Renewables orders give Wood hope after hit to profits
Scottish energy group Wood expects first-half core earnings to fall sharply on the back of plunging oil prices but said steps to cut costs and growth in markets such as renewables will deliver improved performance.
Although its order book at the end of May was down by about 11 per cent amid what it described as “unique and unparalleled challenges”, the Aberdeen-headquartered business said the breadth of its interests saw it secure more than £1 billion of new orders.
In a trading update, Wood said first-half adjusted earnings were likely to come in at around £240 million, down by 19 per cent, with like-for-like revenues down by 11 per cent. Steps to reduce costs including cuts to senior management pay and furloughing staff will deliver overhead cost savings of more than £160m for the full year.
Chief executive Robin Watson said: “These early and decisive actions have allowed us to mitigate the impact of reduced activity. The full benefit will be recognised in H2 leading to a stronger second-half margin performance.”
Watson also said the company’s move to diversify had helped protect it to some degree from the worst impacts of the oil price fall. Activity in the renewables sector was up by 4 per cent and there was “relatively robust” progress in industries such as chemicals.
“Despite the disruption, we are continuing to successfully win and execute work, supported by our strategy of broadening the business across the global energy market and the built environment,” said Watson.
“The relative strength we are seeing in chemicals and downstream, the built environment and renewables, where we will double our revenues in 2020, is helping to mitigate the impact of challenging conditions in upstream and midstream oil and gas.”
The group also said it had a strong balance sheet and liquidity with net debt expected to reduce following disposals made in the first quarter. Although around 80 per cent of Wood’s full-year revenues are either delivered or secured at this point in the year, it said given the current backdrop it is prepared for “a wider range of outcomes depending on activity across our broad end markets”.
David Barclay, at Brewin Dolphin in Aberdeen, said the update showed Wood had remained “relatively resilient against a very challenging backdrop”.He said: “The effects of Covid-19 on the oil and gas market has underlined the importance of the business’s decision to diversify its offering.
“Debt remains a key focus and it is reassuring to see Wood expects to reduce this by the year-end, helped by disposals and cost reductions. Nevertheless, Wood’s fortunes are still largely tied to the direction of the oil price, and there is likely to be more volatility ahead.”
Earlier this week Wood won two US solar contracts worth some £158m.
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