24 August 2021

John Wood Group PLC ('Company')

LEI:  549300PLYY6I10B6S323

Half year results for the six months ended 30 June 2021

First half earnings in line with guidance, reflecting improving momentum in Q2. Strong margin improvement as delivery of efficiencies and improved project execution more than offset lower activity.

Good growth in order book, up c18% year-to-date, underpinning confidence of a return to growth and the delivery of a stronger H2.

Wood, the global consulting and engineering company, announces its results for the six months ended 30 June 2021:

"The first half of 2021 reflects improving momentum in activity in Q2 and a strong margin improvement, with increased margins in all business units and a greater weighting of high margin Consulting activity. Trading momentum and good growth in our order book, which is up c18% year-to-date, underpin our confidence in delivering a stronger second half which will reflect a return to growth compared to both H1 2021 and H2 2020, and further growth in our full year adjusted EBITDA margin."

- Robin Watson, Chief Executive

First half highlights

Revenue reflects improving momentum in activity in Q2 & benefit of broad end market exposure

Strong margin improvement: increased margins in all business units and positive evolution of business mix

Net debt increase reflects timing of working capital movements

FY 2021 outlook: Improving activity levels and strong order book growth underpin our confidence in growth in H2 2021

Future Fit: Strong early progress accelerating our strategy at pace

Sustainability leadership through strategic action

Notes:

1.     A reconciliation of adjusted EBITDA to operating profit (pre-exceptional items) is shown in note 2 to the interim financial statements.

2.     A reconciliation of adjusted diluted earnings per share to basic earnings per share is shown in note 7 to the financial statements.

3.     Net debt excluding leases is total group borrowings, offset by cash and cash equivalents. Borrowings comprise loans drawn on the Group's revolving credit facility, term loans, overdrafts and unsecured senior loan notes issued in the US private placement market. Borrowings do not include obligations relating to leases. Cash and cash equivalents include cash at bank and in hand and short term bank deposits. Borrowings, cash and cash equivalents contained within assets classified as held for sale are also included in net debt. The net debt: adjusted EBITDA ratio is calculated on the existing basis prior to the adoption of IFRS 16 in 2019 and is based on net debt excluding leases. These measures are presented as they closely aligned to the measure used in our financing covenants. A reconciliation of net debt excluding leases to net debt including leases is show in note 15 to the financial statements.

4.     Order book comprises revenue that is supported by a signed contract or written purchase order for work secured under a single contract award or frame agreements. Work under multi-year agreements is recognised in order book according to anticipated activity supported by purchase orders, customer plans or management estimates.  Where contracts have optional extension periods, only the confirmed term is included. Order book disclosure is aligned with the IFRS definition of revenue and does not include Wood's proportional share of joint venture order book. Order book is presented as an indicator of the visibility of future revenue. Order book as at 31 December 2020 recalculated for the new operating model is shown below for illustration purposes:

5.     Revenue on a like for like basis is calculated as revenue less revenue from disposals executed in the first half of 2021 and adjusted EBITDA on a like for like basis is calculated as adjusted EBITDA less the adjusted EBITDA from those disposals. These amounts are presented as a measure of underlying business performance excluding businesses disposed. In H1 2021 executed disposals consisted of our joint venture interest in Sulzer Wood. Comparative figures also exclude revenue and adjusted EBITDA from the disposals of our nuclear and industrial services businesses, YKK and our joint venture interest in TransCanada Turbines completed in 2020. These disposals accounted for $nil revenue in H1 2021 (H1 2020: $74m) and adjusted EBITDA of $nil (H1 2020: $9m).

6.     Company compiled, publicly available consensus comprises 11 analysts who have published estimates since our Full Year Results for the year ended 31 December 2020 issued on 16 March 2021. Consensus includes: JP Morgan Cazenove, Barclays, RBC, Bank of America Merrill Lynch, Morgan Stanley, Berenberg, UBS, Citigroup, HSBC, Kepler Cheuvreux and Jefferies.

Consensus 2021 revenue is $6.9bn (range: $6.7bn to $7.2bn), consensus adjusted EBITDA is $599m (range: $576m-$615m), consensus operating profit (pre-exceptional items) is $229m (Range: $187m-$267m) and consensus AEPS is 24.1c (Range: 16.8c-30.5c).

