John Wood Group PLC

Good morning and welcome to our half-year results presentation. We're here in London this morning for this virtual event. I'm Kengal Martin, CEO of Wood, and I'm really pleased to host you today as we share our latest results. I'm joined today by David Kemp, our CFO. So the agenda for this morning will be a summary of the highlights from the first half from me. David will then present the financials. And I will then talk about how we're delivering on our strategy and the positive momentum that is creating. We will then take your questions at the end. So our standard disclaimer here for the record. So starting with a quick overview of the key highlights from the first half of 2023. So following a transformative 12 months for Wood, we entered 2023 with a clear strategy and a laser focus on performance excellence and predictable delivery. Six months in, that remains, and we're seeing good trading and momentum. So let me talk to a few themes that illustrate my point. So firstly, we've seen good trading across our business in the first half of the year. As David will walk you through, both revenue and EBITDA were up, and we saw much improvement in our operating cash flow. We have increased our full-year guidance today, underpinned by the delivery of our strategy. We shared this strategy at our Capital Markets Day last year. I will come back to our progress here in more detail, but highlights include double-digit growth in revenue and pipeline across key focus markets, significant contract wins and a major improvement in employee engagement. And finally, we'll continue to build momentum. Our order book was up, our sustainable revenues grew by 20%, and we have increased our employee headcount as a key marker of growth. Now, you will have seen this morning that we announced that David Kemp, our CFO, has advised the board of his intention to retire as CFO after 10 years with Wood. I've really valued his support and leadership since I joined Wood and he has been instrumental in the challenges and the changes that we have made to transform the company. So let me put on record my thanks to David. He'll remain in post until his successor is in place and will continue to support myself and the board in our strategic delivery. So with that, I will now pass you on to David to cover our financial results.

Thank you, Ken. And good morning, everyone. I will now talk you through our financial performance in the half. And I'll cover the strong trading we saw across revenue and EBITDA in the first half, the progress in our order book and our improving cash performance. I'll also cover the increase to our full year guidance. Overall, we saw good trading in the half. Both our revenue and EBITDA performance were ahead of the estimate we provided at the July trading update. And that reflected a strong close to the half. We saw strong revenue growth up 20% at constant currency. And this was helped by a significant increase in low margin pass-through revenue. And that was about a third of the growth. We delivered EBITDA of 202 million, and that was up 12% at constant currency. The EBITDA margin was lower at 6.8%, but this partly reflects the increased pass-through activity, plus the OPEX investments we're making to deliver future growth. The adjusted diluted EPS of 1.1 cents reflects the sale of the built environment, which contributed significantly a year ago, plus a relatively high adjusted tax charge on our results. The net debt was in line with our expectations, and our cash turnaround story remains on track. The improved operating cash performance and consistency of exceptionals reflects this, and I'll come back to this in a few slides. Looking at revenue, we saw strong revenue growth in the half, up 20% at constant currency. And you can see in this chart that our revenue grew across all of our business units, with particularly strong growth in projects. And that reflects the effectiveness of our strategy and the delivery of the strong backlog build last year. The growth in projects also reflects a weak comparator to last year. The revenue growth was also helped by the increase in low-margin pass-through, which was approximately a third of the growth. Especially pleasing was the growth of our sustainable revenue, which was up 20% to $600 million, and that was despite our pullback from lump-sum renewables projects. Now on to adjusted EBITDA. An FX impact of around 6 million and a half, so growth at constant currency was 12%. And this was led by strong performance of projects, along with lower central costs. I'll cover the performances by the business units shortly. Our order book at June 23 was around $6 billion, and that's up 5% since December after adjusting for FX and the sale of our Gulf of Mexico labour operations business. As Ken will pick up shortly, we continue to win significant contracts across our business units, and our focus markets reflect our strategy delivering. Growth was most pronounced in consulting, driven by the strength of our energy offering, but we're pleased how our order book has developed across all of our business units. The strength of our order book gives us an excess of 90% coverage of our revenue expectation. So looking at the business units in a bit more detail, starting first with consulting. We had strong revenue growth of 17% at constant currency with good growth across energy and across digital. Adjusted EBITDA was 38 million with the margin lower at 10.6%. And that reflects the exit of higher margin work in Russia last year. OPEX investments were making in SMEs and high growth markets and the weighting of our energy asset development business performance to the second half. Our