Trading Update for the year ended 31 December 2020
14 January 2021
John Wood Group PLC ('Company')
Trading Update for the year ended 31 December 2020
"Resilient financial performance in 2020 was underpinned by our broad end market exposure and flexible business model. We saw growth in renewables activity, strength in the built environment and relatively robust revenue in chemicals & downstream and we continued to win work, against the challenging backdrop of Covid-19 and oil price volatility. Our decisive actions focused on the health & safety of our people, delivering for our clients, reducing cost, protecting the balance sheet and generating strong cashflow. These actions underpinned the delivery of strong margins and a further reduction in net debt. Looking ahead, while near term headwinds remain in 2021, we see significant opportunities from the accelerating pace of energy transition and will optimise our operating model to unlock stronger medium term growth"- Robin Watson, Chief Executive
Resilient performance in a challenging trading environment underpinned by breadth and flexibility; revenue of around $7.6bn and EBITDA of around $620m-$640m
Strong EBITDA margin delivery: EBITDA margin of 8.2%-8.4%; significantly improved margins in ASEAAA and TCS offset by substantially lower margins in ASA
Early action taken to protect EBITDA margin; improved operational utilisation and delivery of c$230m overhead savings
Delivered significant net debt reduction of around $400m to around $1.03bn3
Considerable financial headroom of around $1.75bn and revolving credit facility extended to May 2023
Order book $6.2bn: down 22% reflecting short term market headwinds and risk appetite
Continuing to win new work through strategic positioning, differentiation and strong customer relationships
2021 financial focus: continued strong margin delivery
Maintaining our position as sector leaders in ESG and sustainability
FY2020 Trading Performance: benefitting from breadth of end markets, strong margin performance and further net debt reduction
Against a backdrop of the impact of Covid-19 and oil price volatility, we have benefitted from our strategy to broaden our capabilities across diverse energy and built environment markets.
On a like for like basis2, adjusting for the disposals of the nuclear and industrial services businesses in Q1 2020, revenue will be down around 20% on 2019. We continue to win and execute work and have seen relative resilience in c65% of our end markets, including strength in the built environment and growth in renewables and relatively robust revenues in chemicals & downstream.
Adjusted EBITDA on a like for like basis2 will be down around 22% with margins down only 20-40bps on 2019. The protection of our margin in a challenging environment reflects our focus on maintaining operational utilisation at high levels and the flexibility of our business model which enabled overhead reductions of c$230m in the year. This was partially offset by cost overruns and delays, including those as a result of Covid-19, on a small portfolio of energy projects in our ASA Process and Energy business. Compared to expectations at the half year, stronger margin performance in ASEAAA is more than offset by below expectations margins in ASA.
On a reported basis, revenue will be around $7.6bn. Adjusted EBITDA will be $620m to $640m and adjusted EBITDA margin will be 8.2%-8.4%. Operating profit before exceptionals will be around $215m to $235m.
Asset Solutions Americas ("ASA") (c40% of Revenue)
Revenues will be down just over 20% on 2019 reflecting relative strength in capital projects activity in chemicals & downstream and higher renewables activity in both solar and wind work, offset by challenging market conditions in upstream and midstream. While adjusted EBITDA margins benefitted from improved utilisation and cost reduction initiatives, they will be significantly down on 2019 due to further operational delivery challenges and delayed delivery on a small portfolio of energy projects in our Process and Energy business, due in part to Covid-19 and unfavourable weather. Profitability within Process and Energy will be around $50m lower than 2019.
Asset Solutions EAAA ("AS EAAA") (c30% of Revenue)
Like for like revenue, adjusting for the disposal of the industrial services business, will be down c20% on 2019 reflecting lower activity on upstream and chemicals & downstream projects. Excellent operational execution, the benefits of our focus on utilisation and our swift actions on overhead cost reduction combined to deliver a very strong adjusted EBITDA margin performance, significantly up on 2019.
Technical Consulting Solutions ("TCS") (c30% of Revenue)
Like for like revenue benefitted from strength in the built environment market during 2020, which accounted for around 50% of activity. Adjusting for the disposal of the nuclear business, like for like revenue will be down around 20% on 2019. The reduction reflects the decision not to pursue higher risk and lower margin construction contracts, the expected roll-off of automation work on TCO and some project delays due to Covid-19. Adjusted EBITDA margin performance improved strongly compared to 2019, benefitting from our strategic margin focus, the synergy delivery initiatives which started in Q4 2019 and maintaining strong operational utilisation.
