Wood Group announces cost cutting drive as it continues growth strategy

Aberdeen-headquartered engineering firm Wood Group (LON:WG) has announced a cost cutting drive as the company seeks to deliver annual savings of $60 million from 2025.

Wood’s net debt increased by 49% in 2023, reaching just under $1.1bn, with the company outlining a “simplification programme” focused on driving higher margins and efficiency.

Wood expects to save around $10 million this year from the programme, which includes efforts to reduce property costs and deliver IT savings alongside “right-sizing” its central functions.

The company said it will achieve this by “putting greater ownership and accountability for functional activities into the business units, and reducing the number of central function roles”.

Last month, the company confirmed it would cut 22 jobs in Aberdeen among 34 in total across the UK, and there were reports earlier this week that a further 200 jobs would go.

Wood said the cost cutting programme will incur cash costs of around $70m over the next 12 months and “create a leaner and more efficient Wood”.

Total headcount reduced across the company by 0.1% in 2023, falling from 35,573 staff to 35,335.

Headcount in the company’s projects business fell by 2.7% from 13,918 to 13,549, while staff numbers in the company’s operations business dropped by 226 (1.4%).

Elsewhere, Wood increased its headcount in its consulting arm from 3,941 to 4,055, while its investment services business expanded by 21.6% from 426 to 518.

Elsewhere, Wood said the sales process for its joint venture EthosEnergy is “progressing well”, with other “smaller disposals expected to follow”.

Wood said it continues to evaluate its portfolio and had “identified certain businesses deemed non-core to our strategic growth and priorities” and is actively exploring options for their sale.

Wood financial results

In its full year financial results for 2023, Wood said it increased its order book to approximately $6.3 billion, up 7% on a “like-for-like” basis.

Revenue reached $5.9bn in 2023, an increase of 8.8%, with the company posting an adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) figure of $423m.

Within the company’s sustainable solutions business, revenue grew by 15% to reach $1.3bn, representing 22% of Wood’s total group revenue. Wood said 43% of its factored sales pipeline is now within its sustainable solutions business.

Meanwhile, the company posted an operating profit of $38m in 2023, compared to an operating loss of $565m last year.

Wood’s overall loss for the 2023 financial period was $105m, compared to a $352m loss in 2022.

Wood chief executive officer Ken Gilmartin said the company made “significant progress” in the first year of its three-year growth strategy.

“We delivered strong revenue and adjusted EBITDA growth, and we significantly improved operating cash flow,” Mr Gilmartin said.

© Supplied by Wood

“We continue to see clear business momentum, with a higher order book, double-digit growth in our pipeline and positive pricing trends in both pipeline and order book.

“It is encouraging that the fastest growing parts of Wood are the higher-margin Consulting business, and our sustainable solutions across all areas.”

Mr Gilmartin said the simplification programme will “build on this early success” and further enhance the company’s strategic delivery.

“We are therefore upgrading our outlook, with 2024 guidance now towards the top end of our medium-term targets and 2025 expected to exceed those targets.

“Ultimately, our priority remains sustainable cash generation and we expect to deliver significant free cash flow from 2025.”

Wood results a ‘mixed picture’

Investment analysts said Wood’s financial results reflected a “mixed picture”.

RBC Brewin Dolphin investment manager Stuart Lamont said there is a “degree of pressure on Wood to deliver” after the company knocked back a bid to take it private last year.

“Although today’s results paint a mixed picture, Wood has come out fighting and there are some tentative reasons for optimism,” Mr Lamont said.

“Losses have narrowed and there is some good momentum behind earnings, with the company’s guidance upped for the year ahead.

“Wood’s end markets are also generally in better shape, while divestments will help to simplify the business and free up capital to be allocated to more profitable divisions.

“Wood has been a company in transition for some time now – there is some good news today, but it will likely take much more of a catalyst to get the share price heading in a more positive direction.”