John Wood : Read the transcript

Full Year Results 2021

Wednesday, 20th April 2022

Full Year Results

Robin Watson

Chief Executive, Wood plc

Introduction

I think we're just about there. Well, good morning, everyone. Welcome to our 2021 results presentation, and obviously these results are a little later than expected, so thanks to everyone for your patience.

So, firstly, let me begin with some introductions of the Wood team. Simon McGough, our new president for investor relations, is with us today, as is Paula Murphy, our chief communications and marketing officer. Ken Gilmartin - do you want to put your hand up, Paula? Ken, Simon, and Roy - Ken's our chief operating officer, and Roy Franklin, our chair, is also here today.

What we will cover

So, giving it a bit of an overview of what David and I have covered this morning, performance in 2021 - we'll take over the headlines from me, then a detailed financial walkthrough from David. We'll get into, in some depth, de-risking our Projects business. That'll be a deep dive into how we've reduced our exposure to lumpsum turnkey contracts and, therefore, reduced the risk in this part of the business.

We'll talk about our improving business momentum. Our order book at year end was up 19%, and we've got a return to organic growth in both our Consulting and Operations businesses in the second half of 2021, which we're pleased about. And we'll give you an update on the sale of our Built Environment business, which is progressing very well and we're on course to announce a sale in the second quarter of this year. There is also significant opportunities ahead, so we'll highlight how well placed Wood is for helping our clients solve challenges across energy transition and industrial decarbonisation while maintaining energy security, which is something that's more important than ever in today's changing world.

On that very note, we announced a few weeks ago that we decided, like many others, to exit our Operations in Russia. We're actively engaged in efforts to do so while safeguarding the safety and welfare of any colleagues affected. Of course, we continue to keep the people of Ukraine at the forefront of our thoughts.

Wood today: operate across the asset life cycle

You'll have seen this slide before. Our capabilities span the entire asset life cycle, from conceptual engineering, planning, through design, build and operate, all the way to what we call asset repurposing. Post-sale of our Built Environment business, we will continue to operate right across this life cycle, with enduring services across Consulting, Projects, and Operations, more of which we'll cover later in the presentation.

Wood today: our markets

Here's a nice summary slide showing us how we service different end markets across our business units. Our work in conventional energy is mostly upstream and midstream oil andgas work, increasing elements of decarbonisation and carbon intensity reduction for our customers.

Our solutions across process and chemicals touch many markets, from refining and petrochemicals through biorefining synthetic aviation fuels to speciality chemicals and polymers, and we're got a range of solutions across hydrogen, from grey to blue to green, and in carbon capture. We show these in process and chemicals here, but in reality, they actually touch every part of our business, from helping to develop green hydrogen as a clean fuel source through to capturing carbon for conventional energy Operations.

Our work in renewables and other sectors includes activities across solar and wind as well as our work in minerals processing, various industrial processes, and power.

And finally, you can see the Built Environment. As a sector, this is around 27% of the group. The business is primarily in our Consulting business unit, and this subset of our Consulting business is the portion of the portfolio which we are selling, and I'll come back to in more detail a bit later. I would also note here that the Consulting business post sale remains a very material part of the group, offering crucial solutions across all our other markets and enduring significant synergy opportunities.

Overview of 2021 performance

So now a brief overview of our 2021 performance. It was quite a challenging year operationally. The pressures of COVID-19 continue to impact our business, and challenges in our project business impacted revenue and cash performance, which David will go into in some more detail. We did however make good progress in our efforts to de-risk our Projects business through reducing our exposure to lump sum turnkey contracts, and I'll come back to this later in the morning's presentation. And we've ended the year with improving momentum, with a growing order book and good win rates. I'll now hand over to David to take you through our financial review.

Financial Review

David Kemp

Chief Financial Officer, Wood plc

Underlying financial results overview

Thank you, Robin. So, good morning, everyone. 2021 was a challenging year, with the ongoing pressures of the pandemic, mixed market conditions and challenges in our Projects business. Despite this, we saw margins improve, trading momentum increased in H2 and significant growth in our order book. Revenue of 6.4 billion was down 14% on a like-for-like basis. We saw growth in Consulting and Operations, but also a significant decline in our Projects business. Revenue performance improved during the second half, up around 4% overall on the first half, with Projects stabilising and continued growth in Consulting and Operations. We delivered EBITDA of 554 million and a margin improvement, with EBITDA margin up 0.4% on a like-for-like basis to 8.6%, and that was a result of cost efficiencies, revenue mix and improved overall execution. There was a free cash outflow of 398 million, due to a significant working capital outflow in our Projects business and continued high exceptional cash costs, primarily a result of investigation payments and restructuring costs.

We've seen strong order book growth throughout the year, up 19% to 7.7 billion, led by growth in Consulting and Operations and a stabilising of order book in Projects. Within our order book, the revenue to be delivered this year is up 6% on last year.

