Wood Group (John) PLC (LON:WG.) have published full year results for the year ended 31 December 2023.
| Notes | FY23(unaudited)$m | FY22$m* | Movement% | At constant currency % | ||||
| HEADLINE RESULTS | 1,2,3 | |||||||
| Revenue | Continuing | 5,901 | 5,469 | 7.9% | 8.7% | |||
| Adjusted EBITDA | Continuing | 4 | 423 | 388 | 8.8% | 10.9% | ||
| Adjusted EBITDA margin | Continuing | 5 | 7.2% | 7.1% | 0.1ppts | 0.1ppts | ||
| Adjusted EBIT | Continuing | 6 | 185 | 177 | 4.4% | |||
| Adjusted EBIT margin | Continuing | 7 | 3.1% | 3.2% | (0.1)ppts | |||
| Adjusted diluted EPS | Continuing | 8 | 2.3c | (3.1)c | n/a | |||
| Adjusted operating cash flow | Total group | 9 | 194 | (66) | n/a | |||
| Free cash flow | Total group | 10 | (265) | (704) | n/a | |||
| Net debt including leases | Total group | 1,094 | 736 | 49% | ||||
| Net debt excluding leases | Total group | 694 | 393 | 77% | ||||
| Net debt / adjusted EBITDA | Continuing | 11 | 2.1x | 1.3x | n/a | |||
| Order book | Continuing | 12 | 6,269 | 6,017 | 4.2% | 4.8% | ||
| Headcount | Continuing | 13 | 35,335 | 35,573 | (0.1)% | |||
| STATUTORY RESULTS | ||||||||
| Operating profit / (loss) | Continuing | 38 | (565) | n/a | ||||
| Loss for the period | Total group | (105) | (352) | n/a | ||||
| Basic EPS | Total group | (16.1)c | (52.4)c | n/a | ||||
| Cash flow from operating activities | Total group | 48 | (361) | n/a | ||||
*FY22 results have been re-presented to include Built Environment Saudi Arabia. Built Environment Consulting (sold in 2022) is treated as a discontinued operation and its results are included within the “Total group” measures. Continuing results exclude its results. See notes on page 4.
Ken Gilmartin, CEO, said:
“We made significant progress in this first year of our three-year growth strategy. We delivered strong revenue and adjusted EBITDA growth, and we significantly improved operating cash flow.
“We continue to see clear business momentum, with a higher order book, double-digit growth in our pipeline and positive pricing trends in both pipeline and order book. It is encouraging that the fastest growing parts of Wood are the higher-margin Consulting business, and our sustainable solutions across all areas.
“To build on this early success and further enhance our strategic delivery, we have launched a simplification programme to drive efficiency and support further margin expansion. We are therefore upgrading our outlook, with 2024 guidance now towards the top end of our medium-term targets and 2025 expected to exceed those targets. Ultimately, our priority remains sustainable cash generation and we expect to deliver significant free cash flow from 2025.”
Strategic progress and strong growth in the first year of our strategy
· Delivered results in line with expectations
o Revenue growth across all business units
o Strong adjusted EBITDA growth, in line with guidance
· Continued momentum
o Fastest growth in Consulting and across sustainable solutions
o Order book up 4% to $6.3 billion, up 7% like-for-like14
o Double-digit growth in our factored sales pipeline
o Improving pricing trends across pipeline, order book and in margin performance in 2023
o Adjusted operating cash flow improved to $194 million, up $260 million on last year
· Growing our sustainable solutions business to $1.3 billion15
o Sustainable solutions revenue up 15% and represented 22% of Group revenue
o 43% of factored sales pipeline now in sustainable solutions
Simplification to enhance strategic delivery
· Focus on driving higher margins through continued growth, evolving our business mix with faster growth in Consulting, improved pricing and taking action on cost
· Simplification programme to drive efficiency
o Targeting annualised savings of around $60 million from 2025
o Initial focus on central costs, with benefit within FY24 expected to be around $10 million
o Will improve both EBITDA and EBIT margins, and future cash generation
o Cash costs to complete of c.$70 million over next 12 months, exceptional P&L charge in FY24
· Aligning our portfolio with our strategy
o Sale process for EthosEnergy progressing well, smaller disposals expected to follow
Upgraded 2024 outlook
· Adjusted EBITDA growth towards the top end of mid to high single digit target (before disposals)
o Margin expansion driven by topline growth, evolving business mix and improved pricing, plus the c.$10 million in-year benefits of our simplification programme
o Performance will be weighted to the second half, reflecting the typical seasonality of our business and the phasing of the in-year benefit of the simplification programme
