The British energy services provider posted better than expected results for 2018 and a return to organic growth, benefiting from both the synergies from its 2017 merger with rival Amec Foster Wheeler (AFW) and favourable conditions across many of its core businesses - in spite of a slower recovery in oil & gas. Environment Analyst finds out more from the Environment & Infrastructure Solutions (E&IS) line's CEO Ann Massey.
Group revenue was up 12% on a pro forma basis to $11.0bn (£8.4bn) with operating profit up 68% to $357m (£274m). The adjusted EBITA margin came in at 5.7%, very similar to the pro forma position in 2017 (6.0%). Aberdeen-headquartered Wood says it has secured contracts worth over $600m (£452m) following the AFW deal, winning business as a combined group that neither company would have been able to do on a standalone basis. That was revised from the previously reported $500m.
There has also been a reduction in net debt of $450m (£345m) since completion of the AFW takeover (EA 10-Oct-17).
The result prompted chief executive Robin Watson to declare: "We have built a unique platform and are in the early stages of what we can achieve. Our performance in 2018 has strengthened our conviction in Wood’s potential and we are excited about our prospects. We are confident of achieving further growth in 2019."
The 60,000-strong Wood reported "higher activity levels" across all business units including in its $3.0bn Asset Solutions America (ASA) power, downstream & chemicals and US shale operations, as well as in the $1.4bn E&IS line - c95% of which is derived from industrial/government markets vs. c5% oil & gas. The bulk of E&IS originates from the legacy AFW’s environment & infrastructure operations and was seen as attractive by Wood - traditionally heavily reliant on oil & gas markets - as a means to help accelerate its diversification (EA 13-Mar-17).
E&IS revenues were up by 8.3% on a pro forma basis, whilst divisional staff numbers grow by 12.5% year-on-year to reach 7,500. According to the FTSE 250 firm, E&IS saw "good activity across environmental remediation consultancy and engineering & construction project management services predominantly in North America," benefiting from increased government, industrial and energy spending. The adjusted segmental EBITA margin was 6.6%, a one percentage point improvement on the previous year.
Wood said the E&IS business is seeing a wide mix of opportunities in compliance, permitting and remediation generated from the regulatory and sustainability agendas, while "substantial growth" on the infrastructure side is anticipated "once substantial funding systems are allocated" in the US in particular. However, the firm reiterated its intention not to pursue higher risk lump sum contracts.
Shape of E&IS
E&IS CEO Ann Massey elaborates further on the performance of the business line, stating: "The growth reflects a combination of legacy operations as well as the significant growth resulting from synergy wins as our customers recognize the value we bring across the life cycle of their assets...
"In E&IS we have realised value from synergies between legacy Wood and AFW operations to help us deliver a number of important projects; for example, through technological solutions to support our role on the London Heathrow [airport] expansion programme, and drawing on EPC experience to deliver our waste management infrastructure project in Guernsey in the UK."
Massey comes from the AFW side having held the role of president of Environment & Infrastructure, managing the then E&I America’s sector programme, including responsibility for the growth of E&I services across the Americas, Europe, Middle East and Asia Pacific - with a focus on building a strong customer-focused sector team globally. And she previously led both the engineering & consulting and construction businesses within Mactec, which became a part of Amec eight years ago (EA 18-May-11).
Having been through a number of large-scale M&A in a relatively short timescale, Massey is very pleased with the integration under Wood. "It has gone extremely well over the last 18 months and we’ve now created a platform that offers us an exceptional opportunity to secure sustainable growth over the coming years," she tells EA.
"Recruiting and retaining top talent in STEM gives us the competitive advantage we seek"
In addition to a continuation of the favourable conditions seen recently in North America, Massey points to opportunities to grow existing E&IS teams in the UK, Europe and Latin America and also to start to build capability in places like Australia and Saudi Arabia. "We also see good opportunities to grow our environmental liability and remediation capability. This will include capitalizing on the strength of our brand to build our sediments and PFAS (per- and polyfluoroalkyl substances) offer and to address large-scale remedial projects, including remedial construction, coal ash work, mine closure and radiological remediation."
Additionally there is "further growth potential in sectors such as life sciences, where we can link in with our capital projects team, the power sector and industrial sectors like oil & gas or mining, particularly around areas such as water and wastewater consulting," Massey adds.
"Looking more broadly, some of the primary focus areas will include growing our environmental liability management business, expanding our industrial water business and the range of work we do in the power sector, and really integrating our technology expertise to help create intelligent solutions that address a range of urban challenges such as transit capacity, city resiliency and livability."
The wider Wood group has recently highlighted its work and strong heritage in the Chinese market, where it is active in the refinery, petrochemicals, chemicals and power sectors in partnership with local players (EA 05-Feb-19). Although China is not a primary focus for E&IS according to Massey, the rate of urbanisation and need for new infrastructure and upgrades to existing assets, together with the legacy of environmental degradation from the last few decades of rapid development, does nevertheless "offer opportunities".
Along with majority of Wood’s major rivals, Massey highlights one of the biggest challenges going forward as "the ‘talent wars’ we’re seeing across sectors and geographies".
"Identifying, recruiting and retaining top talent in science, technology and engineering gives us the competitive advantage we seek and leads to the innovative solutions our customers demand," she says.
But added to the war on talent some of the most difficult challenges stem from more "unexpected events". For instance, "towards the end of last year, who would have anticipated the US government shutdown at the start of this year and the impact this would have on the pace of awards in early 2019?" she asks. "Fortunately, our diversity across geographies and sectors gives us an advantage when the unexpected happens."
Outlook ‘very positive’
In his summation statement for the financial results, Wood chair Ian Marchant stressed the "very positive medium-term outlook for our broader end markets," with the group confident of delivering longer term growth both organically and by a return to acquisition-led growth.
Separately the firm confirmed Marchant will resign as chairman in the next twelve months, with a search for his successor underway.
The group order book stands at $10.3bn, with approximately 60% of the group's revenue target for the current year secured.