John Wood Group PLC

Annual Report and Accounts 2019

"In 2019 we delivered earnings growth, margin improvement and strong cash generation which resulted in a reduction in net debt. Our strategy has driven decisive action to align Wood with the significant growth opportunities in energy transition and sustainable infrastructure and we made good progress on portfolio optimisation and the repositioning of our consulting, project and operations service offering in 2019. The disposal of our nuclear and industrial services businesses generated proceeds of c$430m in Q1 2020 and accelerated progress to target leverage. We are confident that from this foundation we are building a differentiated, premium, higher margin business, supported by a continued focus on margin improvement, execution excellence and portfolio optimisation."

Robin Watson, Chief Executive

Robin Watson

Highlights

Earnings growth, margin improvement and strong cash generation. Portfolio optimisation supports strategic positioning for opportunities in energy transition and sustainable infrastructure.

Revenue1


1.2% $9,890m (2018: $10,014m)


Adjusted EBITDA1,2


movement: n/a2 $855m (2018: $694m)


Adjusted EBITDA margin


movement: n/a2 8.6% (2018: 6.9%)


Adjusted EBITDA (on a like for like basis)3


5.4% $704m (2018: $668m)


Adjusted EBITDA margin (on a like for like basis)3


0.4% 7.1% (2018: 6.7%)


Operating profit before exceptional items1


15.1% $411m (2018: $357m)


Operating profit


83.6% $303m (2018: $165m)


Profit/(loss) for the period


movement: n/a $73m (2018: $(8)m)


Basic EPS


movement: n/a 10.7 cents (2018: (1.3)cents)


Adjusted diluted EPS1


1.3% 46.0 cents (2018: 46.6 cents)


Total dividend


0.9% 35.3 cents (2018: 35.0 cents)


Net debt excluding leases4


5.9% $1,424m (2018: $1,513m)


Order book5


7.3% $7,898m (2018: $8,524m)


Financial performance


  • Revenue of $9.9bn reflects generally robust activity across energy and built environment markets

  • Adjusted EBITDA of $855m and operating profit before exceptionals of $411m in line with guidance and expectations

  • Growth in like for like adjusted EBITDA3 of 5%; led by ASEAAA and E&IS and the delivery of cost synergies of c$60m

  • Profit for the period of $73m benefitting from significant reduction in exceptional items (net of tax) from $183m to $127m. Exceptional costs include a $46m provision in respect of certain regulatory investigation settlements

  • Adjusted diluted earnings per share (AEPS) of 46.0c down 1.3%

  • Strong cash conversion of 96% reduced net debt excluding leases to $1.42bn (2018: $1.51bn). (Net debt excluding leases : adjusted EBITDA pre IFRS 16 of 2.0x6)

  • Disposal of nuclear and industrial services businesses completed in Q1 2020 generated proceeds of c$430m delivering target leverage of 1.5x on a proforma basis6

  • Proposed final dividend of 23.9c, total dividend of 35.3c up 1% in line with progressive dividend policy

Outlook for 2020


  • Order book of $7.9bn5 reflects our short cycle model, the work off of legacy fixed price work as the portfolio is de-risked and enhanced tender governance. Current visibility typical for this point in the year with c60% of forecast revenue covered by order book, of which c75% is reimbursable

  • Existing forecasts and order book support modest underlying revenue growth and growth in underlying EBITDA, underpinned by margin improvements, as set out in our January trading update

  • Existing forecast for cash generation in 2020 anticipates lower provisions movements, and reductions in known exceptional items and capex. Timing of any settlement of regulatory items is uncertain although it is possible that it could be in 2020. Benefit of maintained focus on working capital management likely to be more than offset by current expectation of an unwind of advances on EPC projects received in 2019

  • Recent impacts of Covid-19, the substantial reduction in oil price and actions we will take to mitigate not reflected in existing forecasts; too early to quantify. No material impact to date from Covid-19. Proven track record of leveraging our flexible, asset light model in response to changing market conditions and over the last 5 years we have diversified end markets; upstream/midstream oil and gas represents only 35% of revenue

  • Looking further ahead, well positioned for growth opportunities presented by trends in energy transition and sustainable infrastructure, with a unique range of capabilities and breadth of clients and markets

