Wood revenue falls but orders rise to $7.7bn

Aberdeen-based global engineering group Wood plc said on Tuesday its order book rose 18% to $7.7 billion in the first six months of 2021 — news that offered hope amid falling revenue numbers at the group.

Wood said its revenue fell 22.9% to $3.15 billion in the half year to June 30 primarily reflecting the impact of Covid-19 and including a $74m reduction in revenue from disposed businesses.”

The group forecast 2021 revenue of between $6.6 billion and $6.8 billion, down from $7.56 billion last year and below a $6.91 billion consensus.

Wood, which is moving away from the upstream oil and gas markets to higher margin consulting and engineering services, said it will not pay an interim dividend.

“We remained committed to ensuring balance sheet strength,” said the Aberdeen firm, which employs 40,000 people in 60 countries.

“Whilst we are encouraged by improving momentum in activity and early signs of markets recovering, performance in the first half of 2021 reflects the ongoing impacts of Covid-19.

“As such, the board considers it prudent not to pay an interim 2021 dividend.

“The board recognises the importance of dividends to shareholders and is committed to reviewing the future policy as certainty over the rate of recovery in our markets increases.”

Wood’s net debt excluding leases rose to $1.28 billion at June 30, 2021, “driven by a working capital outflow of $237m including unwind of advance payments as major projects completed.”

Adjusted H1 EBITDA (earnings before interest, taxes, depreciation, and amortization) fell 14.1% to $262 million.

Wood CEO Robin Watson: “The first half of 2021 reflects improving momentum in activity in Q2 and a strong margin improvement, with increased margins in all business units and a greater weighting of high margin consulting activity.

“Trading momentum and good growth in our order book, which is up c18% year-to-date, underpin our confidence in delivering a stronger second half which will reflect a return to growth compared to both H1 2021 and H2 2020, and further growth in our full year adjusted EBITDA margin.”

AJ Bell analyst Danni Hewson said: “Oil prices have had a strong year so you might expect the whole industry to be firing on all cylinders.

“However, there is often a lag between a recovery in the oil market and projects being sanctioned.

“This affects those companies set up to serve the oil and gas explorers, developers and producers and is evident in the falling first-half revenue reported by Wood Group today.

“More encouraging were the forward-facing metrics like order intake which suggest business is beginning to pick up.

“Margins are also improving but debt remains elevated, and ticked up uncomfortably in the period.

“As a result the company still appears to be some way of being able to resume dividends … arguably investors would be better served by Wood Group investing to secure its long-term future.

“After all a further complicating factor for the business at present is the transition away from fossil fuels which may also be having a chilling effect on new oil and gas developments.

“The good news for Wood Group is that it has the opportunity to respond to this transition and apply its transferrable skills to the renewables space and other cogs in the decarbonisation wheel.

“Unsurprisingly, building on its position in these areas is a key strategic priority for Wood Group.”