Wood shares fall 12% on trading update, new strategy

Wood CEO Ken Gilmartin

Shares of Aberdeen-based global engineering and consulting giant John Wood Group fell as much as 12% on Tuesday as it held a capital markets day to outline its “refreshed strategy” that included new medium-term targets.

Wood also published a trading update for the 2022 financial year, confirming its full year guidance and saying that trading in the first 10 months of the year was in line with its expectations.

“We expect revenue to be between $5.2 billion and $5.5 billion, and adjusted EBITDA to be broadly around the middle of our guidance range of $370 million and $400 million,” said Wood.

That means Wood’s 2022 revenue would be below 2021 revenue, which fell 15.4% to $6.4 billion.

Announcing medium term financial targets, Wood said: “We expect adjusted EBITDA margins to be flat in the nearer term, partly as we reinvest in the business to secure growth.

“In the medium term, we see opportunity for some margin improvement.

We expect adjusted EBITDA to grow at mid to high single digit CAGR (compound annual growth rate) over the medium term, with momentum building over time as our strategy delivers.

Our businesses generate strong underlying cash flows and we expect these to continue to grow over the medium term.

“This, combined with the reducing legacy liabilities, will result in a return to positive free cash flow from FY24 onwards.”

Wood said it expects net debt, excluding leases, to be around $350 million to $400 million at December 31, 2022. “This includes the recent settlement of the Enterprise litigation case for $115 million and the normalisation of our working capital,” said the firm.

Wood CEO Ken Gilmartin said: “Today is an important moment for Wood as we set out our refreshed strategy.

“There is huge potential in Wood – we have over 35,000 highly skilled colleagues, long-term client relationships and leading engineering and consulting capabilities.

“We are now taking a more focused approach to growth, targeting specific priority markets across energy and materials that best match our competitive strengths. This tighter focus will help ensure we can grow both profitably and sustainably.

“Our turnaround is progressing well, accelerated by the sale of Built Environment Consulting and helped by the work done to focus the group on lower risk, reimbursable work.

“We have addressed legacy issues and our strong balance sheet will allow us to deal with the defined schedule of resulting cash outflows.

“Our strategy will deliver returns for our shareholders and today we have set out new financial targets, including to grow EBITDA by mid to high single digit CAGR over the medium term, with momentum building over time as our strategy delivers.

“Most importantly, based on the highly cash generative nature of our underlying businesses, we expect positive free cash flow (after the impact of legacy cash outflows) from 2024 onwards.”