Wood Group returns to profit as oil giants hand contracts to engineer

John Wood Group has swung back to profit and reiterated its annual forecast on the back of major contract wins from petroleum and chemicals producers.

The engineering business reported a profit of $89million in the first half of 2022, against an $11million loss in the equivalent period last year, even though revenues dipped slightly due to a fall in large-scale fixed price work.

However, the Aberdeen-based company does expect annual revenues to grow to between $5.2billion and $5.5billion this year, driven by improvements in its Turbines joint ventures and a strong order book.

Recovery: Engineering business John Wood Group reported a profit of $89million in the first half of 2022, against an $11m loss in the equivalent period last year

Among the contracts recently won by the firm include one with INEOS for work on an ethane cracker, a decade-long partnership with oil supermajor Chevron, and an extended deal with Equinor.

Just last week it won two deals worth over $200million from Enter Engineering to support the design and construction of what is set to become the world’s largest copper concentrator in Uzbekistan.

Ken Gilmartin, who became chief executive in July, said he had ‘been really encouraged to see the improving operational momentum across our business, including some great client wins’.

He added: ‘The strong order book gives me confidence for the future, but there is a lot more to do on cash generation, and this is our top priority.’

Despite an optimistic outlook, John Wood Group shares were one of the top fallers on the FTSE 350 Index this morning, dropping by 3.5 per cent to 144.75p, meaning their value has declined by around a third in the past 12 months.

Net debts at the company climbed to more than $2.1billion due to a large free cash outflow resulting from a decline in procurement activity and a scheduled settlement with the Serious Fraud Office.

The SFO payment principally concerns a lossmaking contract to construct buildings for an American anti-missile defence facility in Poland, a project the firm inherited after buying Amec Foster Wheeler in 2017.

Wood Group anticipates a much healthier balance sheet later in the year when it completes the $1.8billion sale of its Built Environment Consulting arm, which is expected sometime at the end of the third quarter. 

The group’s business model has traditionally relied on high oil prices as demand for its services tends to expand when the oil and gas industry has significant cash to spend on projects.

In recent years, it has diversified its exposure away from the petroleum sector to a greater focus on renewable energy, with wind and solar power playing an increasingly prominent role.

But because of high debts, it has chosen not to resume dividend payments just yet, which have been suspended since the start of the Covid-19 pandemic when oil prices slumped. 

Adam Vettese, an analyst at investment platform eToro, said: ‘Given the company’s disappointing cash flow position and elevated debt levels, we think it is unlikely to resume its dividend until at least next year – and possibly longer.

‘It might surprise shareholders that Wood has not been able to capitalise on the rocketing price of oil and gas over the past year.

‘However, reading new CEO Ken Gilmartin’s words in this latest update, it feels like this is a firm that is very much in transition and one that is developing a plan to reinvigorate its performance.’

This post first appeared on Dailymail.co.uk