Half year results - six months ended 30 June 2024

Delivering a higher quality business and reconfirming outlook

See notes on page 4. Full headline results are shown on pages 13, 14 and 20

Ken Gilmartin, CEO, said:

"These results demonstrate continued progress on our turnaround. Our strategy continues to deliver higher EBITDA and a larger order book, and we are improving the quality of our business with better pricing and higher margins. Our Simplification programme is progressing at pace, with nearly half of the annualised $60 million savings from next year already secured. I am also pleased that we have achieved all of this while recording our highest level of employee satisfaction ever, putting Wood in the top quartile of all our peers and demonstrating that our team is focused and energised on driving Wood to its full potential.

"We have finalised our views on our exit from lump sum turnkey and large-scale EPC work and have reflected this in our results today, though crucially this has not changed our cash guidance. We have also recognised a non-cash goodwill impairment in our Projects business, which relates to legacy acquisitions.

"Generating sustainable, strong free cash flow continues to be an important focus for the delivery of our turnaround. Our adjusted operating cash flow was up in the period, and we continue to anticipate reducing cash drags going forward. We welcomed Arvind Balan as our new CFO in April and he has brought a renewed cash focus across the business.

"As we look ahead, we remain confident that our strategy, actions we are taking and growth potential across our markets will deliver significant value for our shareholders. We are pleased to reconfirm our outlook today, both for 2024 and 2025, including generating significant free cash flow in 2025."

We are delivering a higher quality business

·      Our growth strategy is delivering

o  Adjusted EBITDA up 8.5% to $219 million

o  Order book up 3.6% to $6.2 billion

·      We are improving profitability

o  Adjusted EBITDA margin expanded to 7.7%

o  Continuation of improved pricing across our pipeline and order book

·      Our Simplification programme is moving at pace

o  Already secured $25 million of the targeted $60 million annualised savings from 2025 onwards, with the in-year benefit in 2024 confirmed to be around $10 million

·      Finalised our views on exit from LSTK and large-scale EPC

o  $140 million exceptional charge, consisting of $53 million write-off of receivable balances, $61 million of new provisions, and $26 million of final settlements (see pages 16-17)

o  Anticipated cash impacts spread over many years

o  No change to our cash guidance

·      We continue to win exciting and complex work

o  6-year contract with Shell for the world's largest floating offshore LNG facility in Australia

o  Completed FEED for the first phase of Aramco's carbon capture project in Saudi Arabia

·      Significant sustainable solutions business⁷

o  Sustainable solutions revenue of c.$600 million represents 21% of Group revenue

o  Around 40% of factored sales pipeline now in sustainable solutions

·      We continue to evolve our portfolio in line with our strategic priorities

o  CEC Controls sale agreed, net proceeds of c.$30 million expected in the second half

o  Disposal of Ethos Energy JV progressing well, expected to complete in the second half

We are focused on cash delivery

·      We have made significant progress on our turnaround to date

o  Delivered EBITDA growth above targets

o  Expanded our margins and will continue to do so

o  Now a higher quality business with no lump sum turnkey work remaining in our order book

·      The next stage of our turnaround is to deliver cash

o  Operating cash flow continues to improve

o  Working capital focus year-round, with a clear plan to make significant improvements

o  Cash drags will continue to reduce as outlined previously

·      We are nearing the inflection point in our cash journey in 2025

o  Underlying business is highly cash generative

o  Pathway to significant free cash flow from 2025 onwards

Reconfirmed 2024 outlook

·      High single digit growth in adjusted EBITDA, before the impact of disposals

·      Performance will be weighted to the second half, reflecting the typical seasonality of our business and the phasing of the in-year benefit of the Simplification programme

·      Operating cash flow to continue to improve, partly through improved cash management across our business, especially given the second half weighted revenue profile of the Group this year. Exceptional cash outflows will be around $125 million, of which c.$50 million relate to our Simplification programme to deliver around $60 million of savings from 2025, and now include c.$6 million of Sidara-related costs

·      Net debt at 31 December 2024 is expected to be at a similar level to 31 December 2023 after the proceeds from planned disposals, which are due to complete in the second half of this year

Reconfirmed 2025 outlook

·      Adjusted EBITDA growth in 2025 above our medium-term targets, with the c.$60 million of annualised Simplification benefits on top of the originally targeted mid to high single digit growth

·      We expect to generate significant free cash flow in 2025

HY24 financial highlights

·      Revenue of $2.8 billion was down 5% with growth in Operations offset by lower revenue in Projects given lower pass-through activity, our strategic shift away from EPC and weakness in our minerals business

·      Pass-through revenue in the period was $405 million compared to $506 million in HY23, with all the reduction in our Projects business. Excluding pass-through, Group revenue was down 2%

·      Adjusted EBITDA of $219 million was up 8.5% with margin expansion more than offsetting the revenue performance, reflecting our shift to a higher quality business

·      Adjusted EBITDA margin of 7.7% compared to 6.8% last year, helped by improved pricing and lower EPC and pass-through work in Projects

·      Adjusted EBIT up 14.2% to $102 million

·      Adjusted diluted EPS up 127.3% to 2.5c, reflects the EBIT growth and a lower tax charge

·      Free cash flow of $(168) million includes the typical seasonality of our working capital profile and the expected phasing of exceptional cash flows ($75 million in the first half)

·      As a result, net debt (excluding leases) was $876 million at 30 June 2024

HY24 statutory results

·      Operating loss of $899 million reflects the exceptional items in the period

·      Exceptional items of $966 million (pre-tax)

o  $815 million impairment of goodwill and intangibles (see page 17 for details)

o  $140 million losses related to our exit from LSTK and large-scale EPC work

o  $12 million of Simplification costs

o  $6 million of costs related to Sidara's takeover proposals in the period

·      Loss for the period of $983 million

·      Basic loss per share of 142.9c

·      Cash flow from operating activities of $31 million was significantly improved on last year

Presentation

A presentation with Ken Gilmartin (CEO), Arvind Balan (CFO) and Jennifer Richmond (CSO) will be webcast at 8:00am (UK time) today, followed by a Q&A session. The webcast is available at: https://edge.media-server.com/mmc/p/jjv68c9f.

