John Wood Group PLC

Good morning, everyone. Welcome to our 2021 results presentation. Obviously, these results are a little later than expected, so thanks to everyone for your patience. First, let me begin with some introductions of the Wood team. Simon McGough, our new President for Investor Relations, is with us today, as is Paula Murphy. our Chief Communications and Marketing Officer, Ken Gilmartin. Do you want to put your hand up, Paula, Ken, Simon? And Ken's our Chief Operating Officer and Roy Franklin, our Chair, is also here today. So, giving a bit of an overview of what David and I have covered this morning. Performance in 2021. We'll take over the headlines from me, then a detailed financial walkthrough from David. We'll get into in some depth de-risking our projects business. That'll be a deep dive into how we've reduced our exposure to lump sum turnkey contracts and therefore reduced the risk in this part of the business. We'll talk about our improving business momentum. Our order book at year end was up 19% and we've got a return to organic growth in both our consulting and operations businesses in the second half of 2021, which we're pleased about. And we'll give you an update on the sale of our built environment business, which is progressing very well, and we're on course to announce a sale in the second quarter of this year. There is also significant opportunities ahead, so we'll highlight how well placed Wood is for helping our clients solve challenges across energy transition and industrial decarbonisation, while maintaining energy security, which is something that's more important than ever in today's changing world. On that very note, we announced a few weeks ago that we decided, like many others, to exit our operations in Russia. We are actively engaged in efforts to do so while safeguarding the safety and welfare of any colleagues affected. Of course, we continue to keep the people of Ukraine at the forefront of our thoughts. You'll have seen this slide before. Our capabilities span the entire asset lifecycle, from conceptual engineering, planning, through design, build and operate, all the way to what we call asset repurposing. Post-sale of our built environment business, Wood will continue to operate right across this lifecycle, with enduring services across consulting projects and operations, more of which we'll cover later in the presentation. Here's a nice summary slide showing us how we service different end markets across our business units. Our work in conventional energy is mostly upstream and midstream oil and gas work, increasingly including elements of decarbonisation and carbon intensity reduction for our customers. Our solutions across process and chemicals touch many markets from refining and petrochemicals through biorefining, synthetic aviation fuels to speciality chemicals and polymers. We've got a range of solutions across hydrogen, from grey to blue to green, and in carbon capture. We show these in processing chemicals here, but in reality they actually touch every part of our business, from helping to develop green hydrogen as a clean fuel source through to capturing carbon for conventional energy operations. Our work in renewables and other sectors includes activities across solar and wind, as well as our work in minerals processing, various industrial processes and power, And finally, you can see the built environment. As a sector, this is around 27% of the group. The business is primarily in our consulting business unit, and this subset of our consulting business is a portion of the portfolio which we are selling, and I'll come back to in more detail a bit later. I would also note here that the consulting business post-sale remains a very material part of the group, offering crucial solutions across all our other markets and enduring significant synergy opportunities. So now a brief overview of our 2021 performance. It was quite a challenging year operationally. The pressures of COVID-19 continued to impact our business and challenges in our project business impacted revenue and cash performance, which David will get into in some more detail. We did, however, make good progress in our efforts to de-risk our projects business through reducing our exposure to lump sum turnkey contracts, and I'll come back to this later in the morning's presentation. And we've ended the year with improving momentum with a growing order book and good win rates. I'll now hand over to David to take you through our financial review.