(www.woodplc.com/investors/analyst-consensus-and-coverage)

Wood is a global leader in consulting and engineering across energy and the built environment, helping to unlock solutions to some of the world's most critical challenges. We provide consulting, projects and operations solutions in more than 60 countries, employing around 40,000 people.

www.woodplc.com 

There will be an analyst and investor presentation webcast today at 9:00am, immediately followed by a live Q&A conference call. Replay facilities will be available later in the day. The webcast can be accessed using the following link:  https://edge.media-server.com/mmc/p/rrkbr864

If you wish to ask a question during the Q&A session, or are unable to listen to the presentation via the webcast, please dial in to the audio conference call using the details below. Please note that questions may be submitted via the conference call only and it is recommended that you dial in at the start of the webcast.

UK / international: +44 2071 928 338

US: +1 646 741 3167

Conference passcode: 8466697

Notification authorised by:

Martin J McIntyre

Group General Counsel and Company Secretary

Business Review

H1 Trading performance: improving momentum and strong progress towards our margin improvement target

Improving momentum in activity in Q2 & benefit of broad end market exposure

In the first half of 2021, we continued to benefit from our strategic actions to broaden our end market exposure across diverse energy and built environment markets. Against the backdrop of challenging market conditions due to the ongoing impacts of Covid-19, we have seen strength in the built environment which accounts for c20% of our revenue. In renewables & other energy which is c25% of revenue we have seen relatively robust activity in renewables. Market conditions in conventional energy, which accounts for c35% of our revenue, are improving, particularly in Operations, whilst activity in process & chemicals, which is c20% of revenue, reduced significantly as larger projects reached completion.

Revenue in the first half of 2021 was in line with guidance at $3.2bn, down 22.9% on H1 2020. The reduction in revenue largely reflects the impact of Covid-19 on activity but also includes a $74m impact from the disposals of our nuclear and industrial services businesses in Q1 2020. Following a steady start in Q1 2021, we have seen improving momentum in activity in Q2 with growth in Consulting and Operations compared to Q2 2020. Overall H1 revenue reflected robust activity in Consulting and relative resilience in Operations, partly offsetting lower activity in Projects, as anticipated, due to the completion of larger process & chemicals contracts.  

Strong margin improvement: increased margins in all business units and positive evolution of business mix

We delivered a strong margin improvement in H1 2021. Adjusted EBITDA margin of 8.3% is up 80 bps compared to the prior period, reflecting good progress towards our medium-term margin target of 9.6%. Our focus on maintaining high utilisation, the successful delivery of efficiencies under our Future Fit programme and improving project execution have driven improved margins across all business units, but most significantly in Projects which is up by 220 basis points. In addition, margins are benefitting from our evolving business mix with a greater proportion of revenue from higher margin Consulting activity. Overall, these positive trends are more than offsetting the impact of lower activity.

Adjusted EBITDA was $262m, in line with guidance, and down 14.1% on H1 2020 reflecting the impact of reduced activity levels and a $9m impact related to disposals, offset by our focus on efficiencies and operational excellence.

Operating profit before exceptional items of $86m was in line with guidance and benefitted from reduced depreciation and amortisation charges as a result of our actions to rationalise our property portfolio and reduce capital expenditure during 2020, and the full amortisation of certain previous acquisitions. Operating profit before exceptional items is stated after depreciation of $75m and amortisation of $96m.

Operating profit benefitting from lower exceptional costs of $18m

Operating profit of $68m is up c3%, benefitting from lower exceptional costs of $18m (H1 2020: $35m).  These consist of restructuring, redundancy and reorganisation costs of $41m, including $17m related to the delivery of efficiencies under our Future Fit programme and costs related to the closure of our Paris office, offset by a gain on disposal of our joint venture interest in Sulzer Wood of $15m and an $8m non-cash movement related to the unwind of the discount on the asbestos provision. Further details of exceptional items, including asbestos, are included in the Financial Review.

Future Fit: Strong early progress accelerating our strategy at pace

We have made strong early progress in the delivery of our 18-month long Future Fit programme. With a focus on accelerating our strategic priorities to unlock stronger medium-term growth, deliver efficiency and create value, in H1 2021 we have successfully delivered:

An organisational design optimised for growth: Our service-defined operating model is optimised to unlock growth opportunities by leveraging global client relationships across the entire "green-to-green" asset life cycle of Consulting, Projects and Operations. The move to three global business units simplifies our offering and creates the right platform to harness our resources collaboratively across the organisation, giving us the agility to respond to our clients' needs. The effectiveness of our new organisational design is evident in recent contract awards including our engagement in the consulting phase to assess the feasibility of the supply of solar power for a mining project which enabled us to leverage the client relationship and our strong track record in project delivery to secure the EPC scope for the design and installation of the 120 MW solar facility.

