John Wood Group PLC

Good morning, everyone. Thank you for joining our half-year results presentation. I'm Kengal Martin, CEO of Wood, and I'm delighted to host you today for the first time since taking on this role on July the 1st. Our usual disclaimer here before I move on. So let me provide an overview of what we're going to cover this morning. I'll start with the summary of our first half performance, including some color on the operational momentum we can see across the business. David will then cover the half year results in more detail. I'll then share some of my observations since joining Wood and since taking over as CEO. I have lots to say on our strengths and excited about the growth opportunities ahead of us, but also want to talk through some of the areas where we need to improve. While we are working on our strategy ahead of a capital markets day in November, I will set out our near term priorities for now. So to start with a brief overview of the first half, the results were in line with our July trading update, and there are five areas I'd like to highlight. Firstly, it's very encouraging to see the strong momentum and activity levels and order book growth. At the midpoint of this year, our order book was $6.4 billion, which is up 5% year-on-year. This momentum is particularly strong in our projects business. Their order book is up 24% year-on-year, and crucially, it's a higher quality one, with growth led by engineering design work and EPCM scopes. Our first half revenue was flat at $2.6 billion, with EBITDA down 5%. Looking into the second half, we expect improved performance across our business. And David will cover our financial guidance in detail shortly. The main area of focus for us remains our cash performance. The cash outflow in the first half is typical for our business, but nonetheless, this is our absolute priority, to return the group to positive cash flow generation. The sale of our built environment business is progressing really well. We expect to complete around the end of Q3. The sale will transform our balance sheet, restore the group's financial flexibility, and we believe, deliver value to shareholders. Turning now to our contract portfolio and our progress in de-risking, moving away from large lump sum work and focusing on a people centered model. Across the group, the proportion of our revenue that comes from cost reimbursable work increased from 75% to 80%. And this means only 20% of our revenue is now from fixed price work. And in our order book, 85% is reimbursable work. Of that figure, around 5% related to fixed price consultancy work, around 12% to limited scope lump sum projects, and only 3% came from lump sum turnkey contracts. We continue to have some loss-making contracts in our portfolio. However, they are at a mature stage. The most notable one is Aegis Poland, which we expect to conclude in the second half, as previously guided, although final settlement will take longer to close out. At the heart of this improvement has been a greater discipline about the markets and geographies we enter and the work we take on. Moving forward, this will remain a focus of our business, work that matches our skill set and our risk appetite. This does not mean we will turn away from all lump sum work, but we will be disciplined and highly selective. This is especially true for lump sum turnkey work, which we expect to do very little of in the medium term. This shift to a people-centered model and largely reimbursable work also minimizes our exposure to inflationary risks. On our other contracts, we proactively build in protection, and so far this year, inflation has not had a material impact on us. Since joining, I've been asked many times on how I view wood and where I see our competitive edge. Simple terms, I see Wood as an engineering and consultancy business that provides solutions to clients across the full life cycle of their portfolio. This ranges from the very outset when clients are looking to test the feasibility of their plans, all the way through to the detailed engineering design, project delivery, and then into the long-term operations of assets to maximize the value they deliver. We have an outstanding track record across energy, and this experience is highly relevant in many other adjacent sectors. This includes the chemicals, minerals, and life sciences markets, and we group these under the banner of materials, as these sectors all ultimately produce materials that help deliver a more sustainable future. The final point that strikes me is that we deliver some seriously complex work in a range of critical sectors. This is a differentiator. There are very few of our peers who can match the breadth of our offer in this range of markets. This focus on two end markets is important, as it puts us in a position to capitalize on a range of growth opportunities. Within the energy market, we see three significant growth drivers. The war in Ukraine has brought energy security to the forefront once again, and this is already translating into increased spend across regions. At the same time, we need to reduce carbon intensity associated with energy and industrial activity. The shift to a low-carbon supply base as part of the energy transition supports both of these goals. Within the material space, we see three significant growth drivers. Across the globe, demand for key chemicals remains strong. Delivering a net zero future will require accelerated investment in sourcing and processing minerals like copper and lithium. And these are key to meeting the growing demand for electrical vehicles, batteries, and solar panels. And in life sciences, we continue to see strong investment in both new facilities and upgrading