Wood Group to branch out after 14% profits jump

Bob Keiller. Picture: Contributed
Bob Keiller. Picture: Contributed
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Energy services firm Wood Group rewarded investors with big hike in its dividend today after high spending in the oil industry boosted its bottom line.

The Aberdeen-based company reported a 14 per cent increase in annual profits to $412.8m (£246.8m), while chief executive Bob Keiller sought to allay fears over major engineering projects coming to an end by pledging to “broaden and deepen” the range of services it offers. He said the firm would seek more acquisitions this year following its $276m splurge in 2013.

Wood Group’s spending on acquisitions last year was dominated by the $215m buy-out of Wyoming-based construction services provider Elkhorn.

Keiller told The Scotsman that Wood Group would once again look to pay for its expansion from cash flow, potentially giving it similar amounts to invest. However, he said the firm didn’t have a particular level of expenditure in mind.

His priority is looking to tap into new growth areas. He said: “We want to buy businesses that benefit from being part of Wood Group and where Wood Group benefits from having them on board. Normally that’s about the skills they bring or the talent or the access to customers, rather than looking at it purely as a cost play.

“Clearly, if there are efficiencies to be made, we want to look at taking them, but the main driver is how can we buy something that keeps the growth story going.”

Keiller said that since there had been a slowdown in oil sands activity in western Canada, he would like to expand into growth areas in the region – such as gas processing or pipeline work. It is part of a strategy to make the firm less dependent on oil and gas exploration and production (E&P) activities, which account for the majority of its earnings.

There are concerns that large projects that boosted profits last year are coming to an end, while the group acknowledged in its results that global E&P spend was likely to fall over 2014 as oil firms focus on their budgets after an expensive year.

But it added: “The group continues to have a good balance of opex and capex activities, which should help underpin growth in the medium term.”

Wood Group saw revenues rise by 3 per cent to $7.1 billion last year. It raised its total dividend to 22 cents (13.2p at today’s prices) per share, up 29 per cent on the 2012 payout.

Neill Morton, an analyst at Investec, said: “After warning on profits at its past two announcements, it is not third time unlucky for Wood Group. Full-year results are in line but, importantly, guidance for 2014 remains broadly unchanged, with modest earnings growth foreseen in 2014.”

He said the firm’s current valuation “more than discounts the risk of further slowdown in contract awards”, and reiterated his “buy” recommendation on the shares.