“Outlook unchanged: confident of achieving further earnings growth and strong cash generation in 2019”
Trading performance and outlook
Performance in the first quarter is slightly ahead of prior year led by relative strength in Asset Solutions Europe, Africa, Asia and Australia and Environment & Infrastructure Solutions.
For 2019, our overall outlook is unchanged. We continue to expect revenue growth of around 5%, which, together withthe impact of cost synergies of around $60m, is expected to lead to growth in adjusted EBITDA and operating profit in line with market expectations1.
In addition to our typical second half bias, the phasing of projects is expected to result in a c60% weighting of EBITDA to the second half of the year.
Asset Solutions Americas (“ASA’)
- c35% of Revenue
- Markets: c65% oil & gas, c35% industrial/other energy
In capital projects, we are seeing increased activity in downstream and chemicals from our EPC scope for a Gulf Coast plastics manufacturing facility and the YCI methanol plant. There is good activity in US shale focused on facilities and pipelines in the Permian and Niobrara. We have retained our leading position in offshore engineering and have improving visibility on early stage concept and FEED projects. Solar and wind project awards are offsetting the completion of coal combustion residual treatment projects and will contribute to increased activity in H2. In operations solutions, activity levels are expected to remain broadly in line with 2018.
Asset Solutions Europe, Africa, Asia and Australia (“ASEAAA”)
- c35% of Revenue
- Markets: c85% oil & gas, c15% other industrial
In operations solutions, relative strength in the first quarter from work in the Middle East, driven by Iraq, the Caspian and growth in Asia Pacific, from Papua New Guinea and Australia, is expected to continue. We anticipate moderate growth in the North Sea as the year progresses. Capital projects activity is expected to be broadly flat with the prior year and is benefitting from work on the FEED and project management consultancy scopes for Aramco on both the Marjan field and the integrated crude oils to chemicals complex.
Specialist Technical Solutions (“STS”)
- c15% of Revenue
- Markets: c45% oil & gas, c30% minerals processing, c15% nuclear, c10% industrial/other energy
We are seeing revenue growth in our subsea and technology & consulting activities. The Gruyere Gold contract in minerals processing is expected to reach an advanced stage of completion later this year and activity on the STS led scope of the TCO Automation project is expected to reduce as the contract progresses towards the next phase. We continue to expect earnings to benefit from margin improvement initiatives.
Environment and Infrastructure Solutions (“E&IS”)
- c15% of Revenue
- Markets: c95% Industrial/government, c5% oil & Gas
Performance in the first quarter benefitted from government and industrial spending increases in the US and Canada, which are expected to continue supporting activity. Earnings are benefitting from improved performance in capital projects due to our decision not to pursue certain higher risk, fixed price contracts. We continue to expect the Aegis project to be operationally complete towards the end of 2019 with commercial close out expected in 2021.
We remain committed to a strong balance sheet foundation and achieving our target leverage of 1.5x Net debt to adjusted EBITDA on a pre-IFRS 16 basis.
We expect deleveraging to continue in 2019. Taking into consideration our structural improvement in working capital management, lower cash exceptionals of c$100m and anticipated cash outflows from provisions including c$80m in respect of the Aegis contract, we expect cash conversion to remain strong at 80-85%. Debt reduction and maintaining our progressive dividend remain our preferred use of free cashflow.
The timing of disposals will affect the pace of deleveraging and will be governed by appropriately competitive sales processes. We have made good progress, having agreed the disposal of Terra Nova Technologies, a conveying and materials handling business, in March, with cash proceeds of $38m expected in Q2. A number of processes are ongoing and, in aggregate, disposals are expected to generate proceeds in the range of $200m - $300m.
Roy Franklin has been appointed as Chair of the Board of Directors with effect from 1 September 2019. Roy has been senior independent director since appointment in 2017 and had previously been a director of AFW since 1 January 2016. His appointment comes after a process, using search consultants, to identify a potential successor to Ian Marchant, the current Chair. Ian will retire as a director following Roy’s appointment. In addition, Jeremy Wilson will succeed Roy as Senior Independent Director.
Adrian Marsh will join Wood as a non-executive director on 10 May 2019, following today’s AGM. He will also be appointed Chair of the Board's Audit Committee with effect from 1 September 2019. Adrian is currently Group Finance Director of international packaging business, DS Smith plc, a position he has held since September 2013. Following Adrian's appointment, and as previously indicated, Jann Brown will retire as a non-executive director and Chair of the Audit Committee on 1 September 2019.
Subject to approval at today’s AGM, the recommended final dividend of 23.7 cents per share will be paid on 16 May 2019. The total distribution for the year of 35.0 cents per share represents an increase of 2% on 2017 in line with our progressive dividend policy.
A trading update for the first half of the year will be provided on 26 June 2019.
Changes to profit reporting in 2019
As disclosed at the full year results in March, Wood will simplify its reporting for the reporting periods ending on 30 June 2019 onwards. These changes align Wood’s principal reporting metrics with IFRS measures and facilitate comparison across peers. There will be no reduction in the level of accounting disclosure at the Wood or business unit level.
At the Group level Wood’s primary reporting metrics, and the management discussion and analysis of those metrics in reporting, will align with IFRS definitions of revenue and profit, that is, Operating Profit (pre-exceptional items).Wood will no longer report proportionally consolidated results.
Adjusted EBITDA(pre-exceptional items, including joint ventures) will be adopted as an additional non-statutory /‘non-GAAP’ measure of profit. This will be presented at the Group and Business Unit level to report underlying financial performance and facilitate comparison with peers.
Adjusted Diluted EPSwill also be 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”. In contrast to previous reporting, the measure will be stated before amortisation arising from acquisitions only and not amortisation relating to other intangibles such as software costs.
Adoption of IFRS 16
IFRS 16 Leasesbecame 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 will now be 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. We anticipate that 2019 adjusted EBITDA will increase by c$170m and adjusted EBITA will increase by c$30m. Overall we expect the impact on the profit/(loss) for the year from continuing operations to be immaterial. A lease liability of around $650m will be recognised on the balance sheet. Our bank covenants are set on a frozen GAAP basis, so will not be impacted by the adoption of the standard.
- Company compiled, publicly available consensus comprises 8 analysts who have published estimates since our 2019 results announcement on 19 March 2019 that reflect both changes to our reporting metrics and the impact of IFRS 16: Bank of America Merrill Lynch, Morgan Stanley, UBS, Redburn, Bernstein, Jefferies, HSBC and Berenberg. Consensus Adjusted EBITDA, including the impact of IFRS 16 is $932m, Consensus Operating Profit (pre exceptional items) is $489m and Consensus AEPS is 59.5c.