· Cash performance to continue to improve
o Operating cash growing at a faster rate than adjusted EBITDA will help deliver positive free cash flow before exceptional cash flows
o Exceptional cash flows are expected to be around $120 million and will be weighted to the first half. They now include c.$50 million related to the delivery of the simplification programme
o Net debt at December 2024 expected to be lower than December 2023 after the expected proceeds from planned disposals
Upgraded medium-term outlook
· The simplification programme is expected to add to our growth potential, leading to EBITDA growth in 2025 above our medium-term target
· We will continue to expand our EBITDA margin and that benefit will translate into our EBIT margins and support a significant increase in our earnings per share over the medium term
· We are on-track to deliver significant free cash flow in 2025, as previously guided
· From 2025, our sustainable free cash flow generation, combined with proceeds from disposals, will provide increased flexibility in our capital allocation policy
FY23 financial highlights
· Revenue of $5.9 billion was up 8% (+9% at constant currency) with growth in all business units, including a c.$200 million increase in pass-through revenue
· Adjusted EBITDA of $423 million was up 9% on last year (+11% at constant currency) with good growth across all business units
· Adjusted EBITDA margin of 7.2%, up 0.1ppts on last year, reflecting business mix and improved pricing partly offset by the increased pass-through revenue and opex investments
· Adjusted EBIT up 4% to $185 million with EBITDA growth partly offset by higher lease depreciation and software amortisation
· Adjusted diluted EPS of 2.3c was an improvement on last year’s (3.1)c, reflecting the higher adjusted EBIT and lower finance costs
· Adjusted operating cash flow of $194 million was significantly improved on last year, up $260 million
· Free cash flow of $(265) million reflects the improved operating cash flow offset by capex, interest and tax paid, plus cash exceptionals broadly in line with our guidance at $145 million
· Net debt (excluding leases) at 31 December 2023 was $694 million, higher than at 31 December 2022 ($393 million) given the free cash outflow and the payment of $65 million of tax on the sale of Built Environment Consulting
FY23 statutory results
· Operating profit of $38 million compares to an operating loss in the prior year
· Exceptional items of $77 million include a $45 million charge relating to a receivables write-down and an arbitration claim in the now closed Power and Industrials EPC business. Also includes $29 million of charges related to our asbestos liability. Full details on pages 16-17
· Loss for the period of $105 million reflects operating profit more than offset by finance costs and tax
· Basic EPS of (16.1)c reflects the loss for the period
· Cash flow from operating activities of $48 million, a significant improvement on the outflow in 2022
CFO succession
Arvind Balan will join Wood as Chief Financial Officer (CFO) on 15 April 2024, replacing David Kemp who will retire from the Board on 14 April 2024. David will remain with Wood for a period of time to ensure a smooth transition.
Presentation
A presentation with Ken Gilmartin (CEO) and David Kemp (CFO) will be held at 9:00am today in London, UK. This event will also be webcast at https://edge.media-server.com/mmc/p/ngex5be8.
The webcast and transcript will be available after the event at www.woodplc.com/investors.
Future events
· 9 May 2024 – Q1 trading update and Annual General Meeting
· 11 July 2024 – HY24 trading update
· 20 August 2024 – HY24 results
· 7 November 2024 – Q3 trading update
NOTES
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: FY22 results are re-presented to include the results of Built Environment Consulting Saudi Arabia, which was previously classified as held for sale. For FY22, this business contributed $27 million of revenue and $3 million of adjusted EBITDA.
Note 2: Percentage growth rates are calculated on actuals and not the rounded figures shown throughout this statement. Growth rates shown at constant currency are calculated by comparing unaudited FY23 to FY22 restated at FY23 currency rates.
Note 3: Built Environment Consulting (sold in September 2022) is treated as a discontinued operation and its results are included within the “Total group” measures. Continuing results exclude its results.
Note 4: A reconciliation of adjusted EBITDA to operating profit is shown in note 1 to the financial statements.
