Transformative year, started 2023 with good momentum
At constant currency %2
Adjusted EBITDA margin5
Headcount (number of employees)8
Results from continuing and discontinued operations1:
Loss for the period
Basic EPS (c)
Adjusted diluted EPS9 (c)
Net cash used in operating activities
Free cash flow10
Net debt including leases
Net debt excluding leases
Net debt / adjusted EBITDA (excluding leases)11
Built Environment Consulting shown as a discontinued operation. See notes on page 5.
Ken Gilmartin, CEO, said:
“We are pleased to have delivered results in line with expectations for 2022, including a return to revenue growth – with 8% growth at constant currency. This was achieved in a year of major change for the Group, under new leadership, as we addressed legacy issues, transformed our balance sheet and launched a new strategy.
“Our strategy is already delivering. We started 2023 with good momentum – our order book for delivery in 2023 is up 10%, headcount is up 8% and financial guidance for 2023 is in line with our medium-term financial targets of adjusted EBITDA growth at mid to high single digit CAGR, with momentum building as our strategy delivers. We now look to the future with confidence as a much stronger company”.
Delivered results in line with expectations
- Results at the upper end of the ranges given in the January Trading Update
- Revenue of $5.4 billion was up 4% with growth in Consulting (+4%) and Operations (+15%) offset by the expected decline in Projects (-6%). At constant currency, Group revenue was up 8%
- Adjusted EBITDA of $385 million was flat on last year at constant currency. Top end of guidance range given in January Trading Update of $375 million to $385 million
- Adjusted EBITDA margin of 7.1% includes the impact of the previously guided lower margin in Operations, and a lower margin in Consulting, partly reflecting the impact of our decision to exit Russia
- Impairment of goodwill and intangibles of $542 million, as flagged in our January trading update
- Operating loss of $568 million primarily reflects this impairment charge
- Loss for the period of $352 million is after a gain on sale of Built Environment Consulting of $515 million
- Basic EPS was a loss of 52.4c, reflecting the loss for the period
- Adjusted diluted EPS was down 67% to 5.7c, reflecting the lower EBIT, higher interest costs and the disposal of Built Environment Consulting during the year
- Free cash flow of $(730) million reflects:
- Significant working capital outflow of $367 million, including our decision to exit lump sum turnkey and major lump sum EPC work, and our decision to normalise payables
- Cash exceptionals of $319 million, reflecting the impact of addressing legacy issues, including settling the Enterprise litigation claim
- Net debt (excl. leases) at 31 December 2022 was $393 million – within our previously guided range. Includes a negative currency impact and the impairment of $6 million of cash balances in Russia
Delivering on our profitable growth strategy
- We transformed the Group in 2022
- New strategy launched, focusing on energy and materials markets
- New leadership team in place, seven of nine in our ELT recently appointed
- Built Environment Consulting sold at an attractive multiple (c.$1.7 billion net cash proceeds) and restored our financial strength
- Legacy issues addressed including Enterprise litigation settled in November 2022
- Right business model now in place
- Primarily a services-based, cost reimbursable business (c.80% of revenue, c.85% of order book)
- Repositioned away from lump sum turnkey (now less than 4% of Group revenue and reducing)
- Well-positioned for growth across energy and materials
- Around 20% of Group revenue from sustainable solutions based on our strict measure12. This strict measure does not include much of the decarbonisation activity we perform today for our clients
- Strong growth across our sustainable solutions, including work across hydrogen and carbon capture
- Pipeline growth in our strategic markets and over 90% of our pipeline now relates to our six focus markets (Oil & Gas, Chemicals, Hydrogen, Carbon Capture, Minerals and Life Sciences)
- Optimising our portfolio
- Sale of offshore labour supply operations in Gulf of Mexico completed in March 2023 for cash consideration of $17 million, further aligning the Group’s portfolio on our focus markets
- We are currently evaluating our portfolio and have identified underperforming businesses that do not fit with our focused strategy, generate negative margin and represent around 4% of revenue. We are considering options in respect of these businesses
