2 April 2020
John Wood Group PLC ('Company')
Actions taken in response to Covid-19, withdrawal of final dividend recommendation and postponement of AGM
“Like many companies, Wood is being affected by the unprecedented event of Covid-19 and its impact on the global economy - an event compounded by the sharpest decline in oil price in 20 years. Our strategy has led to a substantial broadening of our business across energy and built environment markets, reducing our reliance on any one industry or sector. Our proven track record of leveraging our flexible, asset light model in response to changing market conditions stands us in good stead. Today we announce a series of actions which keep our people safe and healthy and will further protect our business and our stakeholders by reducing cost, protecting cashflow and ensuring continued balance sheet strength. This includes the Board’s prudent and appropriate decision to withdraw its recommendation to pay the proposed 2019 final dividend.” -Robin Watson, Chief Executive
Proactive actions to protect our stakeholders
Safety and client delivery
The safety of our people, our clients and suppliers is our top priority and we are following the guidelines issued by the governments in each of the locations in which we operate. We have taken significant steps to enable our workforce to work from home and deliver for clients resulting in over 40,000 employees successfully working remotely. Many Wood employees continue to work safely at customer sites with a number involved in supporting vital services across the world during this challenging time. We are thankful to all of our employees for their commitment to ensuring that these services continue and are working with our customers to ensure that we put in place appropriate protection measures to ensure the ongoing safety and wellbeing of our workforce.
Maintaining a strong balance sheet foundation and liquidity
We have considerable levels of financial headroom and liquidity. We entered 2020 with a strong balance sheet foundation with c$1.4bn of headroom against our debt facilities. At 31 December net debt to pre-IFRS 16 EBITDA was 2.0x. The completed disposals of our nuclear and industrial services businesses in Q1 2020 for proceeds of c$430m reduced net debt to pre-IFRS16 EBITDA to 1.5x on a pro forma basis.
Wood has access to financing facilities that consist of bilateral term loans of $300m, a revolving credit facility of $1.75bn and US private placement debt of c$880m. The bilateral and revolving credit facilities have a maturity date of May 2022. The US private placement debt has a variety of maturity dates between 2021 and 2031 with first maturity of $77m in late 2021 and the majority weighted to later dates. Covenants are set at 3.5x pre-IFRS 16 EBITDA.
Leveraging our flexible, asset light business model: salary, headcount and capex reductions
We have a proven track record of leveraging our flexible, asset light business model in response to changing market conditions. Although it is too early to quantify the impacts of Covid-19 and the substantial reduction in oil price we are taking early action to significantly adjust the cost base in anticipation of a reduction in activity levels. These include:
- Salary Reductions. The Board, executive directors and senior leaders have elected to take a voluntary, temporary 10% reduction in base salary. An additional group of employees is also being asked to do the same. In total, we anticipate that this will generate overhead savings in 2020 of c$40m.
- Headcount reductions, temporary furloughing, unpaid leave and operational salary reductions. The active management of utilisation is a key measure of efficiency within our business. In response to changing activity levels we are focusing on redeploying people wherever possible alongside considering reduced working hours, unpaid leave and furloughs. Regrettably, employee reductions are also being made in certain areas reflecting the reduction in operational activity.
- Capital expenditure reductions. We have taken the decision to pause the implementation of our ERP system and other discretionary capex which is expected to generate a c$20 – 25m reduction in capex in 2020.
- Other overhead cost reductions including the stoppage of discretionary spend, travel costs and further utilisation of shared service centers and high value engineering centers.
Withdrawal of final dividend recommendation
In the statement of our results for 2019, which we published on 10 March 2020, we noted that the Board had recommended a final dividend of 23.9 cents per share (total cost $160m). Whilst the Board recognises the importance of dividends to shareholders, given the unprecedented levels of uncertainty and measures being taken to protect cashflows and preserve long term value, the Board considers it prudent and appropriate to withdraw its recommendation. The Board will no longer propose a resolution to approve the dividend at the AGM and will review the future policy once there is greater clarity on the impact of COVID-19 and the substantial fall in oil prices.
Our order book at the end of February before the recent fall in oil prices was $8.0bn with around 70% of 2020 activity delivered or secured. Looking forward, we anticipate that some of the existing order book will be subject to postponement and that new order intake will slow due to the impact of COVID 19 and lower oil prices.
Accelerating Margin Improvement Initiatives
We remain committed to, and are identifying opportunities to accelerate, margin improvement initiatives as highlighted in our Capital Markets presentation in November 2019. These initiatives include delivering improved operational efficiency and cost reductions, including synergies related to the creation of our dedicated consulting offering in TCS, and driving exceptional execution across the business.
Postponement of AGM
As a result of the requirements of the UK and Scottish Governments with regard to social distancing, and in order to protect the health and safety of our shareholders and employees, it will not be possible to allow shareholders to attend the Annual General Meeting due to be held on 7 May, 2020. The Board considers it important for shareholders to have the opportunity to attend the meeting if they are able to do so and, regretfully, the Board has decided to postpone the meeting. The Board is hopeful that circumstances will improve and that shareholders will be able to attend the meeting at a later date if restrictions on public gathering and social distancing requirements are reduced. Details of the revised date and arrangements for the AGM will be provided as soon as possible. A trading update to the market will continue to be provided on this date.
Publication of Annual Report and Accounts
Notwithstanding the postponement of the AGM, the Company will shortly post the following documents to those shareholders who have requested hard copies:
- Annual Report and Accounts 2019
- Letter to shareholders concerning the postponement of the AGM and withdrawal of final dividend recommendation
The above documents will also be available on the Company's website at www.woodplc.com/investors/annual-general-meeting.
In compliance with Listing Rule 9.6.1R the documents listed above have been submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
Notification authorised by:
Martin J McIntyre
Group General Counsel and Company Secretary
Note to Editors:
Wood is a global leader in consulting, projects and operations solutions in energy and the built environment. We operate in more than 60 countries, employing around 55,000 people, with revenues of around $10 billion. www.woodplc.com
Andrew Rose – Group Head of Investor Relations 01224 532 716
Ellie Dixon – Investor Relations Senior Manager 01224 851 369
Citigate Dewe Rogerson
Kevin Smith 020 7638 9571
Wood’s financial advisers are not responsible to anyone other than the Company