The webcast and transcript will be available after the event at www.woodplc.com/investors.

NOTES

Adjustments between statutory and underlying information

The Group uses various alternative performance measures (APMs) to enable users to better understand the performance of the Group. The Directors believe the APMs provide a consistent measure of business performance year-to-year and they are used by management to measure operating performance and for forecasting and decision-making. The Group believes they are used by investors in analysing business performance. These APMs are not defined by IFRS and there is a level of judgement involved in identifying the adjustments required to calculate them. As the APMs used are not defined under IFRS, they may not be comparable to similar measures used by other companies. They are not a substitute for measures defined under IFRS.

Percentage growth rates are calculated on actuals and not the rounded figures shown throughout this statement. Growth rates shown at constant currency are calculated by comparing HY24 to HY23 restated at HY24 currency rates.

Note 1: Order book comprises work that is supported by a signed contract or written purchase order for work secured under a single contract award or frame agreements. Multi-year agreements are recognised according to anticipated activity supported by purchase orders, customer plans or management estimates. Where contracts have optional extension periods, only the confirmed term is included. Order book disclosure is aligned with the IFRS definition of revenue and does not include Wood's proportional share of JV order book. Order book is presented as an indicator of the visibility of future revenue.

Note 2: A reconciliation of adjusted EBITDA to operating profit is shown in note 2 to the financial statements.

Note 3: Adjusted EBIT shows the Group's adjusted EBITDA after depreciation and amortisation. This measure excludes amortisation of acquired intangibles and is therefore aligned with our measure of adjusted EPS. A reconciliation of adjusted EBIT to operating profit/loss is shown in the Financial Review on page 13.

Note 4: A reconciliation of adjusted diluted EPS to basic EPS is shown in note 6 of the financial statements.

Note 5: Adjusted operating cash flow refers to adjusted cash generated from operations, as shown on page 20 of the Financial Review. This is a metric used by management to monitor business performance throughout the year.

Note 6: Free cash flow, a key measure of shareholder value creation, is defined as all cash flows before M&A and dividends. It includes all mandatory payments the Group makes such as interest, tax, and exceptional items. It excludes the impacts of IFRS 16 (Leases) accounting and FX. A reconciliation of free cash flow to statutory cash flow statement is shown on pages 25-26.

Note 7: Sustainable solutions consist of activities related to: renewable energy, hydrogen, carbon capture & storage, electrification and electricity transmission & distribution, LNG, waste to energy, sustainable fuels & feedstocks and recycling, processing of energy transition minerals, life sciences, and decarbonisation in oil & gas, refining & chemicals, minerals processing and other industrial processes. In the case of mixed scopes that include a decarbonisation element, for our pipeline disclosure we include the proportion of the opportunity that is related to those decarbonisation elements. For our revenue disclosure, we only include revenue if directly within sustainable solutions, with mixed scopes only included if 75% or more of the scope relates to decarbonisation.

Note 8: Various businesses have been transferred between business units in the period:

(i)            Part of Life Sciences business was transferred from Consulting to Projects

(ii)           Power business in the UK was transferred from Projects to Investment Services

(iii)          Industrial Boilers business moved from Investment Services to Operations

(iv)          Downstream & Chemicals operations business moved from Operations to Investment Services

The results for our Business Units (as shown on pages 8 to 11 have been restated for these changes. There is no impact on the Group's total results. A summary of changes is shown on page 12.

CEO STATEMENT

We continue to make good progress on our strategy as we deliver a higher quality business. The first half of this year saw continued growth in adjusted EBITDA, with a significant expansion in our margin, and a higher order book. Our Simplification programme is moving at pace, on track to deliver c.$60 million of annualised savings from 2025. We also agreed the disposal of CEC Controls as part of the evolution of our portfolio in line with our strategic priorities, with the sale of our Ethos Energy JV progressing well.

Financial results

Revenue reflects the shift in our business

Group revenue of $2.8 billion was down 5% with good growth in Operations offset by lower revenue in Projects given lower pass-through activity, our strategic shift away from EPC work and weakness in our minerals business. Excluding pass-through revenue, Group revenue was down 2%.

Improved profitability

Our adjusted EBITDA of $219 million was up 9% on last year. This reflects a significant expansion in our adjusted EBITDA margin from 6.8% to 7.7%. This reflects both improved pricing and the change in revenue mix, with less pass-through activity and large-scale EPC work.

Our adjusted EBIT was up 14% to $102 million, reflecting the growth in EBITDA, while our adjusted diluted EPS increased by 127% to 2.5 cents.

Statutory results

We made an operating loss in the period of $899 million. This primarily reflects an impairment of goodwill of $815 million and $140 million of charges related to the exit of LSTK and large-scale EPC business.

The goodwill impairment relates to legacy acquisitions and reflects both higher discount rates, due in part to increased market volatility, and a more prudent view on growth assumptions, partly reflecting the geo-political environment in our markets.

We made the strategic decision to exit the lump sum turnkey and large-scale EPC work in 2022. The exit from this type of work has taken time, with multiple contracts being wound down. We have now finalised our view on the exit from such work, including a detailed review of contract positions, an assessment of the current material exposure and risks on remaining EPC contracts, and an assessment of the recoverability of outstanding receivable balances.

As a result of these updated views, we have recognised a $140 million exceptional charge, consisting of $53 million write-off of receivable balances, $61 million of new provisions, and $26 million related to final settlements. The anticipated cash impacts of these charges are spread over many years and are included in our unchanged cash guidance.