Footnotes

  1. Wood’s primary reporting metrics are revenue, aligned with the IFRS definition, and operating profit (pre-exceptional items) which is closely aligned with the IFRS definition but excludes the impact of exceptional items which by their nature are non-recurring items that might otherwise distort underlying operating profit. Adjusted EBITDA (pre-exceptional items, including Wood’s share of joint venture EBITDA) is adopted as an additional non-statutory /‘non-GAAP’ measure of profit. This is presented at the Group and Business Unit level to report underlying financial performance and facilitate comparison with peers. 2019 adjusted EBITDA includes adjusted EBITDA from our nuclear business and our industrial services business, the disposals of which completed in Q1 2020. Adjusted EBITDA includes the impact of IFRS 16 Leases (see note 2).
    Adjusted Diluted EPS is also presented, defined as “earnings before exceptional items and amortisation relating to acquisitions, net of tax, divided by the weighted average number of ordinary shares in issue during the period”.

  2. Adjusted EBITDA includes the impact of IFRS 16 Leases, which became effective on 1 January 2019. The most significant change for Wood is the accounting for property leases. Rental charges that were previously recorded in operating costs in respect of these leases are now replaced with depreciation and an interest charge. We have chosen to apply the modified retrospective approach on adoption of IFRS 16 and, using this approach, there is no restatement of 2018 comparatives in 2019. The movements between 2019 metrics and 2018 comparatives that have not been restated are shown as not applicable (n/a).
    The adoption of IFRS 16 increases 2019 adjusted EBITDA by $151m. A lease liability of $574m is recorded on the balance sheet at 31 December 2019. All financing covenants are set on a frozen GAAP basis and are not impacted by the adoption of the standard.

  3. Adjusted EBITDA on a like for like basis is calculated as adjusted EBITDA less the adjusted EBITDA from disposals executed in the current year, and is presented as a measure of underlying business performance excluding businesses disposed. In 2019 executed disposals consisted of TNT, the legacy AFW power machinery businesses, our joint venture interests in Voreas and other infrastructure assets. These disposals accounted for $20m of revenue in 2019 (2018: $76m) and adjusted EBITDA of $nil (2018: $26m). As IFRS 16 has been adopted with no restatement of 2018 comparatives, adjusted EBITDA on a like for like basis also excludes the impact of IFRS 16 in 2019. A reconciliation of adjusted EBITDA and adjusted EBITDA on a like for like basis to operating profit (pre-exceptional items) is shown in note 1 to the financial statements.

  4. 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. Net debt excluding leases is presented as it is closely aligned to the measure used in our financing covenants.

  5. 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, client 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 at 31 December 2019 excludes the order book of the nuclear and industrial services businesses disposed. For comparability, the order book at 31 December 2018 has been restated to exclude the order book of the nuclear and industrial services businesses as well as the TNT and AFW power machinery businesses disposed in 2019. Order book is presented as an indicator of the visibility of future revenue.

  6. 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. References to the ratio on a proforma basis deduct the proceeds from the disposal of the nuclear and industrial services businesses of c$430m from net debt and also deducts from adjusted EBITDA the 2019 adjusted EBITDA attributable to those businesses of $49m. The proforma basis is considered to be a useful additional indication of the underlying financial leverage in the business.

  7. Company compiled, publicly available consensus comprises 10 analysts who have published estimates since our January 2020 trading update and includes forecasts that reflect both changes to our reporting metrics and the impact of IFRS 16: Credit Suisse, Exane BNP Paribas, Canaccord Genuity, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, Citigroup, Kepler Cheuvreux, Numis and HSBC.
    Consensus 2019 adjusted EBITDA is $854m (range: $847m-$860m), consensus operating profit (pre-exceptional items) is $426m (range: $382m-$496m) and consensus AEPS is 47.0c (range: 40.0c-51.9c).
    Consensus 2020 adjusted EBITDA is $895m (range: $854m-$925m), consensus operating profit (pre-exceptional items) is $475m (range: $440m-$511m) and consensus AEPS is 55.1c (range: 51.8c-58.2c). It should be noted that the impact of the disposal of the industrial services business announced in February is not fully reflected in 2020 consensus.
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Key performance indicators

To help the Group assess its performance, our leadership team sets KPI targets and monitors and assesses performance against these targets on a regular basis.

Safety:

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Financial:

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At a glance

Wood is a global leader in consulting, projects and operations solutions in energy and the built environment.

