Aberdeen energy giant upbeat on outlook as Covid hits first-half-revenue

The Aberdeen-based company cited the ongoing effects of the pandemic and a reduction in revenue from disposed businesses as turnover dropped by 22.9 per cent in the first half. The decline included a $74m hit from the disposal of its nuclear and industrial services businesses in the first quarter of 2020.

Wood reported an operating profit before exceptional items of $86m for the period, down 14.9%. But it was upbeat about the outlook, highlighting an 18 per cent surge in the value of its order book to $7.7bn compared with December, alongside strong trading momentum in the second quarter and margin improvement across its business units. It expressed confidence of a stronger second half but kept its full-year outlook unchanged: a company-compiled consensus of 11 analysts has forecast revenue of $6.9bn, and a pre-exceptional operating profit of $229m.

Chief executive Robin Watson said: “We think the financial performance was solid in the first half. We are seeing good margins across the business and we have got good momentum in the order book. That’s up just over 20% since December, so we are really encouraged by that.

“The first quarter did seem like a very long three months, and there is still a shadow of Covid, particularly in that first quarter, but we have been really encouraged by momentum in the order book and wins and activity levels, Q2 into Q3. We probably feel for two thirds of the business we are already through the inflection of growth, and for our projects business, by the time we get through Q3 we will be in the same place.”

Wood has significantly reduced its reliance on the oil and gas industry since 2016. Having accounted for 95% of its revenue five years ago, it now accounts for less than a third.

Within that, the North Sea accounts for just 6% of its revenue now, though Mr Watson emphasised the importance of the area to the company. Wood is headquartered in the North-east of Scotland and is “one of the largest employers” in the North Sea.

“It is a very material part of our business,” Mr Watson said.

“We’ve picked up market share from our competitors, so that’s always encouraging for us. We offer good quality long-term jobs for a lot of people.”

North Sea operations and maintenance work has been “pretty steady” throughout the pandemic, with upgrade activity now showing evidence of returning after dropping off when the crisis struck.

Mr Watson added: “From a North Sea perspective, we are actually pretty flat in terms of activity level. There is no further decline, so that is encouraging for us.”

As the debate over climate change intensifies, he also highlighted work in the North Sea Wood is involved in where conventional energy assets are embracing technology aimed at decarbonisation. He cited a project with Equinor, which involves wind-generated electricity being used on two of its offshore installations, and work in the Middle East with Shell, installing solar PV technology on one of the oil giant’s facilities. “That’s quite a shift,” Mr Watson said. “We see that overlap between new and old technologies, but also conventional and unconventional energies coming together. We think we will see more of that.”

Mr Watson said the company is well-positioned for the drive towards net zero, given the diversification of its business. But he noted that “we do feel that energy transition is complex”. He said that balancing global population growth with the need to decarbonise is “not an insignificant task – but it is one that we need to embrace.”

He added: “Our job is to improve existing assets to have a lower carbon intensity, and make sure the new assets coming in are better and less carbon intensive, or have a zero carbon footprint.”

The Wood board said the continuing impact of the pandemic meant it was “prudent not to pay an interim 2021dividend.” Mr Watson said the focus “remains on the balance sheet” as the company recovers from the pandemic.

Shares in Wood edged down 1p at 232.51p.