existing assets. Wood already has a strong but small offering in this space, and we've brought in some senior level hires over the past few months to drive this further. We're doing a lot of work on our end markets and the growth opportunities ahead. Jennifer Richmond, who joins us today, also joined the ELT as executive president of strategy and development in April from Jacobs and is leading this work. And we will say more in November. This slide showcases a selection of the work we have won so far this year, and I'll touch on a few examples. In energy security, we secured a 10-year master service agreement with Chevron to produce engineering and project delivery solutions across their portfolio of onshore and offshore assets. We also secured major contract extensions with IOCs, including Equinor, BP and Shell. On the energy front, On the energy transition front, we secured a project with Total Aeron to develop a large-scale green hydrogen production facility in Chile. With the chemicals market, we were selected by INEOS to deliver one of Europe's most innovative and sustainable olefins complex. In mineral processing, we recently secured a new contract in Uzbekistan with Enter Engineering to deliver the world's largest copper concentrator plant. And finally, in life sciences, we booked a range of projects in the US, including a contract to modernize and expand a large scale biologic and drug substance plant. I look at each business unit and provide a snapshot of how I see them. We will, of course, come back with more detail at our capital markets day with my management team talking to what they do. Starting with consulting, we provide strategic planning and advisory services. We help optimize and enhance clients' assets through combining our data, digital and asset knowledge. We work across a range of markets, including energy, downstream and chemicals, minerals and life sciences. And with the sale of Built Environment, our consulting business is smaller, but it's still a major player with over 3,700 employees and great growth prospects ahead. A significant portion of our energy transition and decarbonization expertise sits within our consulting business, including in growth areas like hydrogen, carbon capture and storage, and renewable gas production from biomass. The drives towards digitalization and intelligent connected assets will also support the growth agenda for our consulting business. Azad Hesamuddini, who joined the ELT this year from within the business to run consulting, is excited about the opportunities ahead for his team, and rightly so. In projects, we deliver and design capital investment solutions. We provide complex engineering and project management services. This is reflected in some of the project examples referenced on the slide, including one of the largest offshore developments in the world, work on the world's largest copper mine, and on one of Europe's biggest biotech facilities. We have a highly efficient global delivery model with end market focus centers of excellence that allow us to bring deep asset and sector specific expertise to a client's project. Many of the growth drivers that I referenced earlier are directly relevant for projects. Energy security concerns are already prompting clients to reactivate their capital investment programs, while the markets within minerals, chemicals and life sciences are buoyant as well. Mike Collins, who heads up projects and his team, deserve credit for the work they have done over the last 18 months to help reset projects. And this is something we'll cover in more detail in November as well. And finally, operations, the largest part of the group in revenue terms. Here we operate and optimize critical infrastructure. We maintain assets, we modify them, and we repurpose them. A key offering we have is the ability to increase efficiency, extend asset life, and reduce carbon intensity. Our work here is primarily in the energy sector, with blue chip clients who we have worked with for many decades. We're also active in markets like chemicals and power. And as you can see, some of the examples on the slide, both energy security and decarbonisation are driving significant opportunities for our operations team. Increasingly, this is part of the same scope of work where we're helping to maintain access to secure and affordable energy while at the same time minimising emissions. Greater levels of digitalization and the shift towards remote operations are also opening up exciting opportunities for Craig Shanaghy's team across the globe. Craig joined the ELT last month, another internal appointment. And finally, I would like to highlight the progress we have made in several aspects of our sustainability strategy. The transition to a low carbon future is both an environmental imperative and an enduring business opportunity. So far this year, we have secured over $500 million worth of work linked to the energy transition and decarbonization. Within our own business, we've delivered a 56% reduction in our scope one and two carbon emissions and maintained our AA rating from MSCI for a seventh consecutive year. We also embedded the building responsibly principles into our supply chain pre-qualification stages. From a people perspective, I'm proud to be leading a business that has increasing female representation at the senior leadership level. We've also made progress on pay equity, both in gender and more recently launching pilots on ethnicity. So as I mentioned at the outset, there's a strong operational momentum in a range of areas, and this stands us in good stead as we move into the second half of the year. With that, I'll pass over to David to cover our H1 results in more detail. David.

