By Scott Wright
SHARES in Wood, the Aberdeen-based energy services giant, surged five per cent after it reported underlying operating profits at the upper end of forecasts for the first half – and signalled cautious optimism for the rest of 2020.
Wood declared its interim results showed the benefit of its continuing diversification beyond the upstream oil and gas sector, which has come under enormous pressure following the plunge in crude prices sparked by the coronavirus pandemic.
The company said it “regrettably” made the decision to cut around 5,000 people or 15% of its headcount since the start of the year to preserve cash amid the crisis. The cuts focused largely on its oil and gas division, notably in the US and Middle East, which was hit by the fall-out from the price war between Russia and Saudi Arabia in January and February, and the subsequent collapse in demand driven by the pandemic.
However, Wood said its diversification model had helped it withstand the downturn. The company now generates 65% of its business in the chemicals and downstream, renewables and built environment sectors, which it said have shown “relative resilience” amid the crisis. It secured $3.1 billion of new orders across the world, due to be delivered in the second half, and said it had coverage of 90% of revenue forecast for the full year.
Wood’s business was 90% focused on oil and gas five years ago.
Chief executive Robin Watson said: “Our strategy over the last five years has been one of diversification, and I think we are seeing real value in where we have taken the business. About 65% of our markets were pretty flat through the first half of the year, so they have not declined much. [That is] balanced by the 35% which is upstream oil and gas, which has taken most of the decline across the business.”
Wood reported that earnings had come in at the upper end of forecasts, with adjusted EBITA (earnings before interest, tax, and amortisation) down 20.6% at $305m. It booked operating profits before exceptional items of $101m, down 40% on last year but ahead of the $80m to $90m forecast in June. The company reported a bottom line loss of $11m against a $13m profit at the interim stage last year. Net debt was cut to $1.22bn from $1.42bn on December 31, benefitting from the disposal of its nuclear and industrial services businesses in the first quarter.
Mr Watson said: “We have been able to reduce out debt, which has been a big priority for us [and] we continue to win work…and protected our margins, so we do feel strategically well positioned. And it is all relative, I would hasten to add. We do feel a degree of resilience on the back of how we have positioned the business.”
Mr Watson said the job cuts were focused on its oil and gas division, notably in the US amid the downturn in shale activity, and in the Middle East, where it has seen project cancellations and deferrals. Activity in the North Sea, which is driven largely by clients’ operating expenditure, has been “fairly steady”, he said.
Asked if he anticipates further job cuts in the second half, Mr Watson replied: “There has been a levelling out in terms of the shock of some of the effects of the first half. We have seen a decline in our backlog and opportunity pipeline through February, March, April into May, and that has steadied off. May, June, July, we have seen a better response [with] more tenders coming to the market and a stabilisation effect – not across all the markets but certainly the non-oil and gas markets. We are quite encouraged by that. It feels a bit steadier going into August and September than it did going into March and April. However, our view is there is still such a range out there.’
Mr Watson said it was “prudent” not pay an interim dividend amid continuing uncertainty around Covid-19 and oil price volatility.
Shares closed up 10.3p at 222.4p.
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