Momentum across our business
- Significant order book of $6 billion, up 4% at constant currency
- Order book for delivery in 2023 of $3.9 billion, up 10% on last year
- Headcount up 8% to more than 35,500 people, a key growth driver for our services-led business model
- While mindful of the uncertain economic outlook, our expectations for 2023 remain unchanged
- We expect our performance in FY23 to be line with our medium-term targets:
- Adjusted EBITDA margins to be flat in the nearer term, partly as we reinvest in the business to secure growth. In the medium term, we continue to see opportunity for margin improvement
- Adjusted EBITDA to grow at mid to high single digit CAGR over the medium term, with momentum building over time as our strategy delivers
- As is typical for our business, performance will be weighted to the second half of the year
- We expect a material improvement in cash flow in FY23 with a significant improvement in operating cash flow, reflecting a much-improved working capital performance
- As previously guided, we expect significantly lower exceptional cash flows in FY23 of around $135 million. This, plus the remaining tax payable on the sale of Built Environment Consulting of around $60 million, partially offset by disposal proceeds of around $25 million, will lead to higher net debt in FY23
- The exceptional cash outflows in FY23 are weighted to the first half of the year, and the tax payable on the sale of Built Environment Consulting will be paid in the first half of the year
- The improved operating cash flow performance of the Group, along with a continued reduction in exceptional cash outflows, will enable a return to positive free cash flow (after exceptionals) in FY24
Supporting our medium-term margin growth and free cash flow targets
- We expect to expand our margin in the medium term, supported by:
- Improved pricing expectations across our markets, reflecting the selectivity of work undertaken and the significant demand for our services
- The continued shift to our services-led model
- Addressing the small number of underperforming businesses in our portfolio
- We continue to target costs savings in two key areas to support our targets:
- As outlined at our Capital Markets Day, continued rationalisation of our property portfolio as our leases expire and reflecting post-Covid working patterns. We anticipate annualised savings of $15 million to $20 million by the end of 2025, with benefits accruing from 2024. EBIT will benefit by $10 million to $15 million per year
- IT cost savings of $10 million to $15 million from licence rationalisation and other efficiency measures, with material benefit accruing from 2024 onwards
In addition, as at 31 December 2022, and as set out in note 33 of our accounts, our main UK defined benefit scheme (WPP) was 119% funded and had a significant surplus of $432 million on an IAS 19 basis, and is currently expected to be around 105% funded with a surplus of around £100 million ($130 million) on the more prudent Technical Provisions basis at 31 March 2023, consistent with the assumptions used at the last triennial actuarial valuation.
The Group is currently working closely with the Trustee to agree a preferred direction regarding the future of the plan. Options being assessed include moving to a buy-in insured basis and eventual buy-out with a third party as soon as is reasonably practical, or to continue to run the WPP on for a limited number of years which could potentially generate further surplus. Any potential further surplus that might arise from running the scheme on could benefit both the Group and pension members, ensuring that appropriate safeguards for both the funding position and members’ interests are taken into account at all times.
Management commitment to delivery
The Board has agreed with management LTIP targets for 2023-2025 consistent with our medium-term targets. These targets are weighted:
- 60% to EBITDA targets, with a threshold of $450 million and a maximum level at $525 million in 2025
- 30% to total shareholder return relative to our peer group
- 10% to ESG metrics relating to carbon emission reductions and leadership gender diversity
A meeting for investors and analysts will be held at The London Stock Exchange (10 Paternoster Square, London, EC4M 7LS) at 9:00am. The presentation will be webcast live at https://edge.media-server.com/mmc/p/6mhxtay5.
It will subsequently be made available to watch on demand at www.woodplc.com/investors. A transcript will also be made available on our website.
