John Wood free to execute on delivering strategy after Sidara snub

(Alliance News) - John Wood Group PLC's half-year results hinted at future promise, while the end of the most recent takeover talks removes a distraction from management, analysts on Tuesday said.

On Tuesday, John Wood backed guidance despite first-half losses ballooning, just weeks after a Dubai suitor walked away from a GBP1.56 billion proposed takeover.

In the six months that ended June 30, the Aberdeen-based oilfield and engineering services firm said its pretax loss from continuing operating was USD961.7 million, widened from a USD26.0 million loss a year prior.

John Wood said this primarily reflects an impairment of goodwill of USD815 million and USD140 million of charges related to the exit of lump sum turnkey and large-scale engineering, procurement and construction work.

It added that the goodwill impairment relates to legacy acquisitions and reflects both higher discount rates - due in part to increased market volatility - and a more prudent view on growth assumptions, partly reflecting the geo-political environment in the company's markets.

John Wood made the strategic decision to exit the lump sum turnkey and large-scale EPC work in 2022. It explained on Tuesday that the exit has taken time, with multiple contracts being wound down.

The anticipated cash impact of the USD140 million charges are spread over many years and are included in unchanged cash guidance, John Wood said.

Adjusted earnings before interest, tax, depreciation and amortisation climbed 8.5% to USD219 million from USD202 million. The adjusted Ebitda margin improved to 7.7% from 6.8%.

First half revenue fell 4.8% to USD2.84 billion from USD2.99 billion, with growth in Operations offset by lower revenue in Projects. This was due to lower pass-through activity, the strategic shift away from EPC, and weakness in the minerals business.

The order book at June 30 was USD6.21 billion, up 3.6% from USD5.99 billion a year prior.

Chief Executive Ken Gilmartin said the results demonstrated "continued progress on our turnaround".

"Our strategy continues to deliver higher Ebitda and a larger order book, and we are improving the quality of our business with better pricing and higher margins."

Gilmartin said John Wood's "simplification' programme is progressing "at pace", with nearly half of the annualised USD60 million savings from next year already secured.

Free cash flow improved to an outflow of USD168 million from USD219 million a year ago, and John Wood said it anticipates "reducing cash drags going forward".

The firm reiterated its outlook both for 2024 and 2025, including generating "significant free cash flow in 2025".

For 2024, John Wood expects high single-digit growth in adjusted Ebitda, before the impact of disposals.

Operating cash flow is predicted to continue to improve with cash outflows of around USD125 million, of which around USD50 million relate to the simplification programme.

For 2025, John Wood expects adjusted Ebitda growth in above its medium-term targets, with the around USD60 million of annualised simplification benefits on top of the originally targeted mid to high single digit growth.

John Wood said it will face costs of around USD11 million related to the takeover attempts by Dubai-based Dar Al-Handasah Consultants Shair & Partners Holdings Ltd, known as Sidara. Some of these will be partially reimbursed by Sidara under an agreement for external costs coverage.

Sidara walked away from a deal two weeks ago, blaming global market turmoil and geopolitical risks, having put forward four takeover proposals.

The final approach valued John Wood at around GBP1.56 billion.

In its half-year results, John Wood had said: "We do not believe that those geopolitical risks pose a material risk to Wood, nor the long-term value of the group."

John Wood also was the subject of a buyout approach by private equity firm Apollo last year, another drawn out process. Apollo's final tilt was worth GBP1.68 billion, or 240p per share, which was rejected.

Panmure Liberum analyst Ashley Kelly felt overall the headline numbers look "okay" with a consensus miss on revenues, but a beat on Ebitda and margins.

Kelly thinks the end of the takeover interest from Sidara – due to market conditions, rather than any underlying issues with John Wood – removes a distraction from management and should allow the business to refocus on the longer-term strategy and on winning new business.

"Disposals streamline the business further although some losses were crystallised on legacy contracts," Kelly pointed out.

The rise in margins is "an encouraging step forward", but the rise in net debt is "a concern" despite claims of savings being realised under strategy implementation.

"The overall recovery is taking longer than management expected - having to deal with multiple takeover approaches has obviously knocked business off track - but investors will hope that the company can now focus on delivery," Kelly remarked.

John Moore, senior investment manager at RBC Brewin Dolphin, said that, despite the headline loss, Wood generated better cash flow which will "help in its path to recovery".

He noted there is a reason Wood attracted so many bids "at a significant premium to its current share price - and there are hints of why in the company’s outlook for 2025, which indicate that strong free cash flow and greater profitability are on the horizon. Execution of this strategy will be key to the company’s independence and future prosperity."

Shares in John Wood were up 0.4% at 133.10p each in London on Tuesday morning.

By Jeremy Cutler, Alliance News reporter

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