Wood Group chief executive Ken Gilmartin said the company is confident about its future prospects following a series of key contract wins in the second half of 2022 and a return to revenue growth driven by stronger activity in the oil and gas sector.
In a trading update the Aberdeen-headquartered group said results for the 12 months to the end of December will be down on the previous year but in line with expectations for adjusted earnings of $375-$385 million (£308-£316 million). That represents a decline of at least 31 per cent on 2021.
Revenues will be in the region of $5.4 billion, compared to $6.4bn previously.
Wood – which has expanded from its focus on offshore services into a wider range of energy and industrial markets – returned to revenue growth mid-way through last year as the focus on energy security in the wake of the Russian invasion of Ukraine stimulated renewed interest in conventional oil and gas. This led to a 14% increase in revenues within the operations division to $2.4bn.
The consulting division posted a 4% increase to £600m, but projects suffered a revenue decline of 7% to $2.2bn. The latter, however, has returned to growth.
READ MORE: Aberdeen engineering group Wood to create 300 jobs
Significant business wins in the second half included a three-year contract renewal with Shell in the UK North Sea, a five-year engineering services contract renewal with BP, and a four-year contract with INEOS to deliver a petrochemicals complex in Belgium. Mr Gilmartin said the breadth of contract wins underpinned the board's confidence going forward.
“Our focused approach targeting priority markets in energy and materials, where we have a differentiated offering and hold really strong client relationships, means we are well-placed to benefit from a range of structural growth drivers in these markets," he said.
"Energy security, energy transition and the rising demand for key materials like chemicals and minerals will all create long-term growth opportunities for Wood.”
Analyst Stuart Lamont of RBC Brewin Dolphin said it been a "tough spell" for the group, whose share price is now back at levels last seen in 2005. However, revenues continue to grow and debt – "a perennial issue for the company in recent years" – has been reduced following the £1.5bn sale in June of its built environment consulting business in North America to WSP Global.
READ MORE: Wood pays $115 million to settle US legal case
Wood's net debt at the end of December was approximately $350m, down by about $50m from a year earlier. Its order book stood at $6bn, including "strong growth"in the projects division, with approximately 22% of group revenues generated from sustainable solutions.
On a less positive front, Mr Lamont noted that the group's adjusted profit margins are now hovering around 7.1%, down from 7.7% last year. This was pulled down by the operations and consulting divisions, with the latter impacted by Wood's decision to withdraw from operations in Russia.
"Margins remain under pressure and, given the rising cost of debt, the market will want to see even more action to bring it down," he said. "Wood is beginning to turn a corner, but there is still some distance to go."
Looking ahead, the group said it expected its guidance for the 2023 financial year to be in line with its medium-term financial targets of mid-to-high single-digit compound annual growth rates. It is also anticipating a “material improvement” in underlying operating cash flows in 2023, outweighed in the short-term by defined payments on legacy liabilities, with a return to positive free cash flow in 2024.
READ MORE: Shares soar as Aberdeen-based engineering giant Wood returns to revenue growth
Mr Gilmartin said the group was pleased to have met its guidance for 2022 and is looking to further improvement in the coming year.
“This is a new Wood, led by a new team, and the strategy we recently shared at our capital markets day will enable us to deliver sustainable returns," Mr Gilmartin said.
"We have attractive growth prospects in our core markets, we are trusted by our clients, and we have the talent and solutions to enable a net-zero future. We’re focused on designing a strong future for Wood and enter this New Year with positive momentum.”
Wood will report its full-year results on March 28. The group's shares closed yesterday's trading 4.85p higher at 150.85.
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