Thank you, Robin. So good morning, everyone. 2021 was a challenging year with the ongoing pressures of the pandemic, mixed market conditions and challenges in our projects business. Despite this, we saw margins improve, trading momentum increased in H2 and significant growth in our order book. Revenue of 6.4 billion was down 14% on a like for like basis. We saw growth in consulting and operations but also a significant decline in our project's business. Revenue performance improved during the second half, up around 4% overall on the first half, with projects stabilising and continued growth in consulting and operations. We delivered EBITDA of £554 million and a margin improvement, with EBITDA margin up 0.4% on a like-for-like basis to 8.6%. And that was a result of cost efficiencies, revenue mix and improved overall execution. There was a free cash outflow of £398 million due to a significant working capital outflow in our projects business and continued high exceptional cash costs. Primarily a result of investigation payments and restructuring costs. We've seen strong order bit growth throughout the year up 19% to 7.7 billion, led by growth in consulting and operations and a stabilising of order book in projects. Within our order book, the revenue to be delivered this year is up 6% on last year. Revenue has reduced 14% like for like compared to the prior period, and that reflects post-COVID recovery more than offset by reduced projects activity. After accounting for the 63 million revenue impact of the nuclear disposal during 2020, consulting grew by 2%, with a strong second half of trading led by higher activity across the built environment market. The main driver of lower volumes was in our projects business, which is down 34% year on year. as larger EPC contracts such as YCI came to an end and these have been replaced by smaller, often earlier stage scopes. Activity was also impacted by some of our customers postponing or delaying investment decisions. As Robin will cover in more detail, we have made purposeful changes in the year to reduce the level of contract risk in projects. Revenue grew by 4% in operations again reflecting a stronger second half as market conditions and conventional energy continued to improve. We have seen improving momentum in our business as markets recover, with H2 revenue up 4% on H1 2021. Revenue performance in consulting and operations has continued to improve since H2 2020. reinforcing our expectations of higher activity levels in 2022. Consulting was up 4%, comparing H1-21 to H2-2020, and then up a further 4% in H2-21 over H1-21. Operations was up 6%, comparing H1-21 to H2-2020, and then up a further 10% in H2-21 In projects, H1-21 revenue was down significantly on H2-2020, and then we saw a stabilisation in the second half of the year, with H2 revenue broadly flat with H1-21. Revenue phasing has moved back towards our usual profile, where activity is slightly weighted towards the second half. In 2021, revenue phasing was 49%, 51%. Adjusted EBITDA was down 10% on a like-for-like basis. And this has mostly been driven by reduced activity in projects. And that was partly offset by improved margins. In operations, we had a lower EBITDA despite... higher activity due to favourable contract closeouts in 2020, which were not repeated to the same extent in 2021. Against the backdrop of challenging market conditions, we have continued to make progress in improving our margin. Group margins increased by 0.4%, with improved margins in consulting, 0.3%, and projects 1.5% offset by lower margins in operations, which were down 1.4%. Margin improvement has been helped by cost efficiencies across the business, including £40 million of benefit from our Future Fit initiative. Consulting margin has been supported by cost efficiencies and increased utilisation in the second half. Projects margin improvement is a result of improved overall project execution, a lower level of losses on underperforming contracts, a shift in mix towards higher margin contracts, and profit upsides from contract closeouts. The operations margin reflects a lower level of profit upside from closing out contract obligations in the year, and that's compared to a high level in 2020. across multiple contracts. During 2021, the total AGES contract loss increased by 99 million. The majority of this loss relate to the reduction of expected recoveries from the client, together with higher anticipated costs to complete. For some context, the AGES contract is a legacy AFW contract awarded in 2016 for the construction of an anti-missile defence facility in Poland. Our latest total project loss estimate is £222 million, of which £99 million was charged to the P&L during 2022. We are confident the project will complete in the second half of 2022 and expect cash outflows of around £45 million during the year. In addition, we incurred 78 million of restructuring costs, which broadly fit into two categories. We have spent around 30 million of various initiatives which support the improved efficiency and enhancement of group profitability in the medium to long term. And these include the conclusion of our Future Fit programme. Complementary to this, the group has sharpened its focus on markets where we know we can make an impact and deliver higher margins. This has resulted in the strategic decisions to exit certain locations and end markets that do not fit this profile. The most material of which were our Paris office, the power and industrial large EPC sector, and our ATG automation business. Our order book is up 19% year on year. with strong growth in consulting and operations, which were up 24% and 27% respectively. We ended the year with strong book-to-bill ratios in both consulting and operations, with operations showing particularly strong performance. And this was due to a number of multi-year renewals, which were mainly in conventional energy, and include over 500 million of contracts for oil and gas operations in the North Sea, asset optimisation in the Norwegian North Sea and in engineering and project management in the Middle East. The work we are performing across conventional energy increasingly has elements of helping our customers decarbonise, optimise operations and increase production efficiency, as well as supplying renewable energy to operations. Order book in projects was up 2% year-on-year, having improved from Q1 throughout the year highlighting that our project business has continued to stabilise after the roll-off of some significant