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 EBITDA1 of around $450 million to $460
million
o FY24
adjusted EBIT2 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
million3 (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
million5, 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 flow6,
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.
To join the conference call, and ask
any questions, please register via:
https://register.vevent.com/register/BIf7a68eca19b041999b05912e3fbf80fc.
The webcast and transcript will be
available after the event at 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 million3, 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 million5, 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 flow6, 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.
