“Our full year 2019 results will demonstrate earnings growth, margin improvement and strong operational cash generation, resulting in a reduction in net debt. In Q4 we outlined our clear strategy to focus on higher margin project management, operations and consulting activities and announced the formation of our Technical Consulting Solutions business. We also continue to make good progress on portfolio rationalisation. Looking ahead, our business is well positioned across its energy and built environment markets and we expect to deliver earnings growth in 2020.” - Robin Watson, Chief Executive
- Adjusted EBITDA2, 3 of $850m to $860m and operating profit before exceptionals of $410m to $420m, in line with current market expectations4
- Like for like5: adjusted EBITDA (pre-IFRS 16) up c6% and operating profit before exceptionals (pre-IFRS 16) up c20%; including c$60m of cost synergy delivery
- Revenue of around $10bn, in line with 2018, reflecting generally robust activity
- Better than anticipated cash generation in H2 delivering reduction in net debt6 to below $1.5bn at 31 December 2019 (2018: $1.51bn)
- Previously announced disposal of nuclear business for c$325m on track to complete in Q1 2020
- 2020 Outlook: Modest revenue growth and margin improvement strategy supporting growth in adjusted EBITDA
FY 2019 trading performance
Full year results will demonstrate underlying earnings growth and margin improvement, underpinned by generally robust activity and the delivery of cost synergies of c$60m. A stronger second half benefitted from growth in operations work in the Middle East, Caspian and Asia Pacific, and excellent execution in Asset Solutions EAAA (“ASEAAA”) as well as solid activity levels in built environment markets in Technical Consulting Solutions (“TCS”) and our typical second half bias. From Q3, we saw an impact on activity generally of a slowing macro environment, together with challenges on certain projects in Asset Solutions Americas (“ASA”) and weaker Specialist Technical Solutions (“STS”) performance in TCS. In response to the market developments we took additional cost reduction measures and accelerated synergies from the formation of TCS, our leading consulting business, in the fourth quarter.
Full year revenue will be in line with 2018 at around $10bn. Including the impact of IFRS 16, full year adjusted EBITDA will be around $850m to $860m and operating profit before exceptionals will be around $410m to $420m, in line with current market expectations. On a like for like basis5, adjusting for disposals executed in 2019, we expect to deliver adjusted EBITDA growth of c6% and strong growth in operating profit before exceptionals of c20%, both on a pre-IFRS 16 basis. Growth in like for like operating profit before exceptionals (pre-IFRS 16) reflects growth in EBITDA together with a reduction in depreciation and amortisation.
Asset Solutions Americas (“ASA”)(c35% of Revenue)
Revenue in ASA is up on 2018, benefitting from increased capital projects activity in midstream and downstream & chemicals, offsetting lower activity in renewables/other energy. Adjusted EBITDA7 is down due to cost overruns on certain projects and a slow down in activity in shale in H2. This was partly offset by the benefit of final close out on a number of completed projects.
Asset Solutions EAAA (“AS EAAA”) (c35% of Revenue)
ASEAAA has delivered growth in adjusted EBITDA7 despite slightly lower revenues. Highlights included excellent execution across the portfolio and growth in operations work in the Middle East, Caspian and Asia Pacific. Capital Projects also performed well, albeit with reduced levels of procurement activity.
Technical Consulting Solutions (“TCS”) (c30% of Revenue)
The formation of TCS in the fourth quarter brought together the capabilities of STS and Environment and Infrastructure Solutions (“E&IS”) into a combined, more efficient, global and industry leading consulting offering. Revenue in E&IS remained robust and adjusted EBITDA margins7 benefitted from improved execution. In STS, revenue will be lower than anticipated principally due to lower volumes in the automation business. Adjusted EBITDA margin7 for TCS is up on 2018, benefitting from margin improvement initiatives and changes in sales mix as the TCO contract rolls off.
Capital structure and cashflow
We remain committed to a strong balance sheet and to achieving our target leverage of 1.5x net debt to adjusted EBITDA on a pre-IFRS 16 basis. Our strong focus on operating cashflow has delivered better than anticipated cash generation in the second half reducing net debt6 to below $1.5bn at 31 December 2019 (c2.0x 2019 EBITDA pre-IFRS 16). This compares to net debt at 31 December 2018 of $1.51bn and net debt at 30 June 2019 of $1.77bn.
We continue to make good progress on our portfolio rationalisation strategy as we focus on premium, differentiated, higher margin activities. The agreed sale of our nuclear business for c$325m is on track to complete in Q1 2020 and will accelerate progress to our target leverage. We are also active on other sales processes.
FY 2020 Outlook
We are well positioned for growth opportunities presented by trends in energy security & transition and sustainable infrastructure development across energy and built environment markets.
In the Eastern hemisphere we expect growth in upstream oil & gas activity in Asia Pacific and in the Middle East, although there is some risk from geopolitical developments in the region. Capital discipline remains prominent in our customers’ development decisions and this is evident in the Americas both in US onshore and offshore.
The outlook for renewables is positive and we have a robust opportunity pipeline in US solar. We are also observing an encouraging opportunity pipeline for downstream & chemicals work in the Middle East and Far East.
Our Built Environment markets are expected to show further growth in 2020 as demand for environment and infrastructure solutions in the US remains robust.
Overall, we expect modest revenue growth in 2020 and growth in adjusted EBITDA to reflect a continued focus on our medium term margin improvement strategy.
- ends –
- All figures in this trading update are unaudited, audited amounts will be included in our full year results announcement on 10 March 2020.
- Wood’s primary reporting metrics are Revenue, aligned with the IFRS definition, and Operating Profit (pre-exceptional items).
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. 2019 adjusted EBITDA includes EBITDA from our nuclear business, the disposal of which is expected to complete in Q1 2020.
- 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 adoption of IFRS 16 increases 2019 EBITDA by c$148m. A lease liability of around $570m was recognised on the balance sheet at 30 June 2019. All financing covenants are set on a frozen GAAP basis and are not impacted by the adoption of the standard.
- Company compiled, publicly available consensus comprises 12 analysts who have published estimates since our November 2019 trading update and includes forecasts that reflect both changes to our reporting metrics and the impact of IFRS 16: Bank of America Merrill Lynch, Barclays, Berenberg, Citigroup, Exane BNP Paribas, Goldman Sachs, Investec, Jefferies, JP Morgan Cazenove, Morgan Stanley, Numis and UBS.
Consensus 2019 Adjusted EBITDA, including the impact of IFRS 16 is $864m (Range: $850m-$879m), Consensus Operating Profit (pre-exceptional items) is $418m (Range: $387m-$448m) and Consensus AEPS is 46.6c (Range: 41.2c-53.0c).
- Adjusted EBITDA and operating profit before exceptionals on a like for like basis excludes the contribution from disposals executed in 2019 which consist of Terra Nova Technologies, the legacy AFW power machinery businesses and our joint venture interests in Voreas and other infrastructure assets
- Net debt is stated excluding liabilities related to leases, including those recognised under IFRS 16.
- References to adjusted EBITDA and adjusted EBITDA margins for each of the business units excludes the impact of IFRS 16 to facilitate comparison to the prior year.