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 business, and is one of our medium-term targets.
Note 6: Adjusted EBIT shows the Group’s adjusted EBITDA after depreciation and amortisation. This measure excludes amortisation of acquired intangibles and is therefore aligned with our measure of adjusted EPS. A reconciliation of adjusted EBIT to operating profit/loss is shown in the Financial Review on page 13.
Note 7: Adjusted EBIT margin is adjusted EBIT shown as a percentage of revenue. This measure is used by management to measure the performance of business.
Note 8: A reconciliation of adjusted diluted EPS to basic EPS is shown in note 9 of the financial statements.
Note 9: Adjusted operating cash flow refers to adjusted cash generated from operations excluding leases, as shown on page 20 of the Financial Review. This is a metric used by management to monitor business performance throughout the year.
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 and FX. A reconciliation of free cash flow to our statutory cash flow statement is shown on page 26. Free cash flow is a key measure of delivering value to our shareholders.
Note 11: Net debt / adjusted EBITDA ratio (covenant basis) is calculated on the existing basis prior to the adoption of IFRS 16 in 2019 and is based on net debt excluding leases. It includes a series of covenant adjustments to both net debt and EBITDA. The calculation is shown in the Financial Review on page 24. This measure is a key metric used in our debt covenants.
Note 12: 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. Multi-year agreements are recognised 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 13: Headcount is a measure of total employees working for Wood, including Wood employees and contractors. This measure excludes employees in our joint ventures.
Note 14: Excluding the Gulf of Mexico labour operations business sold in March 2023. Order book at constant currency.
Note 15: 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 that include a decarbonisation element, for our pipeline disclosure we include the proportion of the opportunity that is related to those decarbonisation elements. For our revenue disclosure, we only include revenue if directly within sustainable solutions, with mixed scopes only included if 75% or more of the scope relates to decarbonisation.
CEO STATEMENT
We made significant progress in the first year of our three-year profitable growth strategy. The focus in year one was to return to growth and deliver results in line with our guidance. We achieved strong growth in adjusted EBITDA and improved our margin, both of which exceeded our expectations at the start of the year.
Strong growth in the first year of our growth strategy
Revenue growth across all businesses
Group revenue of $5.9 billion was broadly in line with our guidance, up 8% on last year (up 9% at constant currency) with growth across all of our business units, led by Consulting. This growth shows the demand that is in our markets for the consulting and engineering services we provide. Around a third of our revenue growth reflected increased pass-through activity, for which we earn little or no margin.
Strong adjusted EBITDA growth
Our adjusted EBITDA of $423 million was up 9% on last year, and up 11% at constant currency, reflecting the strong revenue growth combined with an improved margin of 7.2%. This margin performance reflects an improved business mix, as we shift our business model more and more towards consulting and engineering services, and improved pricing across our business. The margin performance included the increased opex investments we made to drive future growth, and the dilutive impact of the increased pass-through revenue.
Our adjusted EBIT was up 4% on last year at $185 million, reflecting the growth in EBITDA offset by higher lease depreciation and software amortisation. Our adjusted diluted EPS was 2.3 cents, an improvement on (3.1)c in 2022, reflecting the higher adjusted EBIT and lower finance costs. Despite an improvement in the year, our adjusted tax rate remains high and this is covered in detail in the Financial Review on page 19.
Statutory results
Operating profit in the year was $38 million compared to an operating loss of $565 million in 2022, which was impacted by goodwill and intangible impairments of $542 million.
Operating profit included $77 million of exceptional items. These included $5 million of costs related to the unsolicited bids from Apollo Global Management, which were booked in the first half of the year, and the movement in our asbestos liability. Also included is a $45 million charge in relation to the Power and Industrials EPC business which we closed in 2022. The charge includes a receivable write down booked in the first half as well as a provision taken in the second half of the year relating to an arbitration claim against Wood. Further details are included in the Financial Review on pages 16-17.
The loss for the period was $105 million, mainly reflecting the low level of statutory operating profit offset by finance costs and tax. Our basic earnings per share was (16.1) cents (FY22: (52.4) cents).
Cash performance reflects our turnaround journey
As expected, we saw a significant improvement in our adjusted operating cash flow to $194 million. This year-on-year improvement of $260 million was driven by higher adjusted EBITDA and a much-improved working capital performance.