energy asset development business develops renewables projects from concept to shovel-ready. And as such, this is a low-volume, high-margin business with a lumpy profit stream. The order book was up 8% at Constant Currency, with good growth right across the business. Looking ahead to the second half, we expect continued revenue growth and a stronger margin, partly reflecting the performance of the energy asset development business. Moving next on to projects. Here we had strong headline revenue growth of 30% at constant currency. And the growth represents good performance across oil, gas and chemicals. And that's more than offsetting the impact of running down LSTK activities, which were principally in U.S. renewables projects. Around half of this growth relates to increased low-margin pasture activity, and we're comparing to a weak comparator for the first half of 2022. Adjusted EBITDA increased from 81 million to 92 million, with a lower margin reflecting that pass-through increase. The order book was up 2% at constant currency, with lower year-on-year growth following a very strong recovery last year. Looking ahead, we expect slower growth in the second half of this year and a broadly similar margin. Finally, moving on to operations. In a very solid performance in the half, revenue was up 9% at constant currency, with growth from higher activity levels and some benefit from pass-through activity. The slightly lower margin reflects this, and so adjusted EBITDA was slightly higher at 77 million. The order book was down 10% at constant currency and down 7% when adjusting for the Gulf of Mexico sale. This reduction reflects the multi-year phasing of large contracts in our operations business. And due to expected award timing, we expect a stronger second half. Looking ahead, we expect continued growth in the second half and an improved margin, and that's driven by lower pass-through and improving delivery margins. Running through our cash flow now, there was a free cash outflow of 219 million, and you can see all the moving parts in this table in detail. Operating cash flow improved by 120 million, and that was despite a 64 million contribution from built environment in 2022. The improved position was driven by lower provision outflows and a lower working capital outflow. The working capital was an outflow of 94 million and that was a significant improvement on last year. And we typically have an outflow in the first half and some of this will unwind in the second half. CapEx and intangibles was higher at 76 million, and much of this was a phasing between the halves. We expect a total of around 130 million for the year, and that's higher than previously guided, primarily due to additional engineering software licenses. Exceptionals were also weighted to H1, and I'll cover these in detail shortly. Moving on to net debt, net debt was in line with our expectations. We had net M&A flows of 20 million with inflows from the sale of our Gulf of Mexico business and built environment completion. And that was offset by the 62 million of tax paid on the built environment sale. FX was $20 million, so net debt excluding leases was $654 million, and that represents two times net debt to EBITDA. And as a reminder, our covenants are set at 3.5 times. Our expectations around legacy liabilities are unchanged from the Capital Market Day last year. As we've said previously, we expect our legacy liability costs to come down significantly in 2023 and again in 2024 and further in 2025. So now looking at our cash turnaround story as a whole. This is an update to the slide we presented at the Capital Markets Day last November. The blue shows our operating cash flow, which we expect to grow above EBITDA, given our focus on working capital and improvements to come in our... our project's business. We saw significantly improved performance already in the half. The bars below the line show CAPEX which we expect to come down as we complete our ERP implementation and then we have legacy liabilities which as I just walked through will reduce significantly in 24 to 65 million and will come down to just 30 million in 2025. Having that all together, you get the inflection in free cash flow in 2024, albeit at a modest level. And then we get significant growth beyond this. Our capital allocation policy remains unchanged. It's relatively straightforward and starts with having a strong balance sheet. We articulate this in our medium term target leverage range of 0.5 to 1.5 times net debt, excluding leases to adjusted EBITDA pre IFRS 16. Beyond this, we always consider how best to create value for our shareholders from dividends, share buybacks or attractive acquisition. We have made good progress in the first half and we look forward to dating our shareholders on our thinking on capital allocation, including how to deliver value through dividends or buybacks alongside our full year results in March. So bringing all of this together, I'd like to take you through the outlook for the group. We anticipate ongoing revenue growth in the second half, albeit a lower level than the first half, with revenue for the full year expected to be around $6 billion. Adjusted EBITDA is expected to be ahead of our original expectations, but within our medium-term target of mid to high single-digit growth. We expect adjusted EBITDA margins to be flat in the nearer term at around 7%, partly as we reinvest in the business to secure growth and reflecting a level of low-margin pass-through revenue activity. On cash, we expect positive free cash flow in the second half of this year. With no change to our expectations for net debt at year end. So with that, I'll now hand back to Ken.