The launch of Operational Excellence programmes to transform the way we work: We have launched a range of Operational Excellence programmes to enhance core skills and competencies, ensure consistently exceptional delivery for our clients' projects and to accelerate our readiness for future skills requirements. These include the development of a common delivery framework to standardise the way we work and increased use of our High Value Engineering Centres for project execution and shared service centres for back-office support functions. We are also initiating actions to transform our supply chain through focusing on optimising external spend, leveraging strategic supplier relationships and delivering value through economies of scale.

Solutions to create value: We are investing in digital solutions for competitive advantage and have created a Digital Factory to harness Wood's digital skills and develop agile digital solutions in support of client needs. We are also digitalising the way we work to improve efficiency, predictability and performance, and to reduce risk. We are partnering with Microsoft to roll out our Connected Worker solution to c7,000 field employees, enabling them to access real-time data and artificial intelligence (AI)-powered data science solutions. This will streamline working practices, reduce the need for site mobilisations and enhance team collaboration which will in turn reduce risk and deliver value.  We are also investing in our Digital Control Tower to standardise and automate the reporting of critical information, building a leading full asset lifecycle offering for Digital Twins across energy and the built environment and creating Automated Design solutions to unlock competitive pricing models.

Our strong progress on our Future Fit programme delivered efficiency savings in the first half of c$20m, and we expect to deliver a further c$20m in H2 2021. It has also created a platform for the development of strategic growth plans for each of our business units that are focused on:

Interim dividend

We remained committed to ensuring balance sheet strength. Whilst we are encouraged by improving momentum in activity and early signs of markets recovering, performance in the first half of 2021 reflects the ongoing impacts of Covid-19. As such, the Board considers it prudent not to pay an interim 2021 dividend.  The Board recognises the importance of dividends to shareholders and is committed to reviewing the future policy as certainty over the rate of recovery in our markets increases.

Cashflow, net debt and liquidity 

In 2020, against the backdrop of unprecedented trading conditions we delivered a significant reduction in net debt to $1.01bn at 31 December 2020. Net debt at 30 June 2021 increased to $1.28bn driven by:

We expect a reduction in net debt in the second half, with further payments of c$60m related to the settlement of legacy investigations being more than offset by improved profitability and working capital inflows, including our typical H2 inflow, the impact of timing of receipts reversing in H2 and the expected build in advance payments in line with order book build in Projects.

The ratio of net debt excluding leases to adjusted EBITDA (pre-IFRS 16) is 2.9x at 30 June 2021 (31 December 2020: 2.1x and 30 June 2020: 2.0x). The ratio is expected to reduce in H2 driven by a reduction in net debt in the second half and increased profitability driven by the weighting of our earnings to H2 as improving momentum in market conditions continues in the second half of 2021. We retain considerable levels of financial headroom. Undrawn facilities are around $1.6bn and covenants are set at 3.5x pre-IFRS 16 EBITDA.

In July 2021, bilateral term loans of $300m with a maturity date of May 2022 were repaid. We also secured a $600m loan facility with existing lenders backed by UK Export Finance (UKEF), HM Government's UK export credit agency. Our success in securing this facility is a strong endorsement of our strategy and approach to sustainability, with KPIs being linked to growing export of our skills in the energy transition and sustainable infrastructure, and reductions in scope 1 and 2 carbon emissions.  The five-year facility, effective from July, also extends the maturity profile of our debt facilities.

Sustainability leadership through strategic action

Sustainability is core to our purpose and strategy which are aligned to delivering innovative solutions for a net-zero future and enabling sustainable and resilient living. We are already delivering a wide range of energy transition projects, c20% of our Renewables & other energy revenue is from renewable energy projects such as solar, wind and hydrogen and c5% related to activities which reduce the carbon intensity of existing energy and industrial assets through scopes including the supply of green energy, carbon capture and storage and asset optimization.