Cash performance in line with our expectations

We continue to see significant improvements in our adjusted operating cash flow, generating $51 million in the period despite the typical first half working capital outflow in our business. We expect our adjusted operating cash flow to be stronger in the second half.

Our free cash outflow of $168 million includes $75 million of exceptional cash costs. We expect exceptional cash costs for the full year to be around $125 million.

Sidara takeover proposals

During the period, Dar Al-Handasah Consultants Shair and Partners Holdings Ltd ("Sidara") made four unsolicited proposals to acquire Wood. On 5 August 2024, after an extended period of detailed engagement, Sidara announced that it did not intend to make an offer for Wood in light of rising geopolitical risks and financial market uncertainty.

We do not believe that those geopolitical risks pose a material risk to Wood, nor the long-term value of the Group.

We expect to incur around $11 million of costs related to these proposals, which will be partially reimbursed by Sidara under an agreement for external costs coverage. The amount of $5.5 million was recognised as an exceptional item in the period, with cash costs in the first half of $1 million. The net cash costs in the second half are expected to be around $5 million.

We are delivering a higher quality business

We set out our profitable growth strategy in November 2022 and we are delivering on each of the three pillars: inspired culture, performance excellence, and profitable growth. Highlights in the first half of the year include:

·      Delivering an inspired culture - a record high employee net promoter score of +34, an improvement of 19 points since the beginning of our strategic journey and moving Wood from the bottom quartile to the top quartile amongst our peers.

·      Delivering performance excellence - our order book continues to grow and crucially we continue to see a higher gross margin coming through the work we are winning.

·      Delivering profitable growth - expanding our adjusted EBITDA margin to 7.7% through improved pricing and business mix.

We continue to win exciting and complex work across our markets. Highlights in the first half included:

·      6-year contract with Shell for the world's largest floating offshore LNG facility in Australia

·      Contracts with TotalEnergies for flare gas recovery in the UK North Sea and Iraq

·      EPCm contract with Antofagasta for its Nueva Centinela copper project in Chile

We also completed the FEED for the first phase of Aramco's carbon capture project in Saudi Arabia, which is expected to be the world's largest carbon capture and sequestration hub upon completion.

A significant sustainable solutions business

Wood is an enabler of net zero, providing solutions across decarbonisation, energy transition and materials for a net zero world. We generated around $600 million of sustainable solutions revenue in the first half of this year, broadly the same as last year despite the move away from large-scale EPC work. Sustainable solutions now represent 21% of revenue and 39% of our factored sales pipeline.

Our Simplification programme is moving at pace

We set out a Simplification programme in March 2024 to help us deliver higher margins while remaining focused on business growth. This programme will simplify the way we work by reducing complexity in our functional structure, processes and procedures to ultimately create a more efficient and agile Wood. The programme will also reduce central function costs, deliver IT savings and reduce property costs.

In total, the programme is expected to generate annualised savings of around $60 million from 2025, with a benefit in FY24 of around $10 million. The cash costs to achieve this programme are expected to be around $70 million, with around $50 million in FY24 and around $20 million in FY25.

We are moving at pace in rolling out this programme, with the first phase of right-sizing central functions now complete. We have already secured $25 million annualised savings of the targeted $60 million annualised savings from 2025, and cash costs of $10 million were incurred in the first half of this year.

We continue to evolve our portfolio

In August 2024, we signed an agreement to sell CEC Controls for a cash consideration of $30 million. CEC Controls is an industrial and process control systems business within our Consulting business, and generated $66 million of revenue and $6 million of adjusted EBITDA in 2023.

The sale of our Ethos Energy joint venture is progressing well and is expected to complete in the second half.

We are focused on cash delivery

We have made great progress on our turnaround, with EBITDA growth ahead of our targets and significant improvements in the quality of our business. We are focused on cash delivery to secure the final stage of our turnaround, delivering significant free cash flow.

We continue to expect to grow operating cash. To accelerate this further, we have launched a cash plan to improve our working capital across the Group year-round. This plan includes measures such as enhancing our management information, increasing the frequency of reviews, improving receivables collection and reviewing changes to incentive mechanisms for our employees.

The continued progress in operating cash flow, combined with reducing capital expenditure and the reducing drag from exceptional cash outflows, is expected to lead to significant free cash flow generation from 2025 onwards.

Reconfirmed 2024 outlook

We expect high single digit growth in adjusted EBITDA, before the impact of disposals.

Performance will be weighted to the second half, reflecting the typical seasonality of our business and the phasing of the in-year benefit of the Simplification programme.

Operating cash flow will continue to improve, partly through improved cash management across our business, especially given the second half weighted revenue profile of the Group this year. Exceptional cash outflows will be in line with our previous guidance of around $125 million, of which c.$50 million relate to our Simplification programme to deliver around $60 million of savings from 2025, and now include c.$6 million of Sidara-related costs.

Net debt at 31 December 2024 is expected to be at a similar level to 31 December 2023 after the proceeds from planned disposals, which are due to complete in the second half of this year.

Reconfirmed 2025 outlook

Adjusted EBITDA growth in 2025 is expected to be above our medium-term targets, with the c.$60 million of annualised Simplification benefits on top of the originally targeted mid to high single digit growth.

We expect to generate significant free cash flow in 2025.

Refinancing the Group's debt facilities

The majority of the Group's debt facilities mature in October 2026. The Group recognises the increasing financing risks associated with the global macroeconomic and geo-political landscape and will be looking to start the refinancing of our debt facilities in the second half of 2024, working with the Group's relationship banks and the public and private debt markets.

BUSINESS REVIEWS

CONSULTING

Our Consulting business provides technical consulting, digital consulting, and energy asset development. It specialises in decarbonisation and digital solutions that open opportunities across our other business units.