All right, thanks, David. So underpinned by our consistent financial performance, I'd like to now turn your attention to Wood Strategy and the progress we're making in delivering on it. So as a reminder, let me recap the key elements of Wood's strategy to 2025, which we outlined at our Capital Markets Day last November. The pillars of our strategy center on a commitment to delivering profitable growth, an unrelenting focus on performance excellence, both in the work we do for our clients and in how we manage the business. Passion for building an inspired culture that helps us retain and attract the industry's best skills and talent. We're focused on growing into and markets, energy and materials, with digitalization and decarbonization being the cross competitive advantage in everything we do. First, in engineering, in energy, we're driven by the need for energy security and a commitment to energy transition. And we are well positioned for growth opportunities in oil and gas, hydrogen and carbon. capture markets. Our second core market is materials, where we're focused on metals and minerals, chemicals and life sciences, driven by the demand for sustainable raw materials to enable the energy transition and growth in life sciences post pandemic. Our strategy is ultimately about focus and prioritization, delivering for all of our stakeholders by concentrating on where wood can bring the greatest value and We're nine months into our three-year strategy and I'm pleased to say we are continuing to make good strategic progress. We're measuring our performance against the three pillars of our strategy. Let me share some of what we're achieving against our targets. First, in profitable growth terms, we grew our EBITDA by 12% and saw significant improvement in operating cash flow. Aligned to our commitment to de-risk the business, lump sum turnkey contracts now account for only 1% of our order book. Looking ahead, we will further drive profitable growth by being highly selective in the markets we work in and continue to improve our pricing. We will also optimize our portfolio, and like any good business, continue to review our portfolio to ensure it fits our strategic goals. Finally, and importantly, we will continue to improve our cash generation. In terms of delivering performance excellence, we have grown our order book by 5%, We're expanding our global execution centers to deliver global engineering support with more than 3,000 people now in our GECs. And we've seen a 20% increase in revenues from sustainable solutions. Our focus will be to maintain the critical discipline we have established in what work we bid on further growing our global execution center work share model to deliver more for our clients. And of course, in growing our sustainable solutions to support decarbonization, digitalization and sustainable energy and materials growth. When it comes to inspired culture, I am really pleased with the tremendous progress we're making in ensuring wood is a great place to work. As a people business, this is critical to retention and attraction. We measure our employee engagement via an all-employee survey, and we've seen a 23-point increase on our employee net promoter score compared to this time last year. This is fantastic and a real sign of employee loyalty and engagement. Linked to this, we're now seeing lower voluntary employee turnover and continue to make important progress on our gender diversity. Indeed, 35% of our leaders are female, which is up three percentage points. And we are on track to meet our target of more than 40% of female leaders in wood by 2030. Let me reiterate, we're nine months into a three-year strategy. We're making good strides with lots more to do. Clarity of priorities coupled with a strong sense of accountability and high energy levels across our business lead me to believe we're continuing to build the momentum necessary to meet our longer-term goals. Turning now to the markets that offer the greatest growth opportunities for wood. So our total addressable opportunity in six primary markets in 2025 has increased slightly to $235 billion. The combined market CAGR remains unchanged at around 5%. which we expect to consistently outperform. We categorized our markets into three areas. Large markets where we already hold a strong market share and provide solid growth potential, namely oil and gas and chemicals. Small markets like carbon capture and hydrogen, which are growing substantially. And the large markets where we are smaller today but focused on significantly growing our market share. And for wood, that's minerals and life sciences. So moving on to our growing pipeline, we've made some great progress here since our Capital Markets Day. Firstly, we cleaned up our pipeline in late 2022 to align with our strategy, removing lump sum turnkey and large-scale EPC opportunities. So from this position, we've seen double digit growth in our factored pipeline, reflecting both market growth and increasing demand for what we do, advising, designing and delivering complex projects. The pie chart here shows the market split of our pipeline across our two end markets. This shows you improved diversification, greater balance and that we are growing across both markets. Sustainable solutions now make up one third of our pipeline, and we expect this proportion to continue to grow. And finally, we're seeing some signs of improved pricing. The gross margin bid as a percentage of revenue is increasing. There's a lot of work to convert this to bookings and then deliver, but this is a great early sign that our strategy to prioritize and be selective is working. So a reminder here that we now have a lower risk business model. Revenue is shown on the left and our order book on the right. So you can see that we're running down the lump sum turnkey exposure. Now only 3% of revenue and around 1% of our order book. Most of the work we do is either cost reimbursable or fixed price services work. And this fixed price work is across contracts that average less than $10 million. So let me now bring to life what we do by sharing a few examples of recent work we have won. And these projects showcase the incredible work our