Our free cash outflow of $265 million includes $145 million of outflows related to exceptional cash items.
Looking ahead, we continue to expect to grow operating cash at a rate above the growth in EBITDA while also reducing the exceptional cash outflows. Operating cash generation will be further strengthened by the actions we are taking on cost and portfolio, and we expect to generate significant free cash flow from 2025.
Business momentum
Wood Group continue to see good momentum across the business. Our order book of $6.3 billion was up 7% on a like-for-like basis while we saw double-digit growth in our factored sales pipeline. Our headcount grew by 1% excluding the Gulf of Mexico business.
Encouragingly, we continue to see improvements in pricing. The price of work in both our pipeline and order book improved throughout 2023 and better pricing was a key driver of margin expansion in the year.
Delivering on our profitable growth strategy in 2023
We set out our profitable growth strategy in November 2022 and we are delivering on each of the three pillars: inspired culture, performance excellence, and profitable growth.
1) Delivering an inspired culture
An inspired culture is about creating a great place to work. During 2023 we put a real focus on culture and improving employee engagement. We were pleased to see a vastly improved employee net promoter score in our mid-year survey and a lower level of employee turnover in professional roles across the Group. Improving leadership diversity is a key part of our inspired culture pillar, with a target of 40% female representation amongst our senior leaders by 2030. We have now reached 35%, an improvement on 32% at December 2022.
2) Delivering performance excellence
Performance excellence is about being results-focused and delivering across all of the business. Our order book growth highlights the work done across all business units to win new work while maintaining the bidding discipline crucial to our strategy. Encouragingly, we have also delivered improvements in pricing across the business. We are pleased to have grown our sustainable solutions business again, now to around $1.3 billion of revenue, and representing 43% of our pipeline. Our Global Execution Centre is a critical part of delivering performance excellence for our clients and we now have over 2,000 employees working in our centre in India.
3) Delivering profitable growth
Delivering profitable growth is about building a higher-grade business. We grew adjusted EBITDA by 9% in the year despite higher pass-through activity and the opex investments we made for growth. This shows the pricing benefits starting to come through along with improved operational delivery. Delivering profitable growth will lead to significant cash flow generation over time. In 2023 we delivered a substantial improvement in our operating cash flow as we continued our cash recovery journey.
We have the right business model in place
We are now a services-led business with the majority of our contracts cost reimbursable (c.80% of revenue) and the remainder mostly fixed price services (c.20% of revenue). This contract mix represents our risk-appetite following our strategic move away from LSTK activity.
Our markets are attractive
The energy and materials markets offer significant growth opportunities for Wood. We are focused on:
· Large markets with solid growth – Oil & Gas and Chemicals
· Small markets today with substantial growth potential – Hydrogen and Carbon Capture
· Large markets where we can significantly grow our share – Minerals and Life Sciences
Together, these six focus markets offer an addressable market of c.$240 billion in 2026. We expect to outperform market growth through continued market leadership, winning share and a shift in our business mix over time.
Winning work across our markets
During 2023, we continued to win work across all of our markets, helped by client demands for solutions that address energy security, energy transition and sustainable materials.
Significant contract wins across Energy in the year included:
· New global framework agreement with Shell
· Detailed engineering design for Woodside’s Trion project in the Gulf of Mexico
· New strategic partnership with Harbour Energy, with contracts worth around $330 million
· c.$250 million contract extension in Southeast Asia for operations and brownfield engineering services
Significant contract wins in the year in Materials included:
· Collaboration agreement with OMV for the licensing of its ReOil® plastic recycling technology
· $50 million capital project delivery partner contract from GSK in the USA
· FEED and EPCm for Europe’s largest high purity manganese processing facility
Our pipeline continues to grow across both energy and materials, and shows the diversification of the future Group, with 34% of the pipeline in materials and 64% in energy.
Growing our Consulting business
Our higher-margin Consulting business saw the strongest growth across the business in 2023, following a reorganisation at the start of the year and increased opex investments to drive growth. Consulting operates across all of our end markets, addressing client challenges across energy, materials and industrial digitalisation and decarbonisation. In 2023, Consulting had sustainable solutions revenue of c.$225 million, helped by our solutions across hydrogen and carbon capture which together saw nearly 1,000 pieces of work awarded in 2023.
