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Wood Group pushes towards renewables as order book and profits shrink

The engineer's upstream and midstream oil & gas activity was down 5% and renewables activity was up 4% in the first half

Wood Group (John) PLC -

John Wood Group PLC (LON:WG.) said its first-half revenues and profits have fallen due to the coronavirus (COVID-19)pandemic and a drop in oil prices but added that it continues to work and win new contracts.

In a pre-close trading update, the FTSE 250-listed group said its like-for-like revenues for the half-year will be down around 11% and underlying profits (EBITDA) down circa 19% to US$295mln-US$305mln.

Given the market conditions, the energy-focused engineer’s tilt from hydrocarbons to renewables is being accelerated by external factors and management efforts.

READ: John Wood Group wins solar farm contracts in US state of Virginia

The group noted that upstream and midstream oil activity was down 5% and renewables activity was up 4% in the six months to June 30, 2020, and although revenues in the latter are expected to double in 2020 it is still less than a quarter of group revenues.

Between the start of the year and the end of May, Wood Group said its order book had fallen by 11% to US$7bn, of which around US$3.5bn is due to be delivered this year.

"The global engineering and consultancy market is facing unique and unparalleled challenges in 2020 from COVID-19 and volatility in oil prices,” said Wood Group chief executive Robin Watson, while hailing the US$1.3bn of new orders won in April and May.

He noted that as the risk of further delays and postponements persist, the company is "prepared for a wider range of outcomes depending on activity across our broad end markets” but actions to deliver overhead cost savings of over US$200mln this year and protect profit margins give it "confidence in delivering significantly stronger margins in the second half”.

Net debt at 30 June is expected to be "lower" than December's US$1.43bn due to disposal proceeds but there was no specific guidance due to the difficult trading environment. 

Shares were down less than 1% on Friday morning at 226p, down 42% since the start of the year.

Analysts at UBS said the revenue decline was below their forecast of 8% and 19% decrease in adjusted EBITDA also below expectations of 13% but the increased cost savings target of US$200mln that has been completed already was well above the anticipated US$50mln for the year.

With Wood's first debt maturity US$77mln in the second half of 2021, the analyst said they think there is "ample liquidity and balance sheet is in a good position".

"Although 1H results are below our expectations (with implication for 2H), the bigger than expected cost savings confirms our view that Wood has a flexible cost base and should offset this underlying margin weakness."

   --Adds shares and broker comment--

Quick facts: Wood Group (John) PLC

Price: 198.45 GBX

LSE:WG.
Market: LSE
Market Cap: £1.36 billion
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