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Amec merger on target

Wood Group profits fall 23% on oil slump

Robin WatsonOil services company Wood Group has reported a 23% fall in underlying profits as a result of the downturn in the sector.

Chief executive Robin Watson (pictured) said performance reflected its forecasts at the end of last year when it highlighted challenges in  core oil & gas market.

“We expected to see indications of recovery in certain markets – US onshore including shale, offshore upstream engineering and automation. We also noted the commercial close out of a number of projects in 2016,” he said.

“Overall, these themes have played out largely as expected in the first half although the macro environment has been more volatile. As a result we have seen an increasing focus on efficiency by operators and some evidence of further deferrals in customer spending, which has decreased for a third successive year.”

In the first half total revenue fell by 11% and total EBITA was down 23% from $166m to $127m. Robust performance in the West including, improved activity in offshore greenfield project engineering and commissioning and modest improvement in US onshore activity, was more than offset by weaker activity in the East, where there has been a significant reduction in projects & modifications work, particularly in the North Sea.

Profit for the period was impacted by exceptional costs of $47.6m. This included $25.2m in respect of costs relating to the acquisition of Amec Foster Wheeler, comprising advisory fees of $19.7m and underwriting fees in respect of new debt facilities of $5.5m.

The company also made a provision for $15.9m in relation to an ongoing subcontractor dispute on the Dorad contract which was substantially completed prior to the formation of EthosEnergy.

An internal investigation into Wood Group’s historical engagement of Unaoil is “substantially progressed” and the company will be reporting its findings to the Crown Office on a voluntary basis.

As previously disclosed, this investigation has confirmed that a Wood Group joint venture made payments to Unaoil.  The investigation has not confirmed that the payments made were used by Unaoil in ways that would amount to bribery, corruption or money laundering offences or that there was any involvement in or knowledge of bribery, corruption or money laundering offences on the part of Wood Group companies, the joint venture or their personnel.

The Group said it is in a strong financial position. Net debt was $490m and it expects further improvement to lead to a better working capital position in the second half.

Wood has declared a 3% rise in the interim dividend to 11.1 cents per share which will be paid on 28 September to shareholders on the register on 1 September.

Outlook

The company’s view on the full year has not changed from the half year trading update.

Mr Watson said: “The themes identified in December 2016 have played out largely as expected in the first half and although the market continues to present challenges, we do anticipate a stronger second half performance in 2017.”

Update on Amec Foster Wheeler Acquisition

The proposed acquisition of Amec Foster Wheeler was overwhelmingly approved by both sets of shareholders on 15 June.

The transaction is expected to deliver cost synergies of at least $170m per annum by the end of the third year following completion and give rise to incremental revenue synergies.

Recently the CMA approved in principle, the proposed remedy in the UK.

Mr Watson said: “We look forward to completion of the Amec Foster Wheeler transaction in the fourth quarter of 2017 and believe the combined group will be well positioned for growth and to benefit from longer term trends in the global energy and industrial sectors, with less exposure to earnings volatility through oil and gas cycles.

He added: “First half performance was down on 2016 reflecting the different market conditions across our business. Robust performance in ALCS West and growth in STS was offset by a weaker performance in ALCS East where the North Sea market is particularly challenging.

“Our full year outlook is unchanged and we anticipate a stronger second half performance. In June shareholders overwhelmingly approved our offer for Amec Foster Wheeler which will accelerate our strategy to create a global leader in project, engineering and technical services across a broad range of industrial sectors, the largest of which will be oil and gas.  We remain on track to complete the transaction in the fourth quarter.’

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