Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- John Wood Group Plc (WDGJF, Financial) reported an 8.5% increase in adjusted EBITDA and expanded EBITDA margins to 7.7%.
- The company has a higher order book, up 4%, and is winning work at consistently higher gross margins.
- The simplification program is on track to deliver $60 million in savings by 2025.
- Employee engagement has significantly improved, with the company now in the top quartile for employee commitment.
- The company has made strategic decisions to simplify and align its portfolio, including the disposal of non-core businesses like CEC Controls.
Negative Points
- The company has downgraded its cash guidance four times since November last year.
- There are still significant challenges in improving working capital management.
- The company has taken a $140 million EPC write-off and an $815 million goodwill impairment.
- Revenue in the projects segment was down 13%, reflecting a shift away from lump-sum turnkey and lower pass-through activity.
- The consulting order book was down 8%, reflecting delayed client decisions on larger programs.
Q & A Highlights
Q: The first question I have is on the Sidara discussion earlier this year. Is there anything you can say on these structures versus the one we had with Apollo last year? Any lessons learned during these processes?
A: As it pertains to both Sidara and Apollo, both were unsolicited approaches. Sidara publicly stated geopolitical risk and financial uncertainty as reasons for walking away. The lesson for us is to continue executing our strategy, focusing on growth and cash flow as guided.
Q: You showed us your 8-point plan to increase focus on working capital. Is there one point specifically that you would highlight as being more important than others? How do you think these changes are being taken by your team?
A: In the short run, DSOs are most important. We have revamped cash meetings with the leadership team weekly. In the long run, it's about changing the culture to think about cash generation at the bottom line. The cultural change is crucial for delivering on our investment case.
Q: After your four months, would you say that the task at hand is more complex than you thought it would be? Are there specific geographic or project-related areas where DSOs are more problematic?
A: The task is different and more complex due to legacy issues and cultural aspects. Geographically, the Middle East has more working capital needs. Projects business needs more work on working capital compared to other areas. We are focusing on problem areas to yield the biggest improvements.
Q: Can Wood grow from where you stand today without being a company that acquires bolt-on acquisitions?
A: Yes, we have shown successive quarters of EBITDA growth by focusing on high-quality work and high-grading our portfolio. We see further opportunities for organic growth through continued execution of our strategy.
Q: Could you explain why the goodwill write-down is the right number now and how that wouldn't lead to further write-downs in the future?
A: The goodwill number was adjusted to reflect more realistic assumptions, including discount rates and geopolitical risks. This adjustment aligns the financials with the operational reality of the company. We believe this is the right level, and it should not lead to further significant write-downs.
Q: Am I right in reading the statement from Sidara that they had completed their due diligence, but geopolitical factors and financial uncertainty affected their ability to proceed?
A: Yes, Sidara completed their due diligence and cited geopolitical risk and financial uncertainty as reasons for not proceeding.
Q: You've taken $140 million of exceptional charges. Could you explain how much of that is cash and why that isn't impacting your cash guidance and net debt guidance?
A: The $140 million of exceptional charges are built into our cash flow guidance. There is no additional cash impact from these charges over the next few years.
Q: How long do you think before you stop needing to take write-downs, exceptionals, and provisions?
A: The biggest source of exceptionals has been the legacy EPC business. With no more risky EPC work in our portfolio, we don't expect significant future write-downs. Small exceptionals may occur, but they will be part of normal business operations.
Q: Is it really that you had already got estimates of the cash impact of these exceptionals, but you've now decided to take a P&L charge to reflect the actual situation?
A: Yes, the P&L charge aligns the financials with the actual situation, and our cash guidance already accounts for these impacts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
