Wood Group posts huge slide in revenue but sees "early indications of modest recovery"

 
James Nickerson
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(FILES) File Photo taken in the North Se
Watson said the company's overall outlook for 2016 remains unchanged; (Source: Getty)

Weak oil prices have hit Wood Group's first half earnings - but that hasn't stopped its chief exec from making positive noises.

The figures

Wood Group posted a 63.2 per cent drop in profits to $44.6m (£34.5m) in the first half of the year.

The company reported revenue that dropped by 16.6 per cent to $2.6bn for the six months to the end of 30 June.

Earnings per share dropped by 65.6 per cent to 10.9 cents.

An interim dividend was posted at 10.8 cents per share, up 10.2 per cent.

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Why it's interesting

​Wood Group said its performance in the first half reflects the changing nature of the oil and gas market.

But it added that its "significant overhead cost savings helped mitigate the impact of reduced volumes and pricing".

Read more: Wood Group to slash jobs amid oil price plunge

In 2016 overhead cost reductions of $148m were delivered, and in the first half of this year $50m has been saved through "ongoing reorganisation".

"We expect to deliver a further significant overhead cost saving in 2016, although the pace of saving will slow significantly in the second half of 2016," it said.

Read more: Fresh wave of North Sea oil strikes suspended as talks restart

That led, in part, chief executive Robin Watson to sound ever so slightly positive about the next year, with Wood Group's overall outlook for 2016 unchanged.

In fact, he already sees "early indications of modest recovery in some areas".

As for the North Sea oil strike, Wood Group had this to say: "Some of our employees have engaged in industrial action on our Shell contract and we are focused on resolving the dispute consistent with the overarching requirement to have a reduced sustainable cost base moving forward."

What Wood Group said

Chief exec Robin Watson said:

Performance in the first half of 2016 reflects the balance of a challenging oil and gas market, our continued focus on utilisation and cost management and the benefits of our flexible, asset light model.

Our overall outlook for 2016 remains unchanged; with full year EBITA anticipated to be around 20 per cent lower than 2015, in line with previous guidance. Looking further ahead, we see early indications of modest recovery in some areas and believe our customer relationships, geographic footprint, strong financial footing and relentless focus on delivering value through our asset life cycle services and specialist technical solutions, position us well.

What analysts said

Liberum said:

A prolonged period of challenging market conditions has led Wood to focus on managing utilisation, overhead cost savings and seeking efficient solutions for customers. The balance sheet and cash flow generation remain strong and it retains its intention to increase the dividend by a double digit percentage.

We retain our "Sell" recommendation, concerned the share price is discounting success that will not be delivered.

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