“Following a steady start in Q1, we have seen improving momentum in activity in Q2 with growth in Consulting and Operations compared to Q2 2020. We expect to deliver strong margin improvement compared to H1 2020, with a greater weighting of high margin Consulting activity and margin improvement across all business units. Our full year outlook is unchanged with trading momentum and growth in our order book, which is up c6% year-to-date driven by Consulting and Operations, giving us confidence that the group will return to growth in the second half, compared to both H1 2021 and H2 2020. In line with our strategic objective we anticipate growth in EBITDA margin.”- Robin Watson, Chief Executive
H1 Highlights: Strong margin improvement offsetting lower activity
- Revenue on a like for like basis2 of c$3.2bn, down c21% on H1 2020 due to impact of Covid-19. Robust Consulting activity and relative resilience in Operations partly offsetting lower activity in Projects
- Improving momentum in activity in Q2; growth in Consulting and Operations compared to Q2 2020
- Adjusted EBITDA will be $255m to $265m, down c12% on H1 2020 on a like for like basis
- Adjusted EBITDA margin, on a like for like basis, will be 8.0%-8.3% up 60-90bps on H1 2020; driven by improved margins in all Business Units including significantly improved margins in Projects and a greater weighting of high margin Consultancy activity
- Future Fit programme being delivered at pace: c$20m efficiencies delivered in H1
- Operating profit before exceptionals will be around $85m to $95m
- Order book at end of May of c$6.9bn, up c6% on December 2020; good growth in Consulting and Operations. Anticipate order book growth in Projects in H2
- Expected net debt3 at 30 June 2021 of around $1.15bn; reflecting unwind of advance payments in H1, which is anticipated to reverse in H2 in line with growing Projects order intake and resulting advances build
- Confident in delivering stronger H2, returning to growth relative to both H1 2021 and H2 2020. Full year outlook unchanged. Increased activity in Consulting and growth in Operations expected to partly offset lower activity in Projects
- Full year EBITDA margin to grow as we progress towards our medium-term target of 9.6%
Consulting (c30% of Revenue)
Revenue: c$0.9bn, in line with H1 2020 on a like for like basis4, reflecting strength in built environment activity and robust energy activity, and also driven by increased activity levels in Q2 compared to the prior year.
Adjusted EBITDA: Up modestly on H1 20204, with c60bps margin improvement to c11.8%, due to robust activity levels, maintaining utilisation at high levels and efficiency improvements.
Order book progression: Good growth in order book5, up c13% compared to December 2020. Recent awards reflect our strategic positioning for growth opportunities from the energy transition and drive for sustainable infrastructure including:
- Owner’s engineer scope for Europe’s largest single-site onshore windfarm
- Pre-Front End Engineering Design (Pre-FEED) work to support ADNOC’s plans to advance a world-scale blue ammonia facility for low-carbon fuel production
- A scope to develop a road-map for a net-zero transit network in Canada
- We have also recently entered into an agreement with a long-standing partner to jointly create a solution utilising hydrogen to produce renewable diesel and sustainable aviation fuel
Projects (c40% of Revenue)
Revenue: c$1.2bn, down c40% on H1 20204. Lower activity driven by larger engineering, procurement and construction (EPC) contracts completing as expected and new awards in process & chemicals and conventional energy being limited to smaller, early-stage scopes.
Adjusted EBITDA: Down on H1 20204. Significant margin improvement, up over 220bps to c7.5% as a result of improved project execution, delivery of efficiencies from our Future Fit programme and maintenance of utilisation at high levels, offsetting the impact of lower activity.
Order book progression: Order book5 down c15% compared to December 2020 reflecting the completion of larger contracts in process & chemicals. An encouraging increase in bidding and opportunities supports our expectation of order book growth throughout the remainder of the year. While new awards to date have been limited to smaller, early-stage scopes, they reflect our strategy of broadening the business across diverse energy markets and include:
- Pre-FEED analysis on a CO2 pipeline network for a carbon capture, transportation and sequestration project connecting a number of locations across North America
- An EPC services contract with Sinopec to expand its refinery development in China
Operations (c30% of Revenue)
Revenue: Relatively robust revenue of c$1.0bn, down c8% on H1 2020 on a like for like basis4. Reflects the impact of lower Q1 2021 activity due to the impacts of Covid-19 and oil price volatility, particularly in conventional energy, largely offset by an improved Q2 2021 compared to the prior year as markets stabilised.
Adjusted EBITDA: Broadly in line with H1 2020 on a like for like basis4 with a 50bps improvement in margin to c10.5%. Margin improvement reflects efficiencies from our Future Fit programme and good execution.
Order book progression: Order book5 up c14% compared to December 2020 reflecting a recovery in demand in conventional energy and growth in process & chemicals. Recent awards reflect our broad energy end market exposure and build on our strong customer relationships in conventional energy, including:
- A five-year integrated facilities services agreement with TAQA in the North Sea to optimise operations and extend production life
- EPC solutions for a hydrothermal recycling facility
- A framework agreement with NEL Hydrogen for engineering and project management services to support the delivery of large-scale green hydrogen production plants
Centre and Investment Services
Revenue in Investment Services will be up on H1 20204, while EBITDA will be a loss of around $7m reflecting additional costs to complete certain legacy projects.