Revenue reflects decline in Projects business

Revenue has reduced 14% like-for-like compared to the prior period, and that reflects post-COVID recovery, more than offset by reduced Projects activity. After accounting for the 63 million revenue impact of the nuclear disposal during 2020, Consulting grew by 2% with a strong second half of trading led by higher activity across the Built Environment market. The main driver of lower volumes was in our Projects business, which is down 34% year-on-year, as larger EPC contracts such as YCI came to an end, and these have been replaced by smaller, often earlier-stage scopes. Activity was also impacted by some of our customers postponing or delaying investment decisions. As Robin will cover in more detail, we have made purposeful changes in the year to reduce the level of contract risk in Projects.

Revenue grew by 4% in Operations, again reflecting a stronger second half as market conditions in conventional energy continued to improve.

Improving market conditions drove a stronger H2

We have seen improving momentum in our business as markets recover, with H2 revenue up 4% on H1 2021. Revenue performance in Consulting and Operations has continued to improve since H2 2020, reinforcing our expectations of higher activity levels in 2022. Consulting was up 4%, comparing H1 '21 to H2 2020, and then up a further 4% in H2 '21 over H1 '21. Operations was up 6%, comparing H1 21 to H2 2020, and then up a further 10% in H2 '21 over H1 '21. In Projects, H1 '21 revenue was down significantly on H2 2020, and then we saw a stabilisation in the second half of the year, with H2 revenue broadly flat with H1 '21.

Revenue phasing has moved back towards our usual profile, where activity is slightly weighted towards the second half. In 2021, revenue phasing was 49%:51%.

Adjusted EBITDA bridge

Adjusted EBITDA was down 10% on a like-for-like basis, and this has mostly been driven by reduced activity in Projects. And that was partly offset by improved margins. In Operations, we had a lower EBITDA despite higher activity, due to favourable contract close-outs in 2020 which were not repeated to the same extent in 2021.

Group margin improvement of 0.4ppts

Against the backdrop of challenging market conditions, we've continued to make progress in improving our margin. Group margins increased by 0.4%, with improved margins in Consulting - 0.3% - and Projects - 1.5% - offset by lower margins in Operations, which were down 1.4%. Margin improvement has been helped by cost efficiencies across the business, including 40 million of benefit from our Future Fit initiative. Consulting margin has been supported by cost efficiencies and increased utilisation in the second half. Projects margin improvement is a result of improved overall project execution, a lower level of losses on underperforming contracts, a shift in mix towards higher-margin contracts and profit upsides from contract close-outs. The Operations margin reflects a lower level of profit upside fromclosing out contract obligations in the year, and that's compared to a high level in 2020 across multiple contracts.

Exceptional items

During 2021, the total Aegis contract loss increased by 99 million. The majority of this loss relate to the reduction of expected recoveries from the client, together with higher anticipated costs to complete. For some context, the Aegis, contract is a legacy AFW contract awarded in 2016 for the construction of an anti-missile defence facility in Poland. Our latest total project loss estimate is 220 - 222 million, of which 99 million was charged to the P&L during 2022. We are confident the project will complete in the second half of 2022 and expect cash outflows of around 45 million during the year.

In addition, we incurred 78 million of restructuring costs, which broadly fit into two categories. We have spent around 30 million on various initiatives which support the improved efficiency and enhancement of group profitability in the medium to long term, and these include the conclusion of our Future Fit programme. Complementary to this, the group has sharpened its focus on markets where we know we can make an impact and deliver higher margins. This has resulted in the strategic decisions to exit certain locations and end markets that do not fit this profile, the most material of which were our Paris office, the power and industrial large EPC sector and our ATG automation business.

Significant order book growth, up 19%

Our order book is up 19% year-on-year, with strong growth in Consulting and Operations, which were up 24% and 27% respectively. We ended the year with strong book-to-bill ratios in both Consulting and Operations, with Operations showing particularly strong performance; and this was due to a number of multiyear renewals which were mainly in conventional energy and include over 500 million of contracts for oil and gas Operations in the North Sea, asset optimisation in the Norwegian North Sea and in engineering and project management in the Middle East.

The work we are performing across conventional energy increasingly has elements of helping our customers decarbonise, optimise Operations, and increase production efficiency, as well as supplying renewable energy to Operations. Order book in Projects was up 2% year-on-year, having improved from Q1 throughout the year, highlighting that our project business has continued to stabilise after the roll-off of some significant contracts.

It's worth mentioning that the growth in our Projects order book is partly constrained by the continued work we are doing de-risking our contract portfolio, and Robin will cover that in more detail shortly.

Order book: increasing visibility and de-risking

In addition to the year-on-year growth we've seen - we've seen in total order book, we've also seen an increase in visibility of our order book beyond the next 12 months, with the proportion of our revenue due for delivery beyond 12 months, up by around 45%, and that's almost 1 billion on the prior year. Revenue of 4.7 billion for delivery in 2022 supports our expectations for increased activity, and that represents a growth of 6% compared to last year.