contracts. It's worth mentioning that the growth in our projects order book is partly constrained by the continued work we're doing de-risking our contract portfolio. And Robin will cover that in more detail shortly. In addition to the year-on-year growth, we've seen we've seen in total order book, we've also seen an increase in visibility of our order book beyond the next 12 months. With the proportion of our revenue due for delivery beyond 12 months up by around 45%. And that's almost 1 billion on the prior year. Revenue of 4.7 billion for delivery in 2022 supports our expectations for increased activity. and that represents a growth of 6% compared to last year. As mentioned in the previous slide, we continue to reduce the risk in our projects business, and have made significant progress on this in recent years. To give you a sense of how we've evolved our order book profile, at December 2018, the split was around 70% reimbursable, 30% fixed price, and within that 30%, 10% was from large-scale, over $100 million contracts. By comparison, at December 21, order book profile was 80% reimbursable, with 20% fixed price, and with less than 2% of fixed price from large-scale, over $100 million contracts. I'll now take you through each of the BU's in a bit more detail. So starting with consulting, revenue was up 2% year on year. Revenue growth was led by higher activity across the built environment market. Adjusted EBITDA grew by 4%, with revenue growth supported by margin expansion to 12.7%. And that margin expansion reflects efficiency improvements and increased activity in H2, which was up 4%. Order book at 31 December, was up 24% to £2.2 billion, driven by built environment, circa 20%, and conventional energy, circa 30%, highlighting the positive trends we're seeing in the energy part of our consulting business. Revenue for delivery of £1.5 billion in 2022 is up 14% on 2021 and supports our expectation of strong growth. It's also worth noting that post the sale of Built Environment, there will remain a sizeable energy-focused consulting business that generated revenue of around $600 million in 2021 and grew backlog by around 15%. Moving on to projects, revenue was down 34% in the year, reflecting the completion of some larger EPC contracts in processing chemicals, and our steps to de-risk our contract portfolio. H2 revenue was flat on H1. Adjusted EBITDA was down 18%, reflecting the decline in revenue offset by higher margins. The margin improvement partly reflects improved overall project execution, with strong performance outside North America outweighing losses in North America. Margin did also benefit from the completion of some underperforming contracts. Order book was up slightly at 31 December, with new wins being equal to work off during the year. At December 21, revenue for delivery in 2022 of 1.3 billion is down 13% on 2021. Though we've seen some good wins in recent months and have a significant value of selected but not booked, that sits outside order book. In 2022, we expect modest growth weighted towards H2 as market conditions continue to improve. Operations. So revenue grew by 4% on a like-for-like basis, with a stronger H2 up 10% on H1 as market conditions and conventional energy continue to improve. Overall, adjusted EBITDA was down 8% despite higher revenue due to favourable contract closeouts in 2020 not repeating to the same extent in 2021. 2021 included one-off benefits of around £12 million that will not repeat in 2022. The disposal of TCT in Q4 2020 and Salsa Wood in Q1 have had a negative impact on our reported EBITDA growth. Order book at 31 December 2021 was up a significant 27%. And that was driven by multi-year renewals in conventional energy. And with £1.8 billion for delivery in 2022. And that's up 18% on 2021. And again, supporting our expectation of higher activity levels. Turning to cash flow. Our definition of free cash flow includes all cash flows before M&A and dividends. There is a free cash outflow of £398 million due to a significant working capital outflow in our projects business, from lower activity and from the de-risking of our portfolio. The higher tax paid primarily reflects the timing of payments in Canada as activity levels recovered. Movement in provisions in 2021 is higher and includes £30 million related to asbestos. Exceptional cash outflows totalling £159 million included payments in respect of investigation settlements, costs associated with future fit and exiting underperforming operations and costs related to prior period onerous leases. Net debt has increased by £379 million, reflecting the working capital outflow in projects and continued cash drags from legacy investigations, asbestos and onerous leases. At 31 December, our net debt to EBITDA on a reported basis was 3.3 times within our covenant levels for the group's borrowings, which are set at 3.5 times. Our free cash flow was disappointing in 2021, with a significant outflow driven by three principal reasons. Firstly, performance in projects, Aegis, and finally a continued high level of exceptional cash costs. Across all three of these areas, we expect improvement in the next couple of years. Post the sale of the built environment, we are considering options to lower exceptional cash costs by, for example, paying down the SFO liability early or selling our asbestos liability. Looking into 2022, we expect cash outflows from Aegis and asbestos to remain at a similar level to 2021. Exceptional cash outflows from investigation settlements, restructurings and onerous leases will reduce in 2022. The group had total facilities of 2.6 billion at 31 December 2021, of which 1.7 billion are drawn, leaving a headroom of 1.3 billion. Total available borrowings comprise 800 million of US private placement notes, with maturity dates out to 2031, weighted towards later dates. We have a 600 million term loan backed by UKEF, and a revolving credit facility of £1.2 billion, and both of these mature in 2026. Turning to Outlook, because of the impact of the proposed sale of the built environment, we have not given detailed guidance at this stage. However, the strength of our order book gives us confidence of revenue growth in 2022 relative to 2021. Cash performance will continue to be impacted by exceptional cash drags, and as such, debt reduction will be driven by the built environment sale. As is usual, we expect a working capital outflow in H1, and this will result in higher net debt at 30 June. And with that, I'll now pass back to Robin.

