23rd Aug 2022 14:39
(Alliance News) - While rising oil and gas prices are fattening the profits of the energy majors, and lining the pockets of their shareholders, this hasn't yet trickled down to the providers of services to that industry.
John Wood Group PLC, an Aberdeen-based an energy sector-focused engineering and consulting business, on Tuesday reported a widened interim loss as revenue stalled and costs rose.
With high debt and with cash flowing out of the company, its new boss said cash generation is John Wood's "top priority" going forward, as it builds its order book.
Revenue for the six months to June 30 edged 0.4% lower to USD2.56 billion from USD2.57 billion a year before.
However, pretax loss nearly doubled to USD31.5 million from USD18.4 million as finance expenses rose 19% to USD64.1 million from USD53.9 million.
"Our first half of the year saw strong momentum in activity levels and order book growth but more to do on cash generation. It is encouraging to see the operational momentum in our business, especially the growth in our Projects and Consulting order book," John Wood said.
The company suffered free cash outflow of USD363 million, which included a working capital outflow of USD208 million and exceptional cash costs of USD102 million.
"In theory Wood Group, with its energy services focus, should be a beneficiary of buoyant prices, but that doesn't appear to be the case with revenue and profit dipping in its first-half period," commented AJ Bell investment director Russ Mould.
"The company's pivot away from large projects is partly to blame and investment in the energy sector is yet to really pick up despite the significant cash windfall many companies have been enjoying," the analyst explained.
"Often there is a lag between a recovery in the oil and gas market and any increase in industry spend. The danger for Wood is that a weaker economic outlook puts businesses off sanctioning major developments."
For the full year, John Wood expects revenue to be around USD5.2 billion to USD5.5 billion and adjusted Ebitda around USD370 million to USD400 million.
Revenue in 2021 was USD6.40 billion, so the decline in 2022 would be at least 14%. Revenue had fallen by 15% in 2021 from USD7.56 billion in 2020. Adjusted Ebitda was USD554 million in 2021, down from USD630 million.
The order book stood at USD6.42 billion at the end of the half-year, up from USD6.13 billion a year prior.
"The strong order book gives me confidence for the future but there is a lot more to do on cash generation and this is our top priority," said Chief Executive Ken Gilmartin.
Andy Murphy with research house Edison Group said the results showed "a mixed outlook" for John Wood, but he pointed to the company's order book revenue from continuing operations for the second half of the year. At USD2.5 billion, this was up 8.7% from USD2.3 billion a year before.
John Wood CEO Gilmartin added: "We are developing an updated strategy for Wood that will draw on our core strengths, return us to growth and deliver sustainable free cash flow...I look forward to sharing our plans at our capital markets day in November."
This will be held on November 29.
Gilmartin took over as CEO at the start of July, having joined John Wood as chief operating officer in August of last year. Gilmartin replaced Robin Watson, whose departure was announced at the time of the company's 2021 results release in April.
Given its "current elevated levels of debt", John Wood will not recommend any dividends in relation to 2022. The firm will reconsider this in 2023 as the sale of the Built Environment Consulting business promises to "transform" the balance sheet. The division was sold to WSP Global for USD1.9 billion back in June.
Net debt including leases was USD2.16 billion on June 30, up from USD1.78 billion a year before.
John Wood's last payout was in respect of the first half of 2019. A final dividend for that year was pulled due to the onset of the Covid-19 pandemic.
John Wood shares were down 2.6% at 146.14 pence on Tuesday afternoon in London. They are down 37% over the past 12 months.
By Tom Waite; [email protected]
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