teams do. to deliver to ensure success for our clients. If you recall, I just talked about life sciences being a large market where we're focused on significantly growing our market share. So a recent project win with GSK in the U.S. marks progress in our life sciences growth and evidences our capabilities. We're working with GSK. to upgrade a specialty facility for the production of global medicines. Under a $50 million contract to deliver engineering, procurement, construction management and validation, Wood won this work because of the strength of our subject matter experts. We have some of the industry's leading authorities in advanced manufacturing for life science facilities. And of course, significant experience in capital project delivery, bringing digital tools and solutions to accelerate the construction of this critical project. And if there's one thing that drives pharmaceutical projects, it's pace to ensure critical health products come to the market. Turning to oil and gas, so in July we renewed a major contract in Brunei to rejuvenate 20 critical offshore installations, ensuring energy security and efficiency for the region. Bringing our expertise in brownfield engineering and procurement through construction and commissioning would employ around 1,500 skilled employees under this contract. And as with almost every oil and gas contract we have, we're also bringing decarbonization solutions to our clients to optimize their assets. The demand for sustainable minerals is increasing, and Wood won a major contract this year by Euromanganese to deliver a unique mineral project critical to the energy transition. In the Czech Republic, Wood is delivering feed and EPCM solutions for Europe's largest proposed high-purity manganese processing facility. As a mineral used in most lithium-ion batteries, it's deemed a critical mineral, and this is the only significant source of manganese in the European Union today. With mineral reserves of 27 million tonnes, this project could provide up to 20% of projected European demand for high-purity manganese. This innovative project holds real significance for wood as we continue to lead the development of critical mineral projects with specialist expertise in hydrometallurgy and a passion for designing sustainable energy and materials infrastructure. So I'm also keen to highlight some of the fantastic capabilities we have in delivering hydrogen and carbon capture projects as two of our focused growth markets. So Wood has performed over 175 carbon capture studies. We're helping deliver the world's largest CCUS hub in the Middle East and designing 400 kilometers of CCUS pipeline in Canada today. All of which leads us to play a role in setting industry standards in this space. Looking at what we're doing in the hydrogen markets, our experience in hydrogen goes back over 40 years, and we have designed and delivered more than 130 global hydrogen plants. We have blue hydrogen technology that can capture up to 95% of CO2, which is in demand amongst our clients. Wood is involved in three industrial cluster projects in the UK. And we're working in the US Gulf Coast on feed studies to eliminate 95% of CO2 emissions from some onshore complexes. I am really pleased with the progress we're making in delivering across all of our key markets. Now moving to the sustainable solutions we offer across wood. So carbon capture and hydrogen are a significant part of this. But as you can see here, we do lots more. Sustainability is core to what we do as engineers and consultants, and we're passionate about delivering the net zero solutions important to both our energy and materials clients the world over. Wood's skills and expertise are critical to the world meeting its net zero goals. And it's important to remember that we deliberately set a really high sustainability bar for the work we include in our sustainable revenue metrics, based on the principles set out in the EU taxonomy guidelines. All that said, even against a high measurement bar, over $600 million of our revenue in the first half was from sustainable solutions. That's a run rate of 1.2 billion alone this year and growing at 20%. This is progress. And we will continue to focus on increasing our sustainable solutions. We've covered how we're delivering in our markets, growing our pipeline and performing. And I want to talk for a minute about Wood's greatest pride, our people. We have around 36,000 remarkable people delivering some of the most complex and awe-inspiring projects for clients every day. And we continue to grow and attract new people to meet the demand for our expertise. Already, we have increased our headcount by 5%. Culture is so important to us strategically. To be able to retain and attract the best in the industry, we need to create a great place to work where people are energized and see opportunities. And that's why it's really encouraging to see our employee engagement score increase so significantly compared to this time last year, up 23 points. And I'm always proud of the recognition our experts receive in the market. And this year, we've seen Wood SMEs recognized globally across many areas. With Susie Ferguson and Valentina DiPietri recognized as two of the top 50 women in hydrogen, as an example. And that industry recognition continues with the recent E&R rankings, which showed wood remains in the top 10 international design firms, with top five positions across North America and globally, across petroleum, industrial and manufacturing markets. All of these steps help us to create and inspire culture for our people and bring significant competitive differentiation to wood. To conclude, I'll go back to where I started and reiterate what I believe are the important takeaways from our results. We saw good trading across our business in the first half and have raised our full year guidance. We're delivering on our strategy as evidenced by the work we're winning and improved employee satisfaction. And we continue to build momentum with a clear focus on sustainable solutions and increasing order book and growth in critical expertise. So with that, I'll close and move on to your questions. And we'll now hand over to the operator.