Wood. reports 2018 pre-close trading update

ABERDEEN -- Our positive trading momentum has continued and our full year results will demonstrate good organic revenue growth. We have delivered a stronger second half, due to our typical second half bias and the phasing of cost synergies, projects and the wider market recovery.

We expect full year revenue to be up over 10% on proforma 2017, in the region of c$10.9 billion - c$11.1 billion. Full year EBITA is expected to be in the range of c$620 million to c$630 million, in line with guidance in August and market expectations1.

We are making progress against our deleveraging plan. Operational cash conversion after exceptional items is expected to be around 100% and will contribute to a reduction in net debt to around $1.5 billion at Dec. 31, 2018 (June 30, 2018 $1.6 billion). Net debt to EBITDA is anticipated to reduce to around 2.2x at Dec. 31, 2018 (2.4x at June 30, 2018) against the backdrop of good growth in the business.

Looking to 2019, the outlook remains generally favorable across our industrial end markets. Although our medium term outlook remains positive, in oil & gas recent volatility in commodity prices may impact confidence and the pace of contract awards. Overall, our broad end market exposure and flexible model position us well. We currently anticipate further earnings growth in 2019 underpinned by additional cost synergy delivery with an impact of around $60 million in FY 2019.

Asset Solutions Americas (“ASA’)

ASA has seen strong revenue and earnings growth resulting from increased activity and cost synergy delivery. In capital projects, increased activity in power and in downstream & chemicals has been the largest contributor to ASA capital projects revenue. U.S. shale improved, with significant growth in the Permian on infrastructure and pipeline work. In offshore upstream we remained active on a number of greenfield projects. In operations solutions, challenging conditions in the Gulf of Mexico and the completion of commissioning work in 2017 resulted in a weaker performance although this was more than offset by improved maintenance activity in US shale.

Asset Solutions Europe, Africa, Asia and Australia (“ASEAAA”)

ASEAAA saw good revenue growth led by operations solutions work in Asia Pacific and the Middle East. Earnings benefitted from project phasing in the second half and costs synergy delivery. Capital projects saw increased activity including ongoing work on the Antwerp oil refinery, PMC work in Kuwait, engineering and project management on the Marjan field for Saudi Aramco and our rejuvenation project for Brunei Shell Petroleum. Operations solutions delivered growth in the Middle East due to increased activity in Iraq with Exxon and Basra Gas Co. and in Asia Pacific with Exxon. Turbine joint ventures performance is broadly in line with prior year with improved trading in EthosEnergy in the second half.

Specialist Technical Solutions (“STS”)

STS has delivered strong revenue and earnings growth in 2018 led by increased activity in minerals processing, nuclear and recent technology & consulting contract awards. In automation, activity on the TCO project made a significant contribution and we saw a full year impact from the acquired CEC business. Subsea activity on early stage and tie back work remains steady.

Environment and Infrastructure Solutions (“E&IS”)

E&IS has delivered strong growth in revenue and earnings in 2018. Performance benefited from government and industrial spending increases in the U.S. and Canada leading to increased remediation consultancy work with longstanding customers. This more than offset the reduction in capital projects resulting from our decision not to undertake certain fixed price work.

Synergies

We delivered increased cost synergies with an in year benefit of c$55 million in FY 2018 equating to an exit run rate of c$85 million. Costs to deliver were c$65 million. We expect to deliver synergies in FY 2019 with an in year benefit of around $60 million and remain confident of delivering against our upgraded annualised run rate cost synergy target of >$210 million by the end of the third year following completion of the Amec Foster Wheeler (“AFW’) acquisition in October 2017. We continue to make good progress on revenue synergies and have now secured work on multi-year contracts worth >$500m (August 2018: >$400m).

Deleveraging and cash flow

Strong operational cash generation is expected to contribute to a reduction in net debt to around $1.5 billion at Dec. 31, 2018 (June 30, 2018 $1.6 billion) against the backdrop of good growth in the business. Net debt to EBITDA is anticipated to reduce to around 2.2x at Dec. 31, 2018 (2.4x at June 30, 2018). Deleveraging to within our stated range of 0.5x to 1.5x Net debt to EBITDA within approximately 18 months post completion of the AFW acquisition remains a key priority.

Strong working capital management is expected to result in operational cash conversion after exceptional items of around 100%. Cash exceptional items of c$140 million offset the strong cash generation from operations. The expected exceptional costs include c$40 million of costs to deliver synergies, c$40 million in respect of onerous leases, c$15 million in respect of transaction related costs, investigation support costs of c$20 million and restructuring & other charges of $25 million. Other significant offsetting items include interest costs of around $90 million and dividends of $226 million.

Capital discipline reduced capex and intangible spend to c$85 million for the full year which includes c$25 million related to cost synergies delivery.

Our asset disposal program is progressing and remains on track to generate >$200 million of proceeds. For 2018, net debt will benefit from cash proceeds of $25 million in the fourth quarter in respect of the disposal of our interest in the Voreas S.r.l wind farm joint venture announced in August.

In December we took the opportunity to secure a $140 million part-refinancing of our term loan due to mature in 2020 from an existing U.S. private placement debt provider which further diversifies our financing structure. This comprises a mix of eight and ten year redemption dates at a fixed rate of around 5% and will be drawn in first-quarter 2019.