Growing our sustainable business
Wood is an enabler of net zero, providing solutions across decarbonisation, energy transition and materials for a net zero world. We generated around $1.3 billion of sustainable solutions revenue in 2023, up 15% on last year. Sustainable solutions now represent 22% of revenue and 43% of our factored sales pipeline.
In addition to the excellent progress we are making on growing our sustainable solutions business, we continue to deliver against our ESG strategy. We reduced our scope 1 & 2 carbon emissions by 71%, ahead of our 2030 target of a 40% reduction from our 2019 baseline, and we continued to progress leadership diversity. Our progress across ESG was once again reflected in our MSCI AA rating, awarded for the ninth consecutive year, and the maintenance of our top quartile ranking against peers.
Simplification to enhance our strategic delivery
To build on the progress made in the first year of our three-year strategy, we have launched a simplification programme to enhance our strategic delivery and support margin expansion.
Driving margin expansion
We will drive higher margins, both EBITDA and EBIT, through:
· Continued growth – continuing to deliver scale benefits as we grow
· Evolution of our business mix – continued shift to services-led model and higher growth in Consulting
· Improved pricing – reflecting the selectivity of work and the significant demand for our expertise
· Taking action on cost – simplification programme to create a leaner and more efficient Wood
Simplification programme
We have set out a simplification programme to help us deliver higher margins while remaining focused on business growth. This programme will:
· Right-size our central functions – by putting greater ownership and accountability for functional activities into the business units, and reducing the number of central function roles
· Simplify the way we work – by reducing complexity in our functional structure, processes and procedures, and expanding our shared services model
· Deliver IT savings – building on the cost savings announced previously
· Reduce property costs – cost savings announced previously that will reduce our property portfolio
This programme is expected to generate annualised savings of around $60 million from 2025, with a benefit in FY24 of around $10 million. The costs to achieve this programme are expected to be around $70 million with an exceptional item to be recognised in our first half results. The cash impact is expected to be around $50 million in FY24, weighted to the first half, and around $20 million in FY25.
Aligning our portfolio with our strategy
We continue to evaluate our portfolio and identified certain businesses deemed non-core to our strategic growth and priorities. The largest of which is EthosEnergy, a joint venture within Investment Services. We announced in January 2024 that we had started the sales process for EthosEnergy and have made good progress to date. We are also actively exploring options for a number of other small businesses in our portfolio.
Upgraded 2024 outlook
Adjusted EBITDA is expected to grow towards the top end of our mid to high single digit medium term target, before the impact of disposals. Our adjusted EBITDA margin is expected to expand in 2024, driven by topline growth, an evolving business mix and improved pricing, plus the c.$10 million in-year benefits of our simplification programme.
Performance in 2024 will be weighted to the second half, reflecting the typical seasonality of our business and the phasing of the in-year benefit of the simplification programme.
Our cash performance is expected to continue to improve with operating cash growing at a faster rate than adjusted EBITDA. This will help deliver positive free cash flow before exceptional cash flows. These exceptional cash flows are expected to be around $120 million and will be weighted to the first half. They now include c.$50 million related to the delivery of the simplification programme.
Net debt at December 2024 is expected to be lower than December 2023 after the expected proceeds from planned disposals.
Upgraded medium-term outlook
The simplification programme is expected to add to our growth potential, leading to adjusted EBITDA growth in 2025 above our medium-term target. We will continue to expand our adjusted EBITDA margin and that benefit will translate into our EBIT margins and support a significant increase in our earnings per share over the medium term.
We are on-track to deliver significant free cash flow in 2025, as previously guided. Our sustainable free cash flow generation from 2025, combined with proceeds from disposals, will provide increased flexibility in our capital allocation policy.
Executive Management Team changes
Marla Storm joined Wood in January 2024 as Chief Human Resources Officer (CHRO), replacing Lesley Birse who has retired. Michael Rasmuson joined Wood in January 2024 as Group General Counsel, replacing Martin McIntyre, who will remain as Company Secretary until a successor for this role is appointed. Arvind Balan will join as CFO in April 2024, replacing David Kemp who will retire. Marla and Michael are based in Texas, USA, and Arvind will be based in London, UK.