For further information:
Simon McGough, President, Investor Relations +44 (0)7850 978 741
Vikas Gujadhur, Senior Manager, Investor Relations +44 (0)7855 987 399
Alex Le May, Ariadna Peretz, FTI Consulting +44 (0)20 3727 1340 / FTI_Wood@FTIconsulting.com
As part of our expanded investor engagement calendar, we set out below the dates for key events this year:
- 11 May 2023 – Q1 trading update and Annual General Meeting
- June 2023 – Decarbonisation webinar and Milan, Italy site visit
- 13 July 2023 – HY23 trading update
- 22 August 2023 – HY23 results
- 9 November 2023 – Q3 trading update
- November 2023 – Digitalisation webinar and Houston, USA site visit
Adjustments between statutory and underlying information
The Group uses various alternative performance measures (APMs) to enable users to better understand the performance of the Group. The Directors believe the APMs provide a consistent measure of business performance year-to-year and they are used by management to measure operating performance and for forecasting and decision-making. The Group believes they are used by investors in analysing business performance. These APMs are not defined by IFRS and there is a level of judgement involved in identifying the adjustments required to calculate them. As the APMs used are not defined under IFRS, they may not be comparable to similar measures used by other companies. They are not a substitute for measures defined under IFRS.
Note 1: The Built Environment Consulting business is shown as discontinued operations. We have adjusted our underlying results to reflect this, including restatement of comparative information. The result of this is there is no contribution from Built Environment Consulting included in revenue or adjusted EBITDA in all periods. There is no change to EPS or cash flows.
Note 2: Growth rates shown at constant currency are calculated by comparing FY22 to FY21 restated at FY22 currency rates. This additional disclosure is made to help users better understand the growth of our businesses.
Note 3: Revenue includes an exceptional item in FY22 of $(8.0) million (FY21 $(25.4) million) related to contract losses in respect of the closure of the Power and Industrials EPC business. In FY21 the exceptional item related to Aegis Poland. Revenue (pre-exceptional items) is an APM that is used throughout this Report as the Group believes it provides a more useful measure of performance. Given the immaterial size of the exceptional item, we refer to revenue throughout the Report as the $5,442 million pre-exceptional figure.
Note 4: A reconciliation of adjusted EBITDA to operating loss is shown in note1 to the financial statements. A reconciliation of adjusted EBIT to operating loss is shown in the Financial Review.
Note 5: Adjusted EBITDA margin is adjusted EBITDA shown as a percentage of revenue. This measure is used by management to measure the performance of businesses, and is one of our medium term targets.
Note 6: Adjusted EBIT is a new measure introduced to show the Group’s adjusted EBITDA after depreciation and amortisation. This measures excludes amortisation of acquired intangibles and is therefore aligned with our measure of adjusted EPS.
Note 7: 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 is presented as an indicator of the visibility of future revenue.
Note 8: Headcount is a measure of total employees working for Wood, including Wood employees and contractors. This measure excludes employees in our joint ventures.
Note 9: A reconciliation of adjusted diluted EPS to basic EPS is shown in note 9 of the financial statements.
Note 10: Free cash flow is defined as all cash flows before acquisitions, disposals and dividends. It includes all mandatory payments the Group makes such as interest and tax, and all exceptional cash flows. It excludes the impacts of IFRS 16 (Leases) accounting. A reconciliation of free cash flow to our statutory cash flow statement is shown on page 23.
Note 11: 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. These measures are presented as they closely aligned to the measure used in our financing covenants. See calculations on page 28.
Note 12: Estimated share of FY22 revenue as defined by Wood. This figure is referred to across this document. Sustainable solutions consist of activities related to: renewable energy, hydrogen, carbon capture & storage, electrification and electricity transmission & distribution, LNG, waste to energy, sustainable fuels & feedstocks and recycling, processing of energy transition minerals, life sciences, and decarbonisation in oil & gas, refining & chemicals, minerals processing and other industrial processes. In the case of mixed scopes including a decarbonisation element, these are only included in decarbonisation if 75% or more of the scope relates to that element, in which case the total revenue is recorded in decarbonisation.
Note 13: Certain statements in this announcement are classed as profit forecasts for the purposes of the City Code on Takeovers and Mergers (as set out in the separate announcement made by Wood on 28 March 2023).