Wood returned to growth in 2018 and performance is in line with guidance and expectations. In 2018 good momentum in trading has driven revenue growth of over 10%; we secured revenue synergies of over $500m and increased our cost synergy targets to over $210m. Integration is complete and our unique platform is generating strong operational cashflows which are supporting good progress on our deleveraging plan.
FY 2018 trading performance and outlook
Our positive trading momentum has continued and our full year results will demonstrate good organic revenue growth. We have delivered a stronger second half, due to our typical second half bias and the phasing of cost synergies, projects and the wider market recovery.
We expect full year revenue to be up over 10% on proforma 2017, in the region of c$10.9bn - c$11.1bn. Full year EBITA is expected to be in the range of c$620m-c$630m, in line with guidance in August and market expectations1.
We are making progress against our deleveraging plan. Operational cash conversion after exceptional items is expected to be around 100% and will contribute to a reduction in net debt to around $1.5bn at 31 December 2018 (30 June 2018 $1.6bn). Net debt to EBITDA is anticipated to reduce to around 2.2x at 31 December 2018 (2.4x at 30 June 2018) against the backdrop of good growth in the business.
Looking to 2019, the outlook remains generally favourable across our industrial end markets. Although our medium term outlook remains positive, in oil & gas recent volatility in commodity prices may impact confidence and the pace of contract awards. Overall, our broad end market exposure and flexible model position us well. We currently anticipate further earnings growth in 2019 underpinned by additional cost synergy delivery with an impact of around $60m in FY 2019.
Asset Solutions Americas (“ASA’)
ASA has seen strong revenue and earnings growth resulting from increased activity and cost synergy delivery. In capital projects, increased activity in power and in downstream & chemicals has been the largest contributor to ASA capital projects revenue. US shale improved, with significant growth in the Permian on infrastructure and pipeline work. In offshore upstream we remained active on a number of greenfield projects. In operations solutions, challenging conditions in the Gulf of Mexico and the completion of commissioning work in 2017 resulted in a weaker performance although this was more than offset by improved maintenance activity in US shale.
Asset Solutions Europe, Africa, Asia and Australia (“ASEAAA”)
ASEAAA saw good revenue growth led by operations solutions work in Asia Pacific and the Middle East. Earnings benefitted from project phasing in the second half and costs synergy delivery. Capital projects saw increased activity including ongoing work on the Antwerp oil refinery, PMC work in Kuwait, engineering and project management on the Marjan field for Saudi Aramco and our rejuvenation project for Brunei Shell Petroleum. Operations solutions delivered growth in the Middle East due to increased activity in Iraq with Exxon and Basra Gas Co and in Asia Pacific with Exxon. Turbine joint ventures performance is broadly in line with prior year with improved trading in EthosEnergy in the second half.
Specialist Technical Solutions (“STS”)
STS has delivered strong revenue and earnings growth in 2018 led by increased activity in minerals processing, nuclear and recent technology & consulting contract awards. In automation, activity on the TCO project made a significant contribution and we saw a full year impact from the acquired CEC business. Subsea activity on early stage and tie back work remains steady.
Environment and Infrastructure Solutions (“E&IS”)
E&IS has delivered strong growth in revenue and earnings in 2018. Performance benefitted from government and industrial spending increases in the US and Canada leading to increased remediation consultancy work with longstanding customers. This more than offset the reduction in capital projects resulting from our decision not to undertake certain fixed price work.
We delivered increased cost synergies with an in year benefit of c$55m in FY 2018 equating to an exit run rate of c$85m. Costs to deliver were c$65m. We expect to deliver synergies in FY 2019 with an in year benefit of around $60m and remain confident of delivering against our upgraded annualised run rate cost synergy target of >$210m by the end of the third year following completion of the Amec Foster Wheeler (“AFW’) acquisition in October 2017. We continue to make good progress on revenue synergies and have now secured work on multi-year contracts worth >$500m (August 2018: >$400m).
Deleveraging and cash flow
Strong operational cash generation is expected to contribute to a reduction in net debt to around $1.5bn at 31 December 2018 (30 June 2018 $1.6bn) against the backdrop of good growth in the business. Net debt to EBITDA is anticipated to reduce to around 2.2x at 31 December 2018 (2.4x at 30 June 2018). Deleveraging to within our stated range of 0.5x to 1.5x Net debt to EBITDA within approximately 18 months post completion of the AFW acquisition remains a key priority.
Strong working capital management is expected to result in operational cash conversion after exceptional items of around 100%. Cash exceptional items of c$140m offset the strong cash generation from operations. The expected exceptional costs include c$40m of costs to deliver synergies, c$40m in respect of onerous leases, c$15m in respect of transaction related costs, investigation support costs of c$20m and restructuring & other charges of $25m. Other significant offsetting items include interest costs of around $90m and dividends of $226m.
Capital discipline reduced capex and intangible spend to c$85m for the full year which includes c$25m related to cost synergies delivery.
Our asset disposal programme is progressing and remains on track to generate >$200m of proceeds. For 2018, net debt will benefit from cash proceeds of $25m in the fourth quarter in respect of the disposal of our interest in the Voreas S.r.l wind farm joint venture announced in August.
In December we took the opportunity to secure a $140m part-refinancing of our term loan due to mature in 2020 from an existing US private placement debt provider which further diversifies our financing structure. This comprises a mix of eight and ten year redemption dates at a fixed rate of around 5% and will be drawn in Q1 2019.
A telephone conference call will be held at 8.30am today; participant dial-in details below:
UK: 0800 389 7473
International: +44 1296 480 180
Passcode: 419 570#
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1 As at 6 December 2018 company compiled publicly available consensus 2018 Total EBITA on a proportionally consolidated basis is $634m and the range is $620m to $644m. Consensus AEPS is 58.8c and the range is 51.1c to 64.5c. Consensus comprises 16 sell side analyst estimates published since Wood’s half year results announcement on 21 August 2018, further details are available here: (https://www.woodplc.com/investors/analyst-consensus-and-coverage)
Notes to Editors
Wood is a global leader in the delivery of project, engineering and technical services to energy and industrial markets. We operate in more than 60 countries, employing around 60,000 people, with revenues of over $10 billion. We provide performance-driven solutions throughout the asset life-cycle, from concept to decommissioning across a broad range of industrial markets including the upstream, midstream and downstream oil & gas, power & process, environment and infrastructure, clean energy, mining, nuclear and general industrial sectors. www.woodplc.com
For further information contact:
Andrew Rose – Group Head of Investor Relations 01224 532 716
Ellie Dixon – Investor Relations Senior Manager 01224 851 369
Citigate Dewe Rogerson
Kevin Smith 020 7638 9571