A few words on Wood after interims and the analysts meeting. As expected the overriding and undeniable fact is that market conditions are ‘very challenging’ and the company is expecting ‘ a sustained period of low oil prices’. So within this world the outcome today is creditable if not necessarily achievable if these conditions persist for the longer term.
Financially the first half showed a big fall in revenue of 19% but EBITA was only down 7% and adjusted EPS down 10%. Key features were an improved margin of 7.4% up by 100 bp’s and increased cash generation, up 65% to $225m. It was the cost savings wot did it, against a full year target of $30m the company achieved $40m in the first half, the new target for the year is now $80m+. All this meant that Wood were able to deliver on their dividend promise and up the interim by 10%.
Wood has responded to the challenging market by adapting to clients demands for long term lower costs and in effect taking the engineering out of the process, less bespoke and more uniformity you could say.
The uncertainty is clearly 2016 and at the moment the jury is still out, but it doesn’t look clear at the moment. For this year the company expects to hit the consensus EBITA of $465m with the second half delivering slightly more than the first. Longer term they can only address what they can control so cost reductions and more pain for contractors are to be expected. So far Wood has protected even raised margins by managing utilisation and increasing operating efficiency for customers, there is only so far this can go. In the sub sector Wood probably represent the safest pair of hands around, the next ten days are not going to be for the faint hearted……..