The most recent Annual General Meeting (“AGM”) of John Wood Group PLC was held at Sir Ian Wood House, Hareness Road, Aberdeen, AB12 3LE, Scotland on Monday, 29 June 2020.
The following questions were submitted in advance of the meeting:
AMEC shareholders have lost 65% of the value of Wood shares at acquisition in late 2017. What is the management doing to turn this around and instil some confidence in the minds of shareholder that the business is a good investment? Is it time for new leadership at the top that can turn this company around?
The Board appreciates these concerns. Any company’s share price is subject to a myriad of factors including external influences outside that company’s control. This can cause a share price to fluctuate quite substantially and is not always a true reflection of that company’s value.
The acquisition of Amec Foster Wheeler brought together the respective capabilities of both companies to create one of the world’s leading engineering and consultancy companies with with leading positions across a diverse portfolio of energy and built environment markets. As a result of the combination and the steps undertaken since to deliver Wood’s strategy, the Board believes that the business is well positioned to succeed in a new environment which is being defined by trends in energy transition and sustainable infrastructure as the world evolves to a healthier planet.
The events of the last few months only serve to reinforce our view that our strategy to broaden the business in this way is the correct one – we remain confident that, in time, the share price will recognise the progress that we’ve made as a business.
This year has also been particularly challenging as our share price has been adversely affected by the unprecedented impact of Covid-19, significant volatility in oil prices and political uncertainty earlier in the year.
The Executive Leadership Team has already taken early and decisive steps to respond to the challenges and these actions will deliver over $200m of savings before year end. These actions include a 10% reduction in base salary for the Board, Executive Leadership Team and all senior leaders.
Wood’s management team has an outstanding track record of leveraging Wood’s flexible, asset light model in response to tough market conditions, and the Board has every confidence they have the right experience and capability to help Wood navigate the current market environment and emerge in a stronger position and ready for future growth.
Resolution 17 – To authorise the Directors to disapply pre-emption rights for acquisitions and other capital investment
A company needs shareholder authority to issue shares for cash other than in very narrow circumstances, e.g. employee share schemes.
Under the Companies Act, if shares are to be allotted for cash, those shares should be offered first to existing shareholders in proportion to the number of shares they hold at the time of the offer. This is known as the statutory pre-emption regime. However, it may sometimes be in the interests of a company for the directors to allot shares other than in accordance with the statutory pre-emption regime.
Resolutions 16 & 17 permit the Board to do this in two main ways:
In accordance with the guidance on the cumulative usage of authorities within a rolling three-year period contained in the Statement of Principles, the directors would not intend to issue shares for cash representing more than 7.5% of Wood’s issued share capital in any rolling three-year period to those who are not existing shareholders, save in connection with an acquisition or specified capital investment (as described above), without prior consultation with shareholders.
The Board currently has no intention to exercise the authorities under resolutions 16 and 17, although it considers their grant to be appropriate in order to preserve maximum flexibility.
Resolution 18 - To authorise the Company to purchase its own shares
This resolution seeks to renew the existing authority granted to the Company to purchase its own shares.
In certain circumstances the Board may consider it desirable for Wood to purchase its own shares on the market. This resolution gives the Board authority to purchase up to 68,493,937 ordinary shares, which represents approximately 10% of Wood’s issued ordinary share capital, through market purchases on the London Stock Exchange.
The Company would only purchase its own shares where the Board believes that to do so would result in an increase in total return per share and that it was in the best interests of shareholders generally.
In considering the purchase of ordinary shares, the Board would follow the procedures laid down in the Act and would take into account cash resources, capital requirements and the effect of any purchase on gearing levels and on earnings per equity share.
Any shares purchased under this authority may be cancelled or held as treasury shares, which may then be cancelled, sold for cash or used to meet Wood’s obligations under its employee share plans.
The Board has no current intention of using this authority to make market purchases, however it considers it prudent to be able to act at short notice if circumstances warrant and this resolution provides the flexibility to allow it to do so.
3. Should bonuses to the executive directors be suspended, given the performance of the share price and the impact of COVID-19 and the decline on oil prices?
