John Wood Group expects half-year profits to fall by nearly a fifth

Engineering firm John Wood Group says it forecasts like-for-like profits falling by 19 per cent in the first half of 2020 due to the coronavirus pandemic and the related collapse in oil prices.

It predicts that total profits will decline to between $295million and $305million for the six months to June 30 while revenues will drop to $4.1billion.

Chief executive Robin Watson says the results come against a backdrop of ‘unique and unparalleled challenges’ for the global engineering and consultancy industry which have arisen in recent months.

Company orders at the end of May have fallen about 11 per cent since December last year, and it has had to sell numerous assets, including their nuclear and industrial services businesses to keep their liquidity levels stable.

But despite the energy markets downturn, the Aberdeen-based firm said the ‘relatively robust activity’ in its other divisions, such as its downstream and built environment divisions, enabled them to soften the financial decline coming from other activities.

It won a contract worth more than $200million this week to build two solar power plants in the US state of Virginia which are expected to become operational in the next two years.

This follows on from the company gaining multiple wind power contracts across the USA, such as the AEP Renewables’ wind farm development in Kansas, for which John Wood Group is providing all engineering, procurement and construction services.

‘Despite the disruption, we are continuing to successfully win and execute work, supported by our strategy of broadening the business across the global energy market & the built environment,’ the CEO remarked.

‘The relative strength we are seeing in chemicals & downstream, the built environment and renewables, where we will double our revenues in 2020, is helping to mitigate the impact of challenging conditions in upstream and midstream oil & gas.’

Oil prices have undergone a massive decline in the last few months as the coronavirus slashed demand for transport. The cost of a barrel of West Texas Intermediate (WTI) oil even fell into negative territory in April.

Companies involved in the oil and gas market have resorted to massive cost-saving measures as a consequence. Jobs and dividend payments have been cut, and exploration projects have been scaled back.

John Wood Group relies on upstream and midstream oil & gas activity for about a third of its business, so it is vulnerable to dwindling energy prices.

The board of the Scottish firm has already cancelled its $160million dividend payout, reduced the salaries of senior officials, and stopped discretionary expenditure.

It says it has achieved its target of reducing overhead costs of $200million by also furloughing employee and lowering headcounts. Net debt at the end of the month is anticipated to be lower than the $1.42billion it was in December 2019.

‘Wood has remained relatively resilient against a very challenging backdrop – the effects of Covid-19 on the oil and gas market has underlined the importance of the business’s decision to diversify its offering,’ commented David Barclay, senior investment manager at Brewin Dolphin.

‘Debt remains a key focus and it is reassuring to see Wood expects to reduce this by the end of the year, helped by disposals and cost reductions.

‘Nevertheless,’ he warned, ‘Wood’s fortunes are still largely tied to the direction of the oil price, and there is likely to be more volatility ahead.’

Shares in John Wood Group was down one per cent by late morning to 224.6p.