoption of IFRS 16 in 2019.
6. Company compiled, publicly available consensus comprises seven analysts who have published estimates since our 2019 results announcement on 19 March 2019 that reflect both changes to our reporting metrics and the impact of IFRS 16: JP Morgan Cazenove, Barclays, Goldman Sachs, RBC, Bank of America Merrill Lynch, Morgan Stanley, UBS, Redburn, Jefferies and HSBC.
Consensus adjusted EBITDA, includes an estimated impact of IFRS 16 of c$170m and is $919m (Range: $889m-$948m). Growth in consensus underlying adjusted EBITDA, excluding the impact of IFRS 16 is c8%. Consensus Operating Profit (pre exceptional items) is $447m (Range: $413m-$491m) and Consensus AEPS is 53.2c (Range 46.0c-64.5c).
Wood is a global leader in the delivery of project, engineering and technical services in energy, industry and the built environment. We operate in more than 60 countries, employing around 60,000 people, with revenues of around $11 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. www.woodplc.com