Wood (LON:WG) chief executive Ken Gilmartin has made a “difficult announcement” to shareholders as the firm published its latest trading update.
“While we have made progress, I am disappointed in our financial performance,” Gilmartin said.
“Consequently, we are taking decisive actions to ensure we can meet the opportunities we have in growing markets, principally energy.”
While earnings before interest, taxes, depreciation and amortisation (EBITDA) figures for 2024 are set to be higher than the previous year’s, the firm has more to do to get back on track.
The Aberdeen-based engineering firm reported an EBITDA of $423 million in 2023 and expects to report around $450 million to $460 million in its full-year results for 2024.
Wood reported a £754 million loss in the first half of the year, however, its CEO remained unphased at the time as he said: “We are growing profitably, and the story for Wood has been a story of transformation.”
© Image: Kenny Elrick/DC ThomsonIn its half-year results, the firm reported an EBITDA of $210m (£163.6m), Which represented a 4% uptick.
This came soon after a failed takeover attempt by Middle Eastern firm Sidara. The firm, also known as Dar Al-Handasah Consultants Shair and Partners, ultimately decided to step away after looking over Wood’s books.
At the time, Sidara said it made the decision “in light of rising geopolitical risks and financial market uncertainty”.
Wood waits on results of independent review
Wood’s forecast EBITDA for 2024, is subject to an independent review which it announced in November.
The firm made the announcement following write-offs of large-scale contracts which prompted a share price collapse.
Actions were taken to write off contracts that the firm acquired in its £2.2 billion takeover of Amec Foster Wheeler in 2017 after the firm revealed that they were still impacting the firm’s bottom line.
The review will focus on “reported positions on contracts in projects, accounting, governance and controls” related to a series of “exceptional contract write-offs” the firm announced last year.
Gilmartin continued: “While the likely findings from the independent review are expected to have no material impact on the Group’s cash position and future cash generation, it clearly gives us areas to focus on and we are initiating steps now to further improve our financial culture, governance and controls.”
© Supplied by EthosEnergyCurrently, Wood is looking to sell off parts of its business and write down contracts to drive profitability.
Most recently it sold its stake in Aberdeen-based gas turbine firm EthosEnergy for a final net cash consideration of $138 million, with $42 million of prior planned loan notes replaced by an additional cash consideration at completion.
The Wood CEO added: “We have announced further actions to address the cost base of the business to right size Wood for the future, and have laid out a very clear route to positive free cash flow in 2026.”
To turn things around the company is targeting financial growth this year.
It wrote in a shareholder update: ” We expect double-digit adjusted EBITDA and adjusted EBIT growth (excluding the impact of disposals) in 2025.”
The firm said that it will be implementing “incremental cost reduction actions to underpin growth” as it performs a “one-off working capital unwind “after actively managing working capital at the end of last year, which stood at around $70 million.
“As we look ahead, notwithstanding the challenges today, I am confident the fundamentals of this company remain strong – we are in growing markets, with considerable in-demand engineering skills, trusted client relationships, and we’re well positioned to grow the business,” Gilmartin said.
Despite confidence from the Wood boss, Panmure Liberum director and oil and gas research analyst Ashley Kelty argues that investors will be waiting some time before seeing recovery.
He wrote: “Investors will be hoping that the review is completed soon so that the pain can be recognised and company can move forward.
“While the order book remains healthy, the recovery plan is taking longer than previously expected, and investors will have to wait until 2026 for the shoots of recovery to appear.”
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