Aberdeen's Wood at 'clear inflection point' after robust results: reaction and analysis

Wood, the Aberdeen-headquartered energy and engineering services consultancy that was recently the subject of takeover interest, is at a “clear inflection point”, according to its chief executive, after he set the group on course for stronger full-year numbers.

Wood chief executive Ken Gilmartin said the Aberdeen-headquartered group had made a 'good start to the year'.

Unveiling better-than-expected first-half earnings, underpinned by a solid order book, Ken Gilmartin said he was “very excited” at the potential for the FTSE-250 business, which employs getting on for 36,000 people globally. He highlighted the group’s growing diversification, with an increasing focus on renewables, and said clear progress had been made since the group outlined its growth strategy last November.

Gilmartin said: “We are delivering on our strategy and we see [these results] as a clear inflection point. We are nine months into a three-year strategy and we are very excited at the potential that we have. As we look ahead, we are confident that our actions, the business model we have implemented and the market growth opportunities to which we have aligned, support the momentum we are building in our business. As such, we are increasing our full-year guidance for the year for revenue and Ebitda [earnings before interest, taxes, depreciation and amortisation].”

He also pointed out that the Aberdeen-headquartered business was now working on more than half of the carbon capture utilisation and storage projects in the world as it builds up skills in emerging markets.

Founded more than four decades ago from fishing industry roots, Wood’s fortunes have tracked the growth of the North Sea sector and with it a push into related energy and specialist engineering markets, both domestically, and increasingly, overseas.

Headline results for the six months to June 30 show that pre-exceptional revenue from continuing operations rose by 16.2 per cent to just under $3 billion (£2.34bn), while adjusted underlying earnings were up 8.5 per cent at $202 million (£158m). The group’s order book stands at just under $6bn, marginally down on a year earlier, while the global headcount has increased to 35,636 people, up 4.7 per cent.

While net debt has been reduced it still stands at $654m, excluding leases, while at the bottom line the group recorded a statutory loss of $27m as it was impacted by lower profit from discontinued operations and exceptional items. Gilmartin said the debt figure was “consistent with where we thought it was going to be”.

The results come after US private equity suitor Apollo Management dropped its proposed takeover of FTSE-250 Wood in May. Apollo had put forward a series of bid proposals, with the last one for 240p a share in cash, valuing the Scots group at some £1.66bn. Shares in the Scottish group slumped in the wake of the abandoned bid and are currently trading just above the 150p mark.

Gilmartin said of the takeover approach: “It cost a few million quid. I think it was a distraction from a management standpoint but it wasn’t a distraction for the business. We wouldn’t have seen the results that we have in the first half if we’d been distracted.”

Describing the interim results as an “okay set of numbers”, Adam Vettese, an analyst at trading and investing platform eToro, said: “To its credit it has grown revenues and Ebitda well, but in its overall operating loss hides the story for this business. The firm remains under a cloud after the failed Apollo takeover, leaving investors pondering where it goes next. The firm has failed to turn a profit because of exceptional costs, most notably $5m spent on the failed Apollo deal. That will sting particularly for investors as the market now values the business well below the takeover level

“With some reasonable fundamentals, the firm looks well positioned assuming the plan it laid out at its last full year [results] holds true. But the reasons that led Apollo to bid for the firm in the first place persist, which means another bidder could move in at some point with the share price depressed - or even Apollo again once its six-month cooling off period expires. Any hint of a fresh bid could take the share price back to where it was before the drama began.”

John Moore, senior investment manager at wealth and investment firm RBC Brewin Dolphin, noted: “Despite the reorganisation and restructuring, Wood’s revenue on continuing operations is up on where it was this time last year and [these] results offer some potential for recovery and if executed, better times for shareholders. The well-publicised bid by Apollo was arguably a costly and ultimately distracting exercise with the outcome heightening pressure on the board to lay out a vision for the years ahead.

“Key tasks for the incoming CFO [chief financial officer] will be reducing debt further, improving cash generation and profit margins and the continued streamlining of the business. Positively, Wood’s end markets remain robust, but growth will be hard to come by and as a result, self-help remains the main driver for shareholder returns.”

Wood is set to part company with its chief financial officer David Kemp, after he advised the board of his intention to step down having been with the firm for a decade. A process to appoint his successor is underway and Kemp will remain in his role until a successful candidate is in place.

Commenting on the departure of Kemp, who joined the firm in 2013 as CFO of the former Wood Group PSN business, Gilmartin said: “I have really valued David’s support and leadership since I joined Wood. In the last year we have worked together to transform the company - a new business model, facing growth markets, with a clear strategic plan. David leaves Wood in a strong position to capitalise on the significant opportunities in front of us.”

Chairman Roy Franklin paid tribute to the departing finance chief, who joined the board of Wood in January 2015 and was appointed CFO in May of that year. He said: “David has made a very significant contribution to Wood since joining back in 2013, helping to build a more diversified company and leading our financial recovery over the last few years.”