Financial review

1. Restated for the transfer of Life Sciences from Consulting to Projects in HY24, see page 12.

2. Adjusted EBITDA includes $nil from JVs (HY23: $nil). Revenue does not include any contribution from JVs.

Revenue of $342 million was broadly in line with last year, with strong growth in digital consulting offset by lower activity across technical consulting and the phasing of work in our energy asset development business.

Adjusted EBITDA of $39 million was broadly flat compared to last year, with a stable margin reflecting the early benefits of improved pricing offset by higher overhead costs.

The order book at 30 June 2024 was $532 million, down 8% on last year due to the phasing of some large client programmes and general market hesitancy in some of our key markets as clients wait for more certainty on political and regulatory outcomes.

Operational review

Business growth in the period was led by our digital consulting business, helped by the growing demand across our clients for help in their digital transformation journeys. Technical consulting had a slower start to the year, with lower activity across materials and modest growth across energy. We expect to see activity levels pick up in the second half, helped by new business wins, enhanced contribution from key hires and a focus on optimising overhead costs.

Sustainable solutions revenue was c.$100 million, representing around 30% of Consulting revenue.

Key awards in the period across Consulting included:

·      Appointed digital transformation partner for two major energy companies in the Middle East

·      Carbon Advisory work with Kuwait National Petroleum Company

·      Appointed lead specialist consultant for Sunrise JV's Greater Sunrise Development, located between Timor-Leste and Australia's Northern Territory

Outlook for 2024

We expect strong growth in adjusted EBITDA in 2024, all weighted to the second half as performance and pricing benefits ramp up and overhead cost control improves margin.

PROJECTS

Our Projects business provides complex engineering design and project management across energy and materials markets including oil and gas, chemicals, minerals and life sciences.

Financial review

1. Restated for the transfers of Life Sciences from Consulting to Projects, and Power UK from Projects to IVS, in HY24. See page 12.

2. Pass-through revenue, which generates only a small or nil margin, was around $110 million (HY23: c.$220 million).

2. Adjusted EBITDA includes $1 million from JVs (HY23: $2 million). Revenue does not include any contribution from JVs.

Revenue of $1,084 million was 13% lower than last year mainly reflecting lower pass-through revenue and the roll-off of EPC work in line with our strategic shift away from this type of work. Excluding these, revenue was down 1% with continued good growth in oil and gas offset by weakness in our minerals business.

Adjusted EBITDA of $96 million was 3% higher than last year, with good growth in oil and gas offsetting weakness in our minerals and life sciences businesses. Our adjusted EBITDA margin increased to 8.8%, helped by an improved revenue mix with less pass-through and EPC work. In addition to these adjusted results, $140 million of contract losses were recognised as exceptional items, see details in the Financial Review.

The order book at 30 June 2024 was $2,074 million, down 2% compared to last year with good growth across energy offset by weakness across minerals and life sciences.

Operational review

The strategic shift in our Projects business away from LSTK and large-scale EPC is now complete.

Business growth in the period was mixed with strong growth across energy and weakness in our minerals business. This reflects both a weak end market and our relative small market presence today, and we expect a recovery in the second half as new orders come through.

Key awards in the period included:

·      Detailed engineering design scope for Woodside's Trion project in the Gulf of Mexico

·      EPCm contract with Antofagasta for its Nueva Centinela copper project in Chile

Sustainable solutions revenue was c.$260 million, representing c.25% of Projects revenue.

Outlook for 2024

We continue to expect adjusted EBITDA growth for the year, weighted to the second half. This will be helped by an anticipated improvement in our minerals business and a reduction in our overall cost base. Revenue is expected to be lower than the prior year given our shift away from LSTK and large-scale EPC work, pass-through activity levels and the first half weakness in minerals.

OPERATIONS

Our Operations business manages and optimises our customers' assets including decarbonisation, maintenance, modifications, brownfield engineering, and asset management through to decommissioning.

Financial review

1. Restated for the transfers of Industrial Boilers from Investment Services to Operations, and Downstream & Chemicals from Operations to Investment Services, in HY24. See page 12.

2. Pass-through revenue, which generates only a small or nil margin, was around $280 million (HY23: c.$280 million).

3. HY23 includes the Gulf of Mexico labour operations business that was sold in March 2023. In HY23, this business contributed $21 million of revenue and $2 million of adjusted EBITDA.

4. Adjusted EBITDA includes $6 million from JVs (HY23: $6 million). Revenue does not include any contribution from JVs.

Revenue of $1,302 million was 8% higher than last year with higher activity levels across Europe and the Middle East.

Adjusted EBITDA of $91 million was 13% higher than last year reflecting the revenue growth, strong business performance and our shift towards higher value services. This was reflected in the adjusted EBITDA margin expanding to 7.0%.

The order book at 30 June 2024 was $3,267 million, 6% higher than last year and reflecting good growth across the business including the Shell Prelude FLNG contract secured in June 2024.

Operational review

The Operations business has continued to benefit from higher activity levels across geographies driven by increasing demand for energy and the importance placed on energy security. On top of this strong market backdrop, the business continues to win significant pieces of work with both existing and new clients.

Sustainable solutions revenue was c.$200 million, representing around 15% of Operations revenue.

Key awards in the period included:

·      6-year contract with Shell for the world's largest floating offshore LNG facility in Australia

·      Contracts with TotalEnergies for flare gas recovery in the UK North Sea and Iraq

·      Contract for the redevelopment of the UK's Rough field in readiness for future hydrogen storage

Outlook for 2024

We expect strong revenue and adjusted EBITDA growth throughout the year, helped by a continued focus on improved pricing.

INVESTMENT SERVICES

Our Investment Services business unit manages a number of legacy activities and includes our Turbines joint ventures. The most notable areas are activities in industrial power and heavy civil engineering.

Financial review

1. Restated for the transfers of Power UK and Downstream & Chemicals to Investment Services, and Industrial Boilers from Investment Services to Operations, in HY24. See page 12.