Thank you, Ken. Good morning, everyone. Before we get into the detail, a quick note on accounting first. The built environment consulting business is now treated as held for sale and its results shown as discontinued operations. We have adjusted our underlying results to reflect this, and that includes restating all the comparatives. As such, there's no contribution from built environment included in revenue, adjusted EBITDA or in order book, and that's for all periods. There is no changed EPS or total cash flow. So looking at our results, encouragingly, our order book was up a further 5% to 6.4 billion, with significant growth in projects and consulting and a small fall in operations. The movement in operations reflects the multi-year award phasing rather than any underlying trend. So I'll come back to this and momentum shortly. Revenue of 2.6 billion was flat on last year. We saw growth in operations and consulting, but a decline in our projects business. We delivered EBITDA of 185 million, but margin was lower. with an expected reduction in operations and slightly lower margins in consulting, in part due to exiting Russian work. Our margin in projects increased in the period as we continued to improve our contract performance, which obviously was very pleasing. There was a free cash outflow of 363 million, including a significant working capital outflow and high exceptional cash costs, including the scheduled 2022 payment for our SFO settlement. I'll come back to cash shortly. And as Ken said, returning the group to positive free cash flow is our absolute priority. So looking at revenue in detail, the operational momentum that we saw in H221 has continued with growth in consulting and a very strong performance in operations, which was up 18%. In consulting, the main drivers of the growth have been in energy, with our specialist engineering performing strongly, and we've seen encouraging growth in energy transition. In operations, we saw strong growth in Europe, Middle East, and Asia Pacific. In projects, the decline in revenue reflects the de-risking of our portfolio and a subdued 21 order intake. Looking forward, our expectation is for a stronger second half, especially for projects, and that's underpinned by our order book. Now on to adjusted EBITDA. Consulting was flat year on year and projects saw a small decline with the revenue decline offset in part by good margin performance. Operations saw a decline from a weaker margin. Two reasons of note, a lower level of contract closeouts and a smaller contribution from our turbine joint ventures. In addition to this, around half of the revenue growth came from parts of our business with pass-through procurement revenue. And we saw higher EBITDA in investment services, partly due to the recategorisation of ages losses and partly due to improved profitability across our portfolio. Exceptional items. Before tax, exceptional items were a small charge in the half and included a credit from asbestos due to the movement in discount rates. As usual, we take all asbestos movements through exceptionals as they don't relate to our ongoing trading. The other significant number here is restructuring costs. During the first half, we incurred 36 million of restructuring costs from reducing our central costs, mindful of the new size of the group post the sale of the built environment, closing out the Future Fit programme and some additional costs of exiting businesses that we announced in 2021. We had a significant tax credit related to recognising deferred tax assets associated with our pension surplus. Finally, I just want to point out that the costs of selling built environment consulting are not shown here as they're included in discontinued operations, along with the accelerated recognition of off-balance sheet losses related to the sale. Our order book was up 5% on last year to 6.4 billion. You can see the revenue of the period being more than replaced by wins across all business units. Most notably in projects and operations in absolute size, although consulting was up 16%. And remember, they typically have a smaller order book as much of the work is shorter in timescale. The growth in our order book was supported by an improving backdrop across our end markets. Activity levels are high across conventional energy and customer investment has started to recover from the low points of COVID-19. While demand for chemicals and minerals has also been strong. The recovery in our projects order book is particularly pleasing with the growth coming across the business and in engineering and EPCM scopes. And these are typically reimbursable. We've continued to win since June, for example, the entire engineering awards for over 200 million announced just last week. Our projects order book is now both significantly higher and with a lower risk level. We continue to see increased demand across our business for solutions that address energy transition. In fact, in the first half, we had client wins of over $500 million for energy transition and decarbonisation related work. As Ken said, our order book is now 85% reimbursable. As well as reducing risk, this reduces our exposure to inflation. In the remaining 15%, a significant proportion is short cycle consulting. Whilst in the longer duration scopes, we seek to protect ourself through contract provisions and or matching risk. To date, we've had no material impact from inflation to our profitability. This strong order book and momentum underpins our guidance for a stronger second half this year. At June, revenue in our order book for the second half of 2022 was £2.5 billion, and that's an increase of 9% compared to the prior year equivalent figure of £2.3 billion. So now looking at the business units in a bit more detail, starting with consulting. So in consulting, we had a robust half with revenue growth and flat EBITDA. Revenue was up 2% to 303 million, helped by demand for our energy consulting solutions, both in conventional and across energy transition. EBITDA was flat, given a slightly lower margin, which reflected an exit from work in Russia and a weaker performance in implied intelligence. The order book growth of 16% is a particular highlight here. As with revenue, this growth was led by a range of energy solutions, an area where our margins were robust in the