ii view: Wood Group reduces losses as CEO steps down

Shares for this energy sector company have bucked the trend over the last year, falling instead of rising. We assess prospects.

Full-year results to 31 December

• Revenue down 15.4% to $6.4 billion (£4.93 billion)
• Adjusted operating profit down 10% to $192 million
• Loss for the year of $136 million, better than last year’s loss of $228 million
• Net debt including leases up 18% to $1.84 billion
• Order book up 19% to $7.75 billion

Guidance:

• Expects higher revenue during the full-year 2022

Chief executive Robin Watson said:

"2021 was a challenging year for the Group, with the ongoing pressures of the pandemic, mixed market conditions across our businesses and continued challenges in Projects impacting our performance. Despite this, we ended the year with positive momentum and a growing order book which gives us confidence that activity levels will be higher in 2022.”

ii round-up:

Engineering and consulting company Wood Group (John) (LSE:WG.) today announced a reduced loss, aided by a pick-up in conventional energy company demand. It also announced the retirement of its chief executive once a successor is found.  

An annual loss of $136 million (£105 million) in 2021 narrowed from a $228 million deficit in 2020, with 2022 revenues expected to improve, although management offered no profit guidance given the pending sale of its built environment business.

Results broadly matched expectations, but Wood Group shares fell by around 1% in UK trading having already dropped by around a quarter over the last year. Management continues to restructure the business, including taking exceptional charges against previously undertaken contracts such as its 2016 fixed price Aegis Poland contract to construct buildings for the US army. Shares for oil major BP (LSE:BP.) are up by just over a third in that time and rival Petrofac (LSE:PFC) is up by just over 6%. 

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Wood’s expertise stretches from innovative pipeline design to wind turbine, tidal energy, and more general construction work. The sale of its less specialist construction, or built environment business is scheduled to complete in the second quarter and could help to reduce debt. 

The FTSE 250 company’s order book rose 19% over the year to the end of December to $7.7 billion, aided by both a 24% improvement in engineering consulting work and a 27% increase in operations or largely maintenance work. 

The company continues to focus on cutting costs and reducing project risk exposure. Multiple contract wins across energy transition and decarbonisation had been won over 2021 as it continued to help its customers deliver on their Environmental, Social, and Governance (ESG) commitments. 

ii view:

The Aberdeen headquartered company operates via the three divisions of projects, consulting, and operations. Its capital projects business offers construction and engineering to all aspects of conventional energy, process & chemicals and renewable energy & power. Its multi-sector consulting business provides some 12,000 consultants to the energy and the build industries, while the operations division provides maintenance and asset optimisation services. During this latest year, the US generated its biggest slug of sales by far at around 47%, followed by the UK and Canada at 14% and 11% respectively. 

For investors, ongoing charges in relation to legacy contracts cannot be ignored. The price of oil, a key factor in undertaking capital expenditure projects, remains highly volatile, while rising interest rates and geopolitical tensions now feed into heightened economic uncertainty. The dividend, a former attraction, is also still suspended. 

On the upside, some recovery in customer activity is being seen, with revenues for 2022 expected to rise. Costs remain a focus, legacy contracts are being addressed, while opportunity in aiding with the move to non-carbon related fuels under climate change strategies is being pursued. In all, and with the sale of its built environment business and a new chief executive now both pending, investors with a higher risk appetite might watch Wood shares.  

Positives: 

• Winning alternative energy contracts
• Targeting cost savings 

Negatives:

• Dividend suspended
• Underlying customer investment can be volatile and uncertain

The average rating of stock market analysts:

Buy