2. Includes results from our two Turbines joint ventures. Adjusted EBITDA from these JVs was $26 million in HY24 and $25 million in HY23. Revenue does not include any contribution from JVs.

Revenue of $116 million was 41% lower than last year, mainly reflecting the run-down of our facilities business in line with our business plans. This is also reflected in the lower headcount.

Adjusted EBITDA of $24 million was up 22% compared to last year, and this includes a broadly flat contribution from our Turbine joint ventures of $26 million in the period. Excluding these, performance was up year-on-year due to improved overall profitability across businesses.

The order book at 30 June 2024 was $336 million, up 49% on last year, helped by a 5-year contract renewal in the Downstream & Chemicals business and a new framework agreement in the Power UK business.

Outlook for 2024

We expect the contribution from our Turbine JVs (before the impact of the planned disposal of Ethos Energy) to be broadly flat in 2024, with the performance of weighted to the second half as is typical in these businesses.

CENTRAL COSTS

Central costs, not allocated to business units, was flat at $31 million in the period, with cost reductions offset by pay rises at the start of the year.

Outlook for 2024

We expect to see a reduction in central costs of around $10 million from the benefits of our Simplification programme.

RESTATEMENT FOR BUSINESS TRANSFERS

During the period, various businesses have been transferred between business units:

·      Part of Life Sciences business was transferred from Consulting to Projects

·      Power business in the UK was transferred from Projects to Investment Services

·      Industrial Boilers business moved from Investment Services to Operations

·      Downstream & Chemicals operations business moved from Operations to Investment Services

The results for our Business Units have been restated for these changes and there is no impact on the Group's total results.

FINANCIAL REVIEW

Trading performance

Trading performance is presented on the basis used by management to run the business with adjusted EBITDA including the contribution from joint ventures. A reconciliation of operating profit to adjusted EBITDA is included in note 2 to the financial statements. A calculation of adjusted diluted EPS is shown on page 19.

In the table above depreciation and amortisation include the contribution from joint ventures.

In HY24 adjusted EBITDA increased by $17.0 million to $218.7 million primarily due to improved margin. Adjusted EBITDA margin increased from 6.8% to 7.7% due in part to reduced low margin pass-through revenue in Projects. Operating loss of $899.0 million (June 2023: profit $22.8 million) has increased mainly due to higher exceptional items of $150.8 million (June 2023: $31.1 million) and an impairment charge of $815 million against goodwill. The reduction in the tax charge to $21.6 million (June 2023: $30.4 million) is primarily driven by a reduction in tax on actuarial movements on the UK pension scheme.

The review of our trading performance is contained on pages 8 to 11. 

Reconciliation of Adjusted EBIT to Adjusted diluted EPS

See notes on page 24

Reconciliation to GAAP measures

The reconciliation from adjusted EBIT of $102.1 million (June 2023: $89.4 million) to adjusted earnings of $16.9 million (June 2023: $7.2 million) has been provided to show a clear reconciliation to adjusted diluted EPS, which is a key performance measure of the Group. The reconciliation to GAAP measures highlights that the adjusted measures remove exceptional items, including impairment charges against goodwill, the exceptional items on discontinued operations and the associated tax charges on the basis that these are disclosed separately due to their size and nature to enable a full understanding of the Group's performance. Please refer to commentary on exceptional items and associated tax charges on pages 16-18. In addition, amortisation on intangible assets from acquisitions and the associated tax credit has been excluded to allow a more useful comparison to Wood's peer group.

Amortisation, depreciation and other impairments for continuing operations

Total amortisation for the first half of 2024 of $84.5 million (June 2023: $79.2 million) includes $26.3 million of amortisation of intangibles recognised on the acquisition of Amec Foster Wheeler ("AFW") (June 2023: $27.2 million). Amortisation in respect of software and development costs was $58.2 million (June 2023: $52.0 million) and this largely relates to engineering software and ERP system development. Included in the amortisation charge for the period is $0.9 million (June 2023: $0.7 million) in respect of joint ventures.  

The total depreciation charge in the first half of 2024 amounted to $58.4 million (June 2023: $59.9 million) and includes depreciation on right of use assets of $44.5 million (June 2023: $44.8 million). Included in the depreciation charge for the period is $7.0 million (June 2023: $5.4 million) in respect of joint ventures.

The impairment charge recognised against goodwill amounts to $815 million and is recorded within exceptional items by virtue of its size and nature.  The impairment charge was triggered by higher discount rates and an increase in the risk factors applied to the value in use model, to reflect more closely market observed multiples.  The higher discount rates are driven by market volatility and increases to the cost of debt.  The directors have observed that the market capitalisation of the Group has remained low for several years and the levels of goodwill that arose from large historical acquisitions were no longer supported by the expected future cash flows.

Net finance expense and debt

Interest on bank borrowings of $37.7 million (June 2023: $27.5 million) primarily relates to interest charged on borrowings under the $1.2 billion Revolving Credit Facility ('RCF') which matures in October 2026 and the $200.0 million term loan which also matures in October 2026. The increase in interest on bank borrowings of $10.2 million is explained by the higher drawings throughout the first half of 2024, compared with the same period in 2023.

The interest charge on US Private Placement debt is broadly in line with the same period in 2023.  The Group had $352.5 million (December 2023: $352.5 million) of unsecured loan notes outstanding at 30 June 2024, maturing between 2024 and 2031 with around 75% due in 2025 or later.

Other interest, fees and charges amount to $8.8 million (June 2023: $11.0 million) and principally relates to the interest on the receivables factoring facilities totalling $5.9 million and amortisation of bank facility costs of $1.3 million (June 2023: $1.9 million).

In total, the Group had undrawn facilities of $686.8 million as at 30 June 2024, of which $602.8 million related to the revolving credit facility.

The Group recognised interest costs in relation to lease liabilities of $10.2 million (June 2023: $8.5 million) which relates to the unwinding of discount on the lease liability.

