Earnings growth, margin improvement and strong cash generation
Portfolio optimisation supports strategic positioning for opportunities in energy transition and sustainable infrastructure
Wood, the global engineering and consultancy company, today announces its results for the year ended 31 December 2019:
Year ended 31 December
Adjusted EBITDA Margin
Adjusted EBITDA (on a like-for-like basis)3
Adjusted EBITDA (on a like-for-like basis) Margin3
Operating profit before exceptional items1
Profit/(loss) for the period
Adjusted diluted EPS1
Net debt excluding leases 4
“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
FY 2019 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 customers and markets
- 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”.
- 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.
- 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 Terra Nova Technologies, 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.
- 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.
- 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, customer 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.
- 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 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.
- 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.
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 – Head of Investor Relations 01224 532 716
Ellie Dixon – Investor Relations Senior Manager 01224 851 369
Citigate Dewe Rogerson
Kevin Smith 020 7638 9571
There will be an analyst and investor presentation at the London Stock Exchange, 10 Paternoster Square, EC4M 7LS at 09.00. Early registration is advised from 08.30. A live webcast of the presentation will be available from https://www.woodplc.com/investors/financial-events-calendar. Replay facilities will be available later in the day.