Good, thank you David. I'll now pick up on some of the key topics in a bit more depth. So firstly I want to cover the enduring steps we've taken to de-risk our contract portfolio. So let's start with a summary of the contract types across the group. 83% of what we do is either cost reimbursable or fixed price consultancy work, very low risk. 17% is therefore fixed-price EPC work. Of this, the vast majority is service-led, limited scopes, very defined and predictable work packages, and this part of the contract portfolio has generally seen profitable outcomes over many, many years. This leaves a lump sum turnkey work, which was around 5% of revenues last year, These are projects where we take on the full project delivery risk. We include here projects where we take on risk until either mechanical completion or complete project commissioning. I'll turn to that in a bit more depth on the next slide. So this slide shows the reduction in lump sum turnkey risk over the last few years. On the left, you'll see the large circle, and this is all the revenue from 2018 to 2021. This was reduced year after year due to our deliberate actions to limit the enterprise exposure to this type of work. Included in these years, just for complete clarity, is the Aegis contract, some large-scale chemical plant projects, multiple power process and renewables work, as well as some smaller projects. So it's a complete portfolio. The performance across these contracts has actually varied from actually very good returns through to loss-making projects, most notably Aegis contracts. and some of the power process and renewable contracts in North America. So what changes have we made? Well, firstly, let me just say this has been a long journey of portfolio stabilisation and de-risking, and let me summarise that journey. In 2018, we ceased to allow any bids on any project over $500 million on a lump-sum turnkey basis. In 2018, we discontinued and exited the business... from the Oconis market. This is the overseas military lump sum turnkey projects. Some of you may remember that at the time there were three projects from the AMEC Foster Wheeler transaction within this portfolio. Spacefence, which was at a claim stage and is now complete. Guam, which was at a very early stage, and that was a JV which we extracted ourselves from. And Aegis. This was a project that was in flight and had no credible commercial extraction available to us and, as David touched on, we expect to complete it in the second half of this year. Between 2018 and 2020, we made a variety of management changes across this portfolio, both operational and functional, to achieve more out-term predictability. During the period, we also severely limited the bidding activity and reduced lump-sum turnkey portfolio and overall risked revenue. In 2020, we created the Global Projects Business Unit through restructure and in doing so improved our operational and commercial governance regime. In 2021, we exited the large-scale power and industrial lump-sum turnkey market entirely. So we've now got a very limited number of power and renewable projects in the portfolio, and we've kept our revenue exposure below US$350 million. The opportunity pipeline has also been extensively devised over this period and calibrated across the lump sum turnkey opportunities to remove any opportunities that would have the wrong risk return and or contractual exposure to the company. And this in itself has led to over US$2 billion of factored opportunities being taken out of the project's pipeline. So where are we now with lump sum turnkey projects? The bidding activity and approval to bid threshold is exceptionally high and we're extremely selective on what we decide to bid and in what terms and with whom. Lump sum turnkey will be a diminishing part of our portfolio and only taken on where the risk return and contractual terms are appropriate. and we'll manage the risk by minimising our exposure to it, only ever managing a limited portfolio, only ever low single percentage of revenue moving forward. It's important just to clarify, we do have examples where managed well, these contracts provide good value for us and help us to support our clients as they expand into new markets themselves. But we will limit the company exposure. Now to look at the momentum we saw at the end of last year. The chart here shows the order book recovered as the year progressed. It was up 20% at £7.7 billion, supported by good win rates, and I'm pleased to say with gross margin levels and bids maintained. On to the sale of the built environment consulting business. This is progressing well, and we expect to announce a sale agreement in the second quarter of this year. We believe this sale will deliver significant value to our shareholders as well as strengthening our balance sheet. We're exploring a range of options for the proceeds from improving the free cash flow of the group by paying off some of the legacy cash issues we've got in our balance sheet through to looking at shareholder returns and how we can potentially invest and strengthen our position across the energy transition and industrial decarbonisation. And we look forward to seeing more in these areas over the coming months and we plan to hold a capital markets day once we've completed the sale and in doing so, commence our next strategic cycle. And I want to take a look at the market opportunities ahead of us. And this is perhaps best done by framing energy around the twin pillars of energy security at one end and sustainability at the other. And we're well placed across both. Net zero pledges cover 75% of global CO2 emissions. I think everyone estimates this will be a significant investment level. 