Included within the discounting balance of $5.9 million (June 2023: $6.9 million) is the unwinding of discount on the asbestos provision of $4.4 million (June 2023: $5.5 million).  

Net debt excluding leases to adjusted EBITDA (excluding the impact of IFRS 16) at 30 June was 2.48 times on a covenant basis (December 2023: 2.08 times) against our covenants of less than 3.5 times. This is calculated pre IFRS 16 as our covenants are calculated on a frozen GAAP basis, see note 4 on page 24.

Interest cover (see note 5 on page 25) was 3.9 times on a covenant basis (December 2023: 4.0 times) against our covenant of no less than 3.5 times. 

The majority of the Group's debt facilities mature in October 2026. The Group recognises the increasing financing risks associated with the global macroeconomic and geo-political landscape and will be looking to start the refinancing of our debt facilities in the second half of 2024, working with the Group's relationship banks and the public and private debt markets.

Exceptional items

Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. 

LSTK and large-scale EPC

The Group made a strategic decision in 2022 to exit certain business segments and following that decision, we ceased to operate in the large-scale EPC or lump sum turnkey ("LSTK") business segment.  In recent years, the Group has wound down the remaining contracts, however we continue to have a significant balance sheet position and claims exposure across some legacy contracts.  The closure of these businesses, has reduced our leverage to negotiate commercial close outs and the staff involved have now all been exited from the business, making claims recovery or defence of litigation considerably more challenging.  Accordingly, the Group has carried out a detailed review of the contract positions, including an assessment of the current material exposures and risks on remaining LSTK EPC contracts; an assessment of the recoverability of outstanding receivables balances; a review of the Projects risk register and legal watch lists of all material cases.  This review was conducted by the appropriate levels of senior management within the Group and business units.

Following this review, an exceptional charge of $140 million was taken to the income statement and is composed of $53 million of provisions against trade and other receivables, $61 million of provisions for additional claims and $26 million of final settlements.  These charges were recorded within exceptional items by virtue of their size and nature.  The provisions of $53 million recorded against trade and other receivables have been taken in the first half of 2024 following engagement with certain of our clients in the EPC business where the clients are disputing the settlement of the receivables.  The additional claims provision represents managements best estimate to close out the remaining claims within the LSTK and large-scale EPC business.  The final settlement charge represents the additional cost to close out a series of solar EPC contracts on which we negotiated a full and final settlement agreement with the client.   

Redundancy, restructuring and integration costs

The Group announced the Simplification programme in March 2024 which was set out to help the Group deliver higher margins while remaining focussed on business growth.  This programme led to a reduction in the number of central functional roles by placing greater ownership and accountability for functional activities into the business units.  As of 30 June 2024, this phase of work was largely complete.  The subsequent phases of the Simplification programme aims to deliver IT savings, save property costs and reduce complexity in the Group's functional structure.  We will also expand our shared services model.  These phases will be largely complete by the first half of 2025.

The costs incurred in relation to Simplification amount to $12.1 million and primarily relate to costs associated with the headcount reductions in the central functions.  The total cost of Simplification is around $70 million, with around $50 million of costs expected to be incurred in 2024 and the balance in 2025.  The majority of these remaining costs relate to the exit of certain IT contracts; the notice to terminate was served in July 2024 and therefore does not meet the criteria for recognition in the interim financial statements.

Asbestos

All asbestos costs have been treated as exceptional on the basis that movements in the provision are non-trading and can be large and driven by market conditions which are outside the Group's control. Excluding these amounts from the trading results improves the understandability of the underlying trading performance of the Group.

The $6.8 million credit (June 2023: charge $5.3 million) principally comprises a $8.2 million yield curve credit (June 2023: charge $2.0 million) and charges of $1.4 million (June 2023: $3.3 million) of costs in relation to managing the claims.  The yield curve credit recognised in 2024 is principally due to an increase in the 27 year blended yield curve rate to 4.6% (Dec 2023: 3.64%).

In addition, $4.4 million of interest costs which relate to the unwinding of discount on the asbestos provision are shown as exceptional (June 2023: $5.5 million).

Impairment of goodwill

The impairment charge recognised against goodwill amounts to $815 million and is recorded within exceptional items by virtue of its size and nature.  The impairment charge was triggered by higher discount rates and an increase in the risk factors applied to the value in use model, to reflect more closely market observed multiples.  The higher discount rates are driven by market volatility and increases to the cost of debt.  The directors have observed that the market capitalisation of the Group has remained low for several years and the levels of goodwill that arose mostly from large historical acquisitions were no longer supported by the expected future cash flows.

Takeover related costs

During the period, Dar Al-Handasah Consultants Shair and Partners Holdings Limited ("Sidara") made four unsolicited proposals to acquire Wood.  On 5 August 2024, after an extended period of detailed engagement, Sidara announced that it did not intend to make an offer for Wood in light of rising geopolitical risks and financial market uncertainty.

We incurred $5.5 million of costs related to these proposals in the period to 30 June 2024.  The cash costs in the second half are expected to be around $5 million, taking the total expected gross cost to be around $11 million.  This total expected gross cost will be partially reimbursed by Sidara under an agreement for external costs coverage. 

Tax

An exceptional tax charge of $6.8 million (June 2023: $4.6 million) has been recorded during the period. It consists of a $0.8 million tax credit on exceptional items (June 2023: $5.2 million), no movement in relation to uncertain tax provisions, offset by an exceptional charge of $7.6 million recognised due to the actuarial loss in relation to the UK defined benefit pension scheme. As deferred tax liabilities support the recognition of deferred tax assets, the reduction of $7.6 million of deferred tax assets has been charged through exceptional items consistent with the treatment in prior periods.

Taxation

The effective tax rate on profit before tax, exceptional items and amortisation and including Wood's share of joint venture profit on a proportionally consolidated basis is set out below, together with a reconciliation to the tax charge in the income statement.

