Wood's earnings hit by post-tax exceptionals

The year ended with $600m (£451m) of revenue synergies “secured” and cost synergy targets raised. But 18 months after completing its merger with Amec Foster Wheeler, Wood is only “in the early stages of what we can achieve”, according to chief executive Robin Watson. Confidence in “further growth” in adjusted earnings before interest, tax and amortisation (Ebita) in 2019 appears to again lean on cost synergies, rather than a trading upturn.

All this integration has its own price, though. While operating profits rose 68 per cent to $357m after amortisation, post-tax exceptional costs came in at $183m, including $42m of one-off synergy costs, a further $30m on restructuring and onerous leases, $51m of impairments and write-offs at a gas turbine subsidiary, $36m in non-recurring legal bills and a $32m defined-benefit pension scheme charge.

Margins also slipped, as a December trading update forewarned. Adjusted Ebita as a proportion of revenues declined by 30 basis points to 5.7 per cent across the group, and on a divisional and geographic basis, regardless of exposure to oil and gas markets. And while cash flow improved, a cash conversion rate of 102 per cent was only made possible by a $154m drawdown on a cheaper receivables facility.

Doing so has also created a further drag on deleveraging plans, which “will be more gradual than originally anticipated”, due to a slower sector recovery than expected, among other reasons.

Investors shouldn’t expect an overnight rebound. These results arrived on the same day a report from oil consultancy Rystad Energy warned that global spending on oilfield services is unlikely to return to a 2014 peak of $920bn until 2025. Those projections assume a bullish compound annual growth rate of around 6.3 per cent, while Wood’s order book has dropped 3.3 per cent since June.

On average, analysts expect adjusted earnings per share of 67¢ this year, rising to 79.5¢ in 2020.