Wood’s financial year ended 31 December 2019. In 2019, under Robin Watson’s leadership, Wood delivered against expectations. Robin and his team continue to deliver at pace against a clear set of challenging financial and operational objectives, focused on integration and cost & synergy delivery, in a very challenging market and political uncertainty. Wood remains well placed to deliver longer term growth and value for our shareholders. The bonuses awarded to executive directors for performance year 2019 were 66.9% of maximum opportunity. However, given the shareholder experience during 2019, the Remuneration Committee determined to apply discretion and reduce the bonuses to 62% of maximum. Those were paid in March 2020, with 25% deferred into conditional share awards until 2022. In addition, the Committee has also determined to apply one-off discretion and reduce the participation levels in LTIP for 2020 by 15%; this results in a participation level of 170% of salary for the Chief Executive and 149% for the CFO. In line with the usual practice, the share price used to determine LTIP awards is the 20-days trading average to 31 December 2019; this is £3.64.
In addition, since the publication of the annual report, in response to the extremely challenging business environment, the executive directors, along with members of the Board, executive leadership team and their direct reports, voluntarily decided to reduce their salaries by 10%; salary reductions have also been voluntarily accepted by circa 3,200 employees in our global workforce. The reductions took effect from 1 April 2020 and are anticipated to remain in place for up to nine months.
4. What steps has the company taken to comply with the requirements for engagement with the workforce as set out in the UK Corporate Governance code.
Details of our employee engagement can be found on pages 8, 38-41, and 86 of the 2019 Annual Report.
Having a strong culture is fundamental to everything we do. As a people business, our culture focuses on creating a working environment where our people enjoy coming to work every day and our clients want to work with us. It is underpinned by our vision, values and behaviours which help create our culture by setting the tone and giving us one common set of principles. Our employees are fundamental to the delivery of Wood’s services and therefore to the long-term success of the business. It is important to develop our employees and keep them engaged and motivated. We engage with our workforce so that we can understand and address areas where we need to improve to ensure we deliver rewarding careers and retain our talented people.
The Board plays an important part in establishing and promoting the company’s values and culture. In July 2018 we launched Wood’s first global employee engagement survey, sponsored by Thomas Botts (non-executive director). We asked our people what they feel we do well and what they believe we should be doing better. The survey acts as a mechanism for the Board to measure culture in a consistent manner, taking into account feedback from our global workforce. In 2018 our engagement score was 7.1 (0.4 below the industry benchmark); this improved to 7.2 in November 2019, (0.1 above the industry benchmark). During the same time span, we have also improved our employee net promoter score which is a key indicator of cultural health across Wood. We are particularly proud of the improvement in demonstrating care for our people, both from a line manager and corporate perspective. Feedback shows that we have significantly improved development and career support; fair reward for our people; and providing them with the materials and equipment to carry out jobs effectively
The Company has also established a Listening Group Network (LGN) with meetings, attended by non-executive directors and members of the Executive Leadership Team, held throughout the year.
Feedback from the employee survey and views from the LGN are reported to the Board to ensure their perspective is heard; strengthening the ‘employee voice’ in the boardroom, with any actions implemented to address the points raised.
The Board holds dinners with members of the wider leadership team, beyond ELT level, as well as with high performing employees. These sessions allow the Board to understand the views of and issues faced by the leadership team so that they can be factored into the Board’s decision making. Meeting with high performing employees provides the opportunity to engage with employees on the issues that matter to them whilst also giving the Board oversight of the talent pipeline for the purposes of senior management succession planning.
5 What support has Wood provided to healthcare workers in connection with the Covid-19 pandemic?
Wood has been responding to the COVID-19 pandemic since January 2020. Throughout this period, Wood has endeavoured to take good care of its global employee base as well as make a positive contribution to the societies in which it operates.
At the start of the pandemic, Wood used its global network to provide PPE to our colleagues and communities in China where our employees also made a charitable donation to the Shanghai Charity Foundation in support of the COVID-19 response.
As the pandemic spread globally, Wood employees have contributed to various initiatives, including providing PPE supplies to healthcare workers in Scotland, utilising the company’s 3D printing facilities to manufacture masks for healthcare workers in Norway; providing PPE supplies to the local authorities in Algeria, and donating 10,000 surgical masks shipped from China to the UK for distribution to healthcare workers and care homes. This is in addition to our employees participating in a variety of community initiatives from food distribution to vulnerable communities in India to organising community support groups in the UK.
The next Annual General Meeting of John Wood Group PLC will be held on a date and at a venue to be confirmed in Spring 2021.