The effective tax rate reflects the rate of tax applicable in the jurisdictions in which the Group operates and is adjusted for permanent differences between accounting and taxable profit and the recognition of deferred tax assets. Key adjustments impacting on the rate in 2024 are withholding taxes suffered on which full double tax relief is not available and controlled foreign company charges, less the impact of the utilisation of unrecognised deferred tax assets, primarily in the UK, recognising forecasts of improved profitability.

In addition to the effective tax rate, the total tax charge in the income statement reflects the impact of exceptional items and amortisation which by their nature tend to be expenses that are more likely to be not deductible than those incurred in ongoing trading profits. The income statement tax charge excludes tax in relation to joint ventures. The decrease in the effective tax rate for the first half of 2024 when compared to June 2023 is largely a result of the impact of forecast profits for the UK resulting in utilisation of previously unrecognised deferred tax assets.

Adjusted tax charge

As noted on page 14 our adjusted tax charge was $16.5 million (June 2023: $28.3 million), representing an adjusted effective tax rate of 47.4% (June 2023: 74.9%). The lower adjusted rate of 47.4% in 2024 is principally due to some improvements in the forecast geographical mix of profits, particularly in the UK.  Our adjusted tax rate remained relatively high however, representing a range of factors including the geographical mix of profits and losses across the Group, restrictions on the deductibility of interest, withholding taxes on income in certain jurisdictions and limits on the recognition of deferred tax assets in the US due to losses.

Earnings per share

The calculation of basic earnings per share is based on the earnings attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the year excluding shares held by the Group's employee share trusts. For the calculation of adjusted diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares, only when there is a profit per share. Adjusted diluted earnings per share is disclosed to show the results excluding the impact of exceptional items and amortisation related to acquisitions, net of tax.

For the period ended 30 June 2024, the Group reported a basic loss (June 2023: loss) per ordinary share, therefore the effect of dilutive ordinary shares are excluded (June 2023: excluded) in the calculation of diluted earnings per share. Where profits have been made when disaggregating discontinued and continuing operations, the calculation of diluted earnings per share was performed on the same basis as the whole Group.

Basic loss per share for the period was 142.9 cents (June 2023: 4.3 cents).  The increase in losses per share is driven by the exceptional items, which includes the goodwill impairment and LSTK and large-scale EPC additional claims provisions and receivable write downs.

Capital allocation

Our capital allocation policy remains unchanged and starts with having a strong balance sheet. We look to manage our target leverage over the medium term within a range of around 0.5 to 1.5 times net debt (excluding leases) to adjusted EBITDA (pre-IFRS 16). Beyond this, we consider how best to create value for our shareholders from dividends, share buybacks or attractive acquisitions.

Cash flow and net debt

The cash flow for the year is set out below and includes both continuing and discontinued operations:

Closing net debt at 30 June 2024 including leases was $1,264.1 million (December 2023: $1,094.3 million). Included within closing net debt is the IFRS 16 lease liability which is the net present value of the lease payments that are not paid at the commencement date of the lease and subsequently increased by the interest cost and reduced by the lease payment made. The lease liability as at 30 June 2024 was $388.0 million (December 2023: $400.8 million). All covenants on the debt facilities are measured on a pre-IFRS 16 basis.

Closing net debt excluding leases as at 30 June 2024 was $876.1 million (December 2024: $693.5 million). The monthly average net debt excluding leases in H1 2024 was $1,043.3 million (December 2023: $846.4 million). The cash balance and undrawn portion of the Group's committed banking facilities can fluctuate throughout the year. Around the covenant remeasurement dates of 30 June and 31 December the Group's net debt excluding leases is typically lower than the monthly averages due mainly to a strong focus on collection of receipts from customers.

Cash generated from operations pre-working capital increased by $22.5 million to $202.3 million from $179.8 million in the period to June 2023 and is mainly due to an increase in EBITDA of $17.0 million and dividends received from joint ventures. The other movement of $8.3 million (June 2023: $10.8 million) is principally comprised of non-cash movements through EBITDA including share-based charges of $8.8 million (June 2023: $9.8 million).

There was a working capital outflow of $96.6 million (June 2023: $93.8 million) and is principally comprised of an outflow in receivables of $68.1 million which was driven by higher closing DSO.

The Group has utilised receivables financing facilities of $197.2 million at 30 June 2024 (June 2023: $200.0 million, December 2023: $198.2 million). The facilities are non-recourse to the Group and are not included in our net debt. 

Cash exceptionals of $75.2 million mainly relates to the settlement of known legal claims and asbestos payments, including the historic SFO investigation payments of around $36 million which were provided for in FY20 and asbestos payments of around $27 million. The remaining cash exceptional includes $10 million in relation to Simplification programme.

The free cash outflow of $159.8 million (June 2023: $194.6 million) has reduced by $34.8 million and is mainly due to lower cash exceptionals of around $18 million and higher adjusted cash generated from operations of around $20 million. 

Cash conversion, calculated as cash generated from operations as a percentage of adjusted EBITDA (less JV EBITDA) increased to 55.8% (June 2023: 49.7%, December 2023: 87.3%) primarily due to higher cash generated from operations pre working capital.

Summary balance sheet

At 30 June 2024, the Group had net current liabilities of $41.9 million (June 2023: $111.7 million).

Goodwill and intangible assets amount to $3,446.3 million (December 2023: $4,319.0 million) and principally comprises of goodwill and intangibles relating to acquisitions. The reduction of $872.7 million comprises of goodwill impairment charges of $815.0 million, FX movements of $33.6 million and amortisation charges of $83.6 million partially offset by software additions of $59.5 million.

Right of use assets and lease liabilities amount to $346.9 million (December 2023: $355.9 million) and $388.0 million (December 2023: $400.8 million) respectively.

