(Alliance News) - Shares in John Wood Group PLC tanked on Friday after it announced plans for further cost cuts, and a possible refinancing, as it battles weaker than expected trading and legacy issues.
Chief Executive Ken Gilmartin said: "This is a difficult announcement amid our transformation. While we have made progress, I am disappointed in our financial performance. Consequently, we are taking decisive actions to ensure we can meet the opportunities we have in growing markets, principally energy."
In response, shares in the Aberdeen-based engineering and consulting business slumped 34% to 42.97 pence each in London. It has a market value of just under GBP297 million.
Last August, Dar Al-Handasah Consultants Shair & Partners Holdings Ltd decided not to bid for John Wood after making multiple approaches. The final tilt, priced around 230p per share, valued John Wood at GBP1.58 million.
On Friday, John Wood said it has taken actions to mitigate weaker-than-expected trading in the fourth quarter, including cancelling executive and employee bonuses and actively managing working capital at year-end.
For 2024, the firm expects adjusted earnings before interest, tax, depreciation and amortisation of around USD450 million to USD460 million. In 2023, it posted adjusted Ebitda of USD423 million.
For 2025, it continues to expect double-digit adjusted Ebitda and adjusted Ebit growth, in line with market expectations. However, this assumes a number of extra cost-reduction measures.
John Wood is targetting a further around USD85 million of annualised savings from 2026 onwards, with around USD60 million benefit in 2025.
This is in addition to the USD60 million of savings already planned for 2025. These are "on track", the firm said.
"Following these actions, the business will be on a firmer operational footing, but cash generation has yet to materialise and financial strength needs significant improvement," it added.
John Wood now expects negative free cash flow of USD150 million to USD200 million in 2025. This reflects weaker trading, the impact of the Deloitte review and legacy claim liabilities, it explained.
In November, the company turned to accountancy and audit firm Deloitte to perform an independent review into reported positions on contracts in projects, accounting, governance and controls after taking some exceptional contract write-offs.
On Friday, John Wood said the review is not expected to have a material impact on the group's cash position or its ability to generate cash in the future.
However, it is "evaluating" the extent of prior year adjustments which the company expects will be required in relation to the Projects business and their impact on previously reported earnings.
In addition to cost-saving measures, John Wood is targeting proceeds from disposals in 2025 of USD150 million to USD200 million to offset the negative free cash outflow in 2025 and maintain debt levels at 2024 levels.
Average net debt in 2025 is expected to be in line with 2024 levels of around USD1.1 billion before disposals.
Estimated total cash costs of legacy claims liabilities remain around USD150 million, it added.
John Wood expects the actions taken in 2025 to "underpin" positive free cash flow in 2026.
Nonetheless, with the majority of the group's debt facilities maturing in October 2026, it has decided to undertake a detailed assessment of all potential refinancing options.
"As part of this, we are engaging with the group's lenders on these options together with any potential implications of prior year adjustments which may arise from the independent review," John Wood said.
CEO Gilmartin stressed he is "confident" the fundamentals of the company remain strong.
"We are in growing markets, with considerable in-demand engineering skills, trusted client relationships, and we're well positioned to grow the business," he remarked.
By Jeremy Cutler, Alliance News reporter
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