Wood to sell nuclear business for $300 million as it cuts debt

By Kelly Gilblom on 8/20/2019

LONDON (Bloomberg) - Wood Plc has agreed to sell its nuclear business for 250 million pounds ($302 million), as it cuts debt associated with the 2017 acquisition of Amec Foster Wheeler and a prolonged oil-price slump.

The Scottish engineering and services business will sell the unit to a subsidiary of Jacobs Engineering Group, and expects the deal to close in the first three months of 2020. That would bring Wood close to its leverage target, and allow it to focus on other growing parts of the business including petrochemical plants, low-carbon energy and oil and gas exploration and production.

“It was a good business in itself, but it was actually quite stranded,” said Wood Chief Executive Officer Robin Watson, in a phone interview. “It’s the only part of the business we had in nuclear” so it was less strategically important, he said.

Watson instead sees new opportunities as Wood’s oil industry clients recover from a worst-in-a-generation slump in crude prices. The company reported a pick-up in activity in its upstream business, which helped it beat profit estimates in the first half.

Adjusted earnings per share for the first six months of 2019 were 18.2 cents, compared to an average analyst estimate of 18 cents. The company missed revenue expectations, but reiterated its guidance for the year. Wood expects to increase revenue by 5% compared to 2018, while achieving about $60 million in cost synergies related to the integration of consulting arm Amec Foster Wheeler.

The sale of Wood’s nuclear business will help it reach its leverage target. The company has said it wants net debt to be about 1.5 times earnings, compared to about 2.5 times earnings now.

Shares rose as much as 2.5% and were trading at 455.8 pence in London at 9:26 a.m. local time.

The company said major projects in chemicals and the “built environment” will also add to a rosier picture in 2019. Wood is currently working on petrochemical facilities for a joint venture between Exxon Mobil Corp. and Sabic Basic Industries Corp., Ineos Group Holdings Ltd., and a joint venture between the Oman Oil Company and Kuwait Petroleum International, among others.

Watson said the U.S.-China trade war has affected the sector for the past year, but it’s still attracting work as lots of projects get the go-ahead. “From a petchem perspective, as far as our order book, we are quite encouraged by some of the investment that’s gone in there,” he said.

Additionally, about 15% of Wood’s business is in the low-carbon energy sector, mostly concentrated on work in the U.S. and Canada. Watson expects that division to expand, and allow the company to continue as a service provider even as governments try to eliminate greenhouse gases from their energy systems.

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