period. Our order book for delivery in the second half of 22 was 305 million, and that's up 25% on the prior year. We expect strong revenue growth for the year, so continued strength into the second half. Moving on to projects. In projects, we had an improved half with a higher margin limiting the EBITDA fall from the lower revenue. And this lower revenue reflects our diminished appetite for lump sum EPC and lump sum turnkey activity and low customer investment in 2021. We expanded our margin from 7.5% to 8.2%, with an improved performance across the board. And this includes the gradual roll-off of some of our North American lump sum turnkey contracts. Most encouragingly, as we have said, is the order book growth of 24%. And this growth was across all our end markets, and most notably in conventional energy and chemicals. The growth also reflects our lower risk profile and the focus on services rather than EPC or lump sum turnkey. Our order book for delivery in the second half of 22 was 1.15 billion and that's up 19% compared to the prior year. This positioned us for a stronger second half and we expect a return to revenue growth in projects in the second half. On to operations. In operations, we had a very strong revenue growth, supported by higher activity across conventional energy, but lower EBITDA. This was partly expected. We had a lower level of contract closeouts and higher pass-through revenue, but we also had a lower contribution from our turbine joint ventures. In our turbine JVs, we experienced some supply chain challenges in the first half, which we expect to recover in the second half. The order book is down 6%, but this mainly reflects the phasing of multi-year awards. Our order book for delivery in the second half of 22 was $960 million, down 4% on the prior year. For the year as a whole, we expect strong revenue growth and a stronger second half for EBITDA, especially given the expected recovery in turbines. Turning to cash flow. Our definition of free cash flow includes all cash flows before M&A and dividends. There was a free cash outflow of 363 million, and you can see all of the moving parts on this table. So picking out the main items, we had a provisions outflow of 74 million, reflecting provision utilisation across asbestos, loss-making contracts and insurance. Working capital was an outflow of 208 million. We typically see an outflow in the first half of our business in line with the shape of our trading. The further reduction in lump sum EPC activity being replaced by services also has a negative working capital impact. CapEx and intangibles was higher at 57 million, returning from COVID-related reduced levels last year. Interest paid increased to 51 million, and that reflected the higher net debt in the period and an increase in average interest rate. Exceptional costs of 102 million included a 38 million SFO payment and an outflow of 14 million for Aegis. The rest is sale-related costs and restructuring costs. Our net debt of 1.75 billion at 30th of June reflects that free cash outflow. Our net debt to EBITDA was 4.2 times below our covenants of 4.5 times, which we had temporarily extended earlier this year. Lease liabilities of 400 million reduced by 100 million as we continue to consolidate our property footprint. As you know, the net sale proceeds from built environment of 1.6 billion will transform our debt position. So this slide provides an update on the cash outflows we have in the business. Starting with Aegis, this will be operationally complete in the second half of this year, and we expect a total outflow of around 45 million in the year. In asbestos, this is a long-term liability with the annual cash outflow currently around $40 million and gradually reducing over time. The SFO settlement, we paid the 22 instalment of $38 million in the half and we have two more to go, one in 2023 and one in 2024. We had around 25 million of restructuring costs in the half, partly related to the cost of closing businesses that we announced last year. In onerous leases, we had 13 million in the half, and that drag will reduce to nil by 2024. On the enterprise litigation, the court case has finished and we expect a conclusion by the end of this year. This may or may not lead to a cash outflow, depending on the outcomes and whether either party seeks an appeal or seeks a retrial. So moving on to the next slide to consider how we can get on top of some of these cash drags. So this is a really important slide and links into what Ken will talk about shortly. As you saw on the previous slide, we have legacy issues that really limit our cash generation. The sale of built environment with net proceeds of around 1.6 billion will help us address some of these issues. Clearly and most importantly, it will address our debt levels. And going forward, our target net debt to EBITDA range is 0.5 times to 1.5 times. We then have an option to address liabilities such as SFO settlement and asbestos. And these are options we'll consider and we'll balance against other capital allocation requirements, including investment in the business and shareholder returns, such as restoration of our dividend. Clearly, we'll have to prioritise and we'll say more here at a capital markets day in November after the completion of the deal, which we expect to be around the end of Q3. The Aegis Poland contract should complete this year, and we're seeing a reduced level of losses in our lump sum turnkey portfolio. As Ken set out, we've made some real progress in de-risking the business. Finally, the nature of our business means we're exposed to claims, the most notable of which is our enterprise claim that I discussed earlier. So lots to address, and Ken will come back to that shortly. So finally, turning to Outlook. As we've said before, we expect higher revenue across our business this year. And that's helped by our higher order book. We also expect an improved performance in the second half, helped in part by increased profitability in our turbine joint ventures. We've given out financial guidance of revenue between 5.2 billion and 5.5 billion. and adjusted EBITDA between $370 million and $400 million. Finally, of course, the completion of the sale of the built environment business will transform our debt completely. And with that, I'll now hand back to Ken.