We are committed to maintaining our position as leaders in our field on ESG matters and, in addition to the solutions we are already delivering, we are harnessing our significant technical expertise and breadth of capabilities to inform the development of a unified global approach to the energy transition and decarbonisation.

We have pledged our commitment to the development of affordable and clean energy through our sponsorship of the UN Sustainable Development Goal 7, utilising our resources and engaging with stakeholders to deliver the goal of affordable and clean energy. In addition, we recently joined the Hydrogen Council as a steering member. The Council is a CEO-led initiative to accelerate the energy transition through hydrogen solutions. Our work in the built environment has also positioned us as a leader in addressing the climate resilience of urban areas and the transition to lower carbon infrastructure. As part of our engagement around the 2021 United Nations Climate Change Conference (COP 26) we have partnered with AIG and the University of Strathclyde to collaborate on a series of events in Glasgow, to explore how the city can integrate plans to effectively mitigate climate risk as part of its energy transition and resilience strategies.

We continue to focus on developing solutions to accelerate the energy transition and in the first half of 2021 we entered an exciting strategic partnership with Honeywell to develop solutions to produce renewable diesel and sustainable aviation fuel. By using hydrogen in the production process, utilising our proprietary Steam Methane Reformer technology, it is possible to produce fuels that have significantly lower carbon intensity than existing fuels and we are excited by the opportunities this strategic partnership will bring as the demand for carbon neutral fuel grows.

Full year outlook: Improving activity levels and strong order book growth underpin our confidence in growth in H2 2021

Strong order book growth reflecting improving market conditions

Order book at the end of June of $7.7bn is up c18% compared to December 2020 (up 9.1% on June 2020), with  positive momentum across Consulting, Projects and Operations. We have seen continued momentum in Consulting across energy and built environment markets. Good growth in Operations order book reflects recent awards of multi-year contract renewals. In Projects, we are seeing encouraging signs of markets recovering with increased bidding and opportunities and a c12% month on month increase in order book in June compared to May 2021. These factors are driving a recovery in Projects order book which is now down only c3% year to date, with recent awards reflecting a bias towards EPC scopes which are in line with our measured risk appetite but generally provide scope for advance payments.

Returning to growth in H2 and progressing towards our margin improvement target of 9.6%

Our outlook for the full year is unchanged, and we continue to expect lower activity overall. Increased activity in Consulting will be driven by continued strength in built environment activity. Lower activity in Projects will be driven by larger contracts in process & chemicals completing and the impact of new awards in process & chemicals and conventional energy having been limited to smaller, early stage scopes. Growth in Operations will be driven by a recovery in demand in conventional energy. 

Improving activity levels in Q2 2021 and strong order book growth underpin our confidence in the delivery of a stronger second half and are also laying strong foundations for 2022. With around $3.0bn of order book due to be delivered in H2 2021 we expect a return to growth in H2 relative to both H1 2021 and H2 2020.

Adjusted EBITDA margin will reflect progress towards our medium-term target of 9.6%. Margin improvement will be driven by maintained high utilisation, improved project execution, efficiency improvements including c$40m of savings from our Future Fit programme, and our business mix weighted more towards higher margin Consulting.

Our full year guidance for 2021 is as follows:

*Includes Investment Services revenue anticipated to be c$0.15bn - $0.2bn

Well positioned to accelerate strategy to unlock medium-term growth through Future Fit delivery

With our focus on utilising our technical expertise and capabilities to inform the global approach for a net-zero future and forming strategic partnerships to develop sustainable solutions, we are well positioned for medium term growth opportunities from the energy transition and drive for sustainable infrastructure.

In our energy markets we expect growing investment in renewable and new energies, including hydrogen and biofuels, and a focus on decarbonisation to generate strong growth opportunities in the medium term. In the built environment, growth will be driven increased infrastructure investment as a result of fiscal stimulus.

The benefit of our strategic positioning for these medium-term growth trends is evident in the breadth of our recent awards. These include pre-FEED work to support ADNOC's world-scale blue ammonia facility, a scope to develop a road-map for a net-zero transit network, pre-FEED work for a CO2 pipeline network for a North American carbon capture and transportation project, and a framework agreement with NEL Hydrogen for services to support the delivery of large-scale green hydrogen production plants. We have also recently secured an EPC scope for a solar plant to decarbonise a mining facility and an engineering procurement and construction management (EPCM) scope for a chemical plant utilising digital solutions to reduce cost and energy and wastewater intensity.