Trade and other receivables increased to $1,643.6 million partially reflecting higher DSO. Trade and other payables were broadly in line with the FY23 position.

Net held for sale assets and liabilities relates to the carrying value of our investment in Ethos Energy.  The directors expect to complete a sale of the joint venture within 12 months of the balance sheet date.

Largely as a result of the acquisition of AFW, the Group is subject to claims by individuals who allege that they have suffered personal injury from exposure to asbestos primarily in connection with equipment allegedly manufactured by certain subsidiaries during the 1970s or earlier. The overwhelming majority of claims that have been made and are expected to be made are in the USA. The asbestos related litigation provision amounts to $281.5 million (December 2023: $306.5 million).

The net asbestos liability at 30 June 2024 amounted to $299.9 million (December 2023: $328.1 million) and comprised $281.5 million in provisions (December 2023: $306.5 million) and $46.2 million in trade and other payables (December 2023: $50.4 million) less $22.4 million in long term receivables (December 2023: $23.2 million) and $5.4 million in trade and other receivables (December 2023: $5.6 million).

The Group expects to have net cash outflows of around $35 million as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2024. The Group has worked with its independent asbestos valuation experts to estimate the amount of asbestos related indemnity and defence costs at each year end based on a forecast to 2050.

Other provisions as at June 2024 were $194.6 million (December 2023: $135.3 million) and comprise of project related provisions of $66.8 million (December 2023: $42.2 million), insurance provisions of $38.7 million (December 2023: $40.7 million), property provisions of $20.8 million (December 2023: $27.4 million) and litigation related provisions of $68.3 million (December 2023: $25.0 million).  The net increase in provisions of $59.3 million includes the $86.5 million of charges to the income statement, of which $61 million relates to probable additional claims with respect to LSTK and large-scale EPC losses, partially offset by $7.6 million of utilisations of the provision and $16.3 million of provision releases.

Full details of provisions are provided in note 12 to the Group financial statements.

Pensions

The Group operates a number of defined benefit pension schemes in the UK and US, alongside a number of defined contribution plans. At 30 June 2024, the UK defined benefit pension plan had a surplus of $366.0 million (December 2023: $391.9 million) and other schemes had deficits totalling $78.7 million (December 2023: $80.1 million).

The Group's largest pension scheme, the UK Pension Plan, has total scheme assets of $2,628.5 million (December 2023: $2,822.5 million) and pension scheme obligations of $2,262.9 million (December 2023: $2,430.6 million) and is therefore 116% (December 2022: 119%) funded on an IAS 19 basis. There was a reduction in scheme liabilities arising from a higher discount rate used in the actuarial assumptions, however this was offset by a larger foreign exchange movement.

In assessing the potential liabilities, judgement is required to determine the assumptions for inflation, discount rate and member longevity. The assumptions at 30 June 2024 showed an increase in the discount rate which results in lower scheme liabilities. However, this was outweighed by lower investment performance on scheme assets resulting in an overall decrease to the surplus compared to December 2023. Full details of pension assets and liabilities are provided in note 8 to the Group financial statements.

The latest triennial valuation of the WPP was approved by the Company and the Trustees in June 2024.  As the plan was in surplus no recovery plan or deficit reduction contributions are required.

Contingent liabilities

Details of the Group's contingent liabilities are set out in note 19 to the financial statements.

Notes

1.    A reconciliation of operating profit/(loss) to adjusted EBITDA is presented in table below and is a key unit of measurement used by the Group in the management of its business.

2.    Adjusted diluted earnings per share ("AEPS") is calculated by dividing earnings attributable to owners before exceptional items and amortisation relating to acquisitions, net of tax, by the weighted average number of ordinary shares in issue during the period, excluding shares held by the Group's employee share ownership trusts and is adjusted to assume conversion of all potentially dilutive ordinary shares. In the period to 30 June 2024, AEPS was not adjusted to assume conversion of all potentially dilutive ordinary shares because the unadjusted result is a loss.

3.    Number of people includes both employees and contractors at 30 June 2024.

4.    Net Debt to Adjusted EBITDA cover on a covenant basis is presented in the table below:

Adjusted EBITDA (covenant basis) is on a rolling 12 month period and excludes Adjusted EBITDA from the discontinued operation and the impact of applying IFRS 16. The funding agreements require that covenants are calculated by applying IAS 17 rather than IFRS 16. The covenant adjustment to net debt relates to finance leases which would be on the balance sheet if applying IAS 17. Note: the covenant basis shown above refers to the measure as calculated for our RCF. The measure used for our USPP is not materially different from the covenant measure shown above.

The HY24 and HY23 adjusted EBITDA (covenant basis) is calculated on a rolling 12 month basis.

5.    Interest cover on a covenant basis is presented in the table below:

The difference between Adjusted EBITDA (covenant basis) and Adjusted EBITA (covenant basis) is $24.9 million (June 2023: $29.5 million) and is mainly explained by 12-month rolling pre-IFRS 16 depreciation charges of $25.0 million (June 2023: $30.2 million).

The HY24 and HY23 net finance expense (covenant basis) and adjusted EBITA (covenant basis) is calculated on a rolling 12 month basis.

6.    Reconciliation to GAAP measures between consolidated cash flow statement and cash flow and net debt reconciliation

Decreases in provisions and payables, cash generated from operations and tax paid have been adjusted to show exceptional items separately, in order to present significant items separately from the rest of the cash flow either by virtue of size or nature and reflects how the Group evaluates cash performance of the business.

Prior year cash exceptionals is defined as cash payments made in the current period in respect of amounts provided for in prior periods.

John Wood Group PLC

Interim Financial Statements

30 June 2024

Group income statement

for the six month period to 30 June 2024

The notes on pages 34 to 56 are an integral part of the interim financial statements.

Group statement of comprehensive income

for the six month period to 30 June 2024