Balance sheet and liquidity: further reduction in net debt in H2 2020
We expect to deliver a further reduction in net debt excluding leases of around $400m to around $1.03bn at 31 December 2020. This compares to net debt excluding leases at 30 June 2020 of $1.22bn and $1.42bn at 31 December 2019. The reduction in net debt includes the benefit of our actions to protect cashflows and ensure balance sheet strength including voluntary salary reductions by the Board, executive directors and senior leaders, the withdrawal of dividend payments, capex reductions and improved working capital performance. Cash generation in the year also includes the impact of the unwind of advance payments as well as the benefit of lower cash outflows on provisions and proceeds of c$460m from the disposal of our nuclear and industrial services businesses and our interest in Trans Canada Turbines.
The ratio of net debt excluding leases to adjusted EBITDA (pre IFRS 16) will be around 2.1x at the year end (30 June 2020 1.96x and 31 December 2019: 2.0x). We retain considerable levels of financial headroom. Undrawn facilities are around $1.75bn and in October we extended our main revolving credit facility of $1.51bn to May 2023. Covenants are set at 3.5x pre-IFRS 16 EBITDA.
Differentiated sustainability leadership
Our goal is to be a leader in our field in environmental, social and governance matters and sustainability. Notwithstanding the challenging trading backdrop in 2020, we have continued to make progress towards this objective. Our progress has been recognised by the leading rating agencies with MSCI recently awarding Wood an AA rating for a sixth consecutive year.
In June, we announced our pledge to set a science-based target to reduce scope 1 and 2 greenhouse gas emissions by 40% by 2030. This will be achieved, without the impact of carbon offsets, by reducing carbon intensity from our sites, equipment and vehicle use, the increased utilisation of renewable energy sources and more sustainable procurement policies all within our broader journey to net zero. This is in addition to the technical solutions we provide to clients related to energy transition, decarbonisation and developing sustainable and less carbon intensive infrastructure.
Order book progression and 2021 focus
Order book at the end of November was $6.2bn, with over 60% due to be delivered in 2021. Order book is down 22% since December 2019 reflecting the macro conditions in our diverse end markets, as well as our continued discerning bidder approach to contract tendering, in line with our measured risk appetite.
Whilst the ongoing impacts of Covid-19 remain uncertain, we have seen some signs of markets stabilising with order book reflecting our expectation of continued strength in the built environment and resilience in renewables & other energy markets. However, the risks of downward scope variations and deferrals we flagged at the half year are evident in delays to larger project awards in upstream oil & gas and some deferrals of investment decisions in chemicals & downstream.
Although we see some short-term headwinds, we believe our success in diversifying our end market exposure, our differentiation and our strong customer relationships position us well for the significant medium term growth opportunities our markets present. This positioning is evident in our success in securing new work in 2020 including engineering, procurement and construction (EPC) work for GSK, onshore wind and solar EPC awards in the US, an LNG renewal in Asia Pacific, three new oil & gas scopes with Equinor, an evaluation of the decarbonisation of industrial clusters in the North East of Scotland, utilising carbon capture and storage and hydrogen technologies and a study for the supply of domestic hydrogen in Australia.
In 2021, our operational focus is on ensuring our business is fit for accelerating the pace of the energy transition and the drive towards more sustainable infrastructure. We are optimising our operating model and further digitalising the way we work to unlock stronger medium term growth.
Our financial focus in 2021 will continue to be driving strong EBITDA margin delivery through maintaining high operational utilisation, delivering further operational and efficiency improvements and focusing on growth markets.
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 2020 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 2020, executed disposals consisted of our nuclear and industrial services businesses and our interest in Trans Canada Turbines. Comparative figures also exclude revenue and adjusted EBITDA from the disposal of TNT, completed in 2019. These disposals accounted for $73m of revenue in 2020 (2019: $493m) and adjusted EBITDA of $14m (2019: $60m).
Net debt is stated excluding liabilities related to leases, including those recognised under IFRS 16.
Company compiled, publicly available consensus comprises 13 analysts who have published estimates since our Half Year Results for the period to 30 June 2020 issued on 18 August 2020. Consensus includes: JP Morgan Cazenove, Credit Suisse, Barclays, Exane BNP Paribas, Goldman Sachs, RBC, Bank of America Merrill Lynch, Morgan Stanley, Berenberg, UBS, Citigroup, Kepler Cheuvreux and Jefferies.
Consensus 2020 adjusted EBITDA is $658m (range: $634m-$677m), consensus operating profit (pre-exceptional items) is $238m (Range: $152m-$264m) and consensus AEPS is 25.6c (Range: 18.7c-30.1c).
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Note to Editors:
Wood is a global leader in consulting, projects and operations solutions in energy and the built environment. www.woodplc.com
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