The delivery of our Future Fit programme will help us to accelerate our strategic priorities and we are confident of unlocking stronger medium-term growth from these opportunities while delivering efficiency and creating value.

Consulting (c30% of H1 Revenue)

(End markets: Renewables & other energy c15%, process & chemicals c5%, conventional energy c15%, built environment c65%)

Revenue of $0.9bn was down 10% on H1 2020. Adjusting for the disposal of the nuclear business in Q1 2020, revenue was down only 3.9% driven by strength in built environment activity and relatively robust energy activity and reflecting improving trading momentum in Q2 2021, with growth compared to Q2 2020.
 

Adjusted EBITDA of $106m was broadly in line with H1 2020 and on a like for like basis, was up 3.9%. Robust activity levels, maintenance of utilisation at high levels and efficiency improvements, including Future Fit, delivered a strong adjusted EBITDA margin improvement, up 100 basis points on a like for like basis.

H1 operational highlights:

Order book progression: Order book is up 15% on December 2020, driven by momentum in energy and built environment awards.

Order book due for delivery in H2 2021: c$1.0bn, providing revenue coverage of over 90%, typical for this point in the year

2021 full year outlook: 

Looking further ahead, we are well positioned for growth with recent awards demonstrating our strategic positioning for growth opportunities from the energy transition and drive for sustainable infrastructure including:

We expect opportunities from the US Infrastructure Bill and other fiscal stimulus packages to have a positive impact on our order book during 2022 and beyond.

Projects (c40% of H1 Revenue)

(End markets: Renewables & other energy c40%, process & chemicals c35%, conventional energy c20%, built environment c5%)

Revenue of $1.2bn was down 40.2% on H1 2020 as a result of lower activity driven by larger engineering, procurement and construction (EPC) contracts completing as expected and new awards in process & chemicals and conventional energy being limited to smaller, early-stage scopes.

While adjusted EBITDA was down by 14.6% we have delivered significant margin improvement, up 220 basis points to 7.5%. This reflects improved project execution, delivery of efficiencies including overhead reductions and cost savings from our Future Fit programme and maintenance of utilisation at high levels, offsetting the impact of lower activity.

H1 operational highlights:

Order book progression: Order book is down 3% on December 2020. Following an increase in bidding and opportunities, order book reflects encouraging signs of growth with a c12% month on month increase in June compared to May 2021.

Order book due for delivery in H2 2021: c$1.0bn, and we anticipate positive momentum in awards and increases in scope of existing projects in H2.

Full year outlook: 

Looking further ahead, we expect recent momentum in order book to continue throughout the remainder of the year as markets recover which, due to start-up lead times, will have a positive impact in 2022 onwards. In addition, recent awards reflect our strategy of broadening the business to benefit from growth opportunities across diverse energy markets and include:

Operations (c30% of H1 Revenue)

(End markets: Renewables & other energy c15%, process & chemicals c10%, conventional energy c75%)

Revenue of $1.0bn was relatively robust on a like for like basis, down 7.5% compared to H1 2020 after adjusting for the disposal of our industrial services business in Q1 2020. This reflects the impact of lower Q1 2021 activity due to the impacts of Covid-19 and oil price volatility, particularly in conventional energy largely offset by an improved Q2 2021 compared to the prior year as markets recovered.

Adjusted EBITDA of $107m was in line with H1 2020. We delivered a 70 basis points improvement in margin, on a like for like basis, to 10.7% reflecting efficiencies from our Future Fit programme and good execution.

H1 operational highlights:

Order book progression: Order book is up 34% on December 2020 reflecting a recovery in demand in conventional energy, including recent multi-year contract renewals.

Order book due for delivery in H2 2021: c$1.0bn

Full year outlook: 

As market conditions continue to improve we are well positioned for growth opportunities in the medium-term as a result of our broad energy end market exposure and our strong customer relationships, particularly in conventional energy. This is reflected in recent awards including:

Investment Services

A number of legacy activities and liabilities are managed in Investment Services, including the legacy Aegis project. Revenue in Investment Services was $107m (H1 2020: $64m). Adjusted EBITDA was $(8)m (H1 2020: $15m) reflecting additional costs to complete a legacy project in 2021 and the benefits of closing out legacy issues in 2020