Future Fit: Accelerating our strategy at pace
We have made strong early progress in the delivery of our 18-month long Future Fit programme. With a focus on accelerating our strategic priorities to unlock stronger medium-term growth, deliver efficiency and create value, in H1 2021 we have delivered:
- A service-defined operating model, optimised to unlock growth opportunities by leveraging global client relationships across the entire asset life cycle of Consulting, Projects and Operations
- The successful launch of a range of Operational Excellence initiatives to enhance core skills and competencies, ensure consistent project outcomes and accelerate our readiness for future skills requirements
- Efficiency savings of c$20m
We look forward to updating further on this important initiative with our interim results.
Balance sheet and liquidity
In 2020, against the backdrop of unprecedented trading conditions we delivered a significant reduction in net debt to $1.01bn at 31 December 2020. We expect an increase in net debt at 30 June 2021 to around $1.15bn driven by:
- The timing of advance payments, with the roll off of large EPC contracts contributing to a working capital outflow in H1, which is anticipated to reverse in H2 as advances build in line with order book in Projects throughout the remainder of the year
- Exceptional costs of c$35m including costs to deliver our Future Fit programme
The ratio of net debt excluding leases to adjusted EBITDA (pre-IFRS 16) will be around 2.5x at 30 June 2021 (31 December 2021: 2.1x). We expect the ratio to reduce in H2, in line with increased profitability driven by the weighting of our earnings to H2 as improving momentum in market conditions continues in the second half of 2021. We retain considerable levels of financial headroom. Undrawn facilities are around $1.6bn and covenants are set at 3.5x pre-IFRS 16 EBITDA.
Update on investigations
We continue to anticipate that settlement of the investigations by the UK Serious Fraud Office (SFO) and by the authorities in the US and Brazil will be finalised, subject to court approvals, during Q2 2021. It is expected that approximately $60m of the settlement amounts will be payable in H2 2021, following payments in H1 related to the settlement of the investigation by the Scottish authorities in March of c$10m. The remaining $126m payable is expected to be payable in instalments in 2022, 2023 and 2024.
Full year outlook: improving activity and order book growth underpinning stronger H2
Improving activity levels and order book growth underpin our confidence in the delivery of a stronger second half, with the group returning to growth relative to both H1 2021 and H2 2020. Our outlook for the full year remains unchanged.
- Improving momentum in activity levels in Q2 2021 with growth in Consulting and Operations compared to Q2 2020
- Order book at the end of May of $6.9bn, up c6% on December 2020 with good growth in Consulting and Operations. Improving outlook in Projects supporting anticipated order book build in H2
- Outlook for FY2021 remains unchanged:
- Lower activity expected overall. Increased activity in Consulting driven by continued strength in built environment activity; lower activity in Projects driven by larger contracts in process & chemicals completing and growth in Operations driven by a recovery in demand in conventional energy and growth in process & chemicals
- EBITDA margin improvement, as we progress towards our medium-term target of 9.6%. This will be driven by maintained high utilisation, improved project execution, efficiency improvements including $40m of efficiency savings from our Future Fit programme, and our business mix weighted more towards higher margin Consulting
- All figures in this trading update are unaudited.
- Revenue on a like for like basis is calculated as revenue less revenue from disposals executed in 2021 and adjusted EBITDA on a like for like basis is calculated as adjusted EBITDA less the adjusted EBITDA from those disposals. These amounts are presented as a measure of underlying business performance excluding businesses disposed. In H1 2021 executed disposals consisted of our joint venture interest in Sulzer Wood. Comparative figures also exclude revenue and adjusted EBITDA from the disposals of our nuclear and industrial services businesses, YKK and our joint venture interest in TransCanada Turbines completed in 2020. These disposals accounted for $nil revenue in H1 2021 (H1 2020: $74m) and adjusted EBITDA of $nil (H1 2020: $9m).
- Net debt is stated excluding liabilities related to leases, including those recognised under IFRS 16.
- Details of H1 2020 Revenue and EBITDA, on a like for like basis, recalculated as if the new operating model were in place from 1 January 2020 are shown below for illustration purposes:
- Order book as at 31 December 2020 recalculated for the new operating model is shown below for illustration purposes:
Order book ($m)
- Company compiled, publicly available consensus comprises 9 analysts who have published estimates since our Full Year Results for the year ended 31 December 2020 issued on 16 March 2021. Consensus includes: Barclays, RBC, Bank of America Merrill Lynch, Berenberg, UBS, Citigroup, HSBC, Kepler Cheuvreux and Jefferies.
Consensus 2021 revenue is $7.2bn (range: $7.0bn to $7.4bn), consensus adjusted EBITDA is $616m (range: $596m-$634m), consensus operating profit (pre-exceptional items) is $214m (Range: $191m-$232m) and consensus AEPS is 23.1c (Range: 16.1c-30.7c).
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Notification authorised by:
Martin J McIntyre
Group General Counsel and Company Secretary