100 trillion US is required to meet that sort of pledge. And it would with decades, decades of experience across hydrogen, carbon capture and storage, renewable energy and biorefining. Highly relevant markets to capture a chunk of that investment. In terms of energy security, OECD secure and affordable energy supply chains are increasingly policy central for a variety of reasons. And our core conventional energy basins are already experiencing a pickup in investment, some of that momentum coming through to 22. At Wood, we've got decades of experience in delivering secure and predictable energy for our clients. And one thing that stands out is how increasingly these are very interlinked and very aligned to the UN Sustainable Development Goal No. 7 in providing affordable and clean energy to all. This is a very important slide for us as we look ahead. Our solutions across the energy market help customers address the themes on the previous slide. We've highlighted five major growth drivers. Low carbon energy from wind and solar through to hydrogen, plus work on the transmission and distribution of clean energy. Resourcing the energy transition through, for example, helping our mineral processing clients sustainably attract the minerals needed for the electrical vehicle revolution industrial decarbonisation as we help clients reduce emissions from their operations carbon intensity reduction where our technical expertise and know-how can help make a huge difference towards a net zero and reducing the carbon intensity of conventional energy assets and of course energy security playing a crucial role in ensuring the world has access to secure and affordable energy And we're seeing a distinct increase in new project opportunities in relation to energy security coming into our pipeline again for fairly obvious reasons. We've pulled together here just some examples of the work we're doing across the energy transition today. In terms of low carbon energy, we're supporting ADNOC in pre-feeding design of the new blue ammonia facility in Taziz, building hydrogen supply and using ammonia today. as a low-carbon fuel across a wide range of industrial applications. Here in the UK, we're supporting a high net in one of the world's leading hydrogen storage and distribution projects. That will save 10 million tonnes of carbon dioxide by 2030. Just last week, we announced a new contract in Chile with TotalREN, where we will provide conceptual engineering on a large-scale green hydrogen production facility. And when we look at resource and energy transition, we'll be the owner-engineer on the UK's first large-scale commercial lithium refinery for green lithium. We're partnering with Honeywell in a new carbon-neutral aviation fuel for which we see tremendous potential. And with a renewable energy group where we're helping them to expand their renewable diesel biorefinery in Louisiana. When we look at decarbonising industry, we're seeing growing opportunities to help our clients decarbonise their industrial portfolios, including with Shell and Acorn, as outlined here, but this is prevalent across many of our long-serving energy clients. Decarbonising operations, we predict that carbon intensity reduction will become and remain a central priority for many of our clients as they grapple with the delivery of their own net zero pledges. Nevada Gold illustrated here includes the deployment of a solar plant to offset conventional power production. Chevron have commissioned a solar microgrid to decarbonise an unconventional asset in US shale, which we've been awarded. And finally, as I said in my last slide, energy security has become very much back into the spotlight recently. We've always maintained a need to ensure continued, secure, affordable energy supply as we transition to new, cleaner, lower and no-carbon sources. And we're seeing greater opportunities in energy security, including recent wins with Gasco to renovate their gas receiving facilities in the UK and Europe, with Turkish Petroleum and the Sakai gas field, and with Adnok and Aramco in the Middle East, to name but a few. Finally, I just wanted to highlight the progress we've made on our ESG strategy in the year. And it's really important to Wood, and something I'm very proud of, that despite the challenges we faced in 2021, we continued... the momentum across all of the areas to which we're committed. Some particular highlights for us were we maintained our AA leader rating from MSCI, we increased female representation in our senior leadership roles as we head towards at least 40% of that gender balance by 2030, and we saw a 31% reduction in our scope one and two admissions. So to conclude, We have improving business momentum with a return to organic growth in two of our three businesses, better quality and lower risk revenues ahead and an order book 19% higher than last year. The sale of our built environment business is progressing very well and we expect to announce a sale agreement in the second quarter of this year. We believe this sale will deliver significant value for our shareholders as well as strengthening our balance sheet. We see significant growth potential in secure and sustainable energy and industrial and decarbonisation using our skills, experience and heritage. We're very positive about the future we'll be able to unlock with the breadth of end markets that we now have that are fully aligned with the investment priorities of our clients. I've also shared with the board that I consider the sale of the built environment business as marking the start of the next strategic phase for Wood and as an appropriate time for me to step down as Chief Executive. I announce this now to allow the board time to select a successor. I'll remain in role until my successor is appointed and, of course, fully committed to delivering the business, progressing the built environment sale to completion and establishing a smooth transition and handover. So with that, we'll now hand over to any questions. Thank you.