Shares of Aberdeen-based engineering giant John Wood Group plc fell about 16% on Tuesday after it announced it expects to report an exceptional charge of $100 million related to a legacy Amec Foster Wheeler project and that its full-year results will be delayed as a result of the issue.
Wood completed the roughly £2.2 billion acquisition of rival Amec Foster Wheeler in 2017.
The legacy Amec Foster Wheeler project involves the construction of various buildings to house the Aegis Ashore anti-missile defence facility for the United States Army Corps of Engineers.
“Wood announces that, following a review of the carrying value of contracts as part of its year-end processes, it expects to report an exceptional charge of c. $100m in respect of the legacy Amec Foster Wheeler project, Aegis Poland, to reflect management’s latest estimate of the expected loss at completion,” said the Aberdeen firm.
“This reflects an updated assessment of expected recovery from the customer and the legal costs needed to achieve such recovery, together with increased cash costs of c.$20m to complete the project.
“The project is expected to be operationally complete in H2 2022.”
Wood said that separately, in order to finalise its reported results and to conclude the year-end audit process with the company’s auditor KPMG, an “external investigation and review is being undertaken, principally in relation to the historical carrying value of the Aegis Poland project contract.”
Wood said this work supplements an internal review initiated following concerns raised internally in relation to the Aegis Poland project.
“The additional investigation and review, which is underway, will necessitate a delay to the announcement of Wood’s FY21 results, previously scheduled for 8 March 2022,” said Wood.
“A further announcement will be made when the results announcement date is confirmed.”
Wood said its underlying results for FY21 are expected to remain unchanged from its trading update on January 13, 2022, and that the outlook for FY22 remains unchanged.
Wood said of the Amec Foster Wheeler project: “Management’s latest estimate is that the loss at completion will be $222m representing the expected loss to complete less estimated revenue to be earned (revised from the estimate at the half-year of $133m).
“In reaching its assessment of this loss, management have made certain estimates and assumptions relating to the date of completion, the costs to complete and net recoveries from the client.
“If the actual outcome differs from these estimates and assumptions, the ultimate loss will be different.
“At 31 December 2021, net contract assets of $35.7m are expected to be included in the balance sheet (30 June 2021: $114.3m).”