Thanks, David. So having gone through our first half performance in detail, I will now close out this morning's presentation by sharing some of my reflections since joining Wood. And I'll start with the positives and the elements that give me real optimism. There's no doubt we're at an important point in the Wood story. The sale of the built environment business will start a new chapter, and there's a strong platform to build on. Firstly, we have outstanding talent. The breadth and depth of technical expertise we have in wood compares favorably with our very best in our industry. The world is evolving fast, but we have a highly relevant mix of skills that will be key to delivering a more sustainable future. Secondly, as I alluded to earlier, we have an enviable track record of delivering complex work in critical industries. This is a key differentiator, especially when we are selective in the markets in which we play. Thirdly, the long-term client relationships we hold is an unquestionable strength. Often these relationships span several decades. Many of these clients will play a driving role in the transition to a net zero future. Importantly, we're already well positioned in good growth markets. The opportunities within energy and materials are there for us to capitalize on. Finally, through diligent work over the last 12 months, our pipeline has been significantly de-risked. We've improved our risk governance and selectivity, which will allow us to secure better quality growth in the future. We are not perfect yet, but we are in a stronger position than we were. So while there's a lot that gives me optimism, I'm also clear that there are areas where a marked improvement is needed. Over the past few years, we have not delivered value for our shareholders, and this is clear. The main causes of this were insufficient discipline and focus in project selection, meaning we took on work where the scope, the challenges or contract terms all led to losses. Inconsistent delivery with surprises and outcomes linked to the lack of discipline because we spread ourselves too thin and took on work outside of our core capability. We had instances of not delivering and surprises and outcomes. High levels of restructuring with significant costs incurred. Legacy issues, which led to high exceptional costs. These included a large asbestos liability, a large SFO fine, the Aegis contract, and more recently, losses we had in our North American renewables EPC business. Regardless of the cause, we have to put these behind us. All of these have led to a lack of cash generation, stretched balance sheet and a failure to meet our financial expectations. We are focused on addressing these issues. Some will take time and some can be addressed more quickly. I'm pleased we're resetting ourselves against the positive market backdrop and growth drivers I discussed before. In the near term, we have some immediate priorities. Completing the sale of the built environment consulting, which we expect to finalize this transaction around the end of Q3, so very close. strengthening our balance sheet and restoring financial flexibility. The net cash proceeds of the sale will do this. We will consider the best use of capital over the medium term with a particular focus on steps that enable us to once again deliver sustainable free cash flow. Focusing on our culture and energizing our people. Like many companies, the pandemic and remote working has had an impact on our people. So big focus for me since joining has been getting out to meet our teams and reconnecting. I am aware the last few years for Wood has been tough on our shareholders and on our people, and we have a duty to improve things for both. Define our priority markets and growth areas. A big part of the strategy we are developing is defining where to play and to deliver sustainable growth and returns. We will focus on the very best opportunities that utilize our skilled people and engineering expertise and where we have a differentiated offering. We have a strong track record in energy, but as I mentioned earlier, this lifecycle offer is highly relevant in other sectors as well, including chemicals, minerals, and life sciences. improve operational delivery and consistency. We implemented a new operating model in late 2020 that saw us move to three global business units, consulting, projects, and operations. We will be keeping this structure and our focus is now twofold. Firstly, continuing to be selective on the work that we take on. And secondly, being increasingly disciplined in our execution. Address our legacy issues. The disposal of built environment consulting will allow us to address our most significant issue, persistently high net debt. In our Capital Markets Day at the end of November, we will share more on our strategy. But by way of conclusion, I'll offer this slide as a summary of how I want the business to evolve in the future. I strongly believe we're well-placed to deliver end-market growth. The strength of our long-term client partnerships and the calibre of our people mean we can capitalise on the opportunities ahead. By being selective on projects and having greater discipline around operational delivery, we can return to growth and generate sustainable free cash flow. There is a lot to do, but it's a tremendous opportunity and my leadership team is hungry to succeed. So with that, I'll close. And I'll now invite any questions that you may have for David and myself. So thank you.