Our consultancy offering provides innovative solutions needed to solve our clients' biggest challenges. Our value-added projects and operations offerings help unlock and de-risk client projects, increase production, improve efficiency, reduce costs and extend asset life.

  • 60+

    countries
  • 400+

    offices
  • 160+

    year history
  • c$10bn

    revenue
  • 55,000+

    employees

We have an optimised operating model that is service defined. We deliver three principal services:

Consulting
Projects
Operations

Across two broad end markets:

Energy

Built environment

Our business model

We create value by delivering differentiated consulting, projects and operations solutions throughout the asset life cycle in energy and the built environment. Our clearly defined purpose and strategy, underpinned by our culture, is fundamental to sustaining value over the longer-term.

DownloadView our business model section of the report

Inputs


Performance driven and innovative solutions



Talented, flexible and motivated workforce



Operating structure optimised for sustainability, cross-service line opportunities and future growth



Efficient capital structure and allocation



Flexible commercial model with a balanced risk appetite



Robust risk governance and operations assurance policies and processes



Sustainability strategy aligned with UN goals



Our strategy is to create a premium, differentiated, higher margin consulting, projects and operations solutions business

Our purpose:

to create a sustainable future for energy and the built environment

Four primary trends shape our markets and drive our strategy. Our capabilities are levered to structural growth in energy transition and sustainable infrastructure and aligned to the increasing role of digital & technology and the requirement to develop the necessary future skills.

Energy transition

Services aligned to the transition to alternative energy sources and decarbonisation

Future skills

Investing in agile and digitally connected teams to accelerate value for Wood and our clients

Sustainable infrastructure development

Capabilities to solve the challenges of rapid urbanisation

Digital & technology

Utilising the increased role of technology to enhance the delivery of our technical capabilities


Our five medium-term priorities

1

Targeting margin improvement to accelerate growth

2

Optimise and standardise service delivery model to achieve exceptional execution

3

Rationalisation and positioning of portfolio to optimise our service and market mix aligned to our strategic objectives

4

Technology differentiation through internal R&D, strategic partnerships and scaleable solutions

5

Improved risk/reward on contracts in line with balanced risk appetite


Creating value through our differentiated model

Our strategic enablers:


Agile teams

We deploy our most talented people with agility to deliver the right solutions now and in the future. Our ability to adapt keeps us relevant and offers great opportunities for our people.

Exceptional execution

We are differentiated by our shared commitment to consistently delivering exceptional outcomes that add value and build trust. We have around 90% repeat business and have developed leading market positions from our long track record of delivering safe and best in class projects.

Commercial acumen

We employ an asset light, flexible model allowing us to respond quickly to changes in market conditions and allocate capital where it impacts most. Our contracting structures are largely reimbursable with a range of specific contracting structures to align with client needs within our measured risk appetite. We have a broad client base with a wide mix across sectors giving us low client dependency.

Technological advantage

We deliver greater efficiencies and create new solutions through combining our unique know-how with leading-edge enabling technology. We provide solutions to some of the world's most complex projects and draw on our extensive expertise and know how to bring new perspectives on the challenges these projects present.


Value outputs


For investors


  • Share price appreciation and progressive dividend policy
  • Reduced cyclicality through broad industry exposure


Total dividend


35.3 cents per share


For employees


Rewarding careers and focus on retention


Employees


55,000+


For clients


  • Delivery of predictable project outcomes
  • Global reach with balanced portfolio of long-term partner relationships with clients
  • Leading technical services and smarter, more sustainable solutions
  • Track record on industry leading projects


For communities


Significant contribution to local employment and communities


Employee fundraising matched


c£200,000

Our culture

Our culture, defined by our vision, values and behaviours, underpins our business model

Find out more

Effective engagement with our stakeholders

In order to successfully deliver our strategy and create value for our stakeholders it is important to understand what matters to them.

Understanding our stakeholders will only be achieved by building strong, constructive relationships and through regular engagement. We welcome the different perspectives our diverse stakeholders, who often represent competing interests, bring to our decision making at both executive and Board level.

Employees

Clients

Investors & Lenders

Environment

Community

Pension plans: Current & Deferred Workforce and Pensioners

Suppliers


John Wood Group PLC
Annual Report and Accounts 2019 downloads