LONDON (Alliance News) - John Wood Group PLC shares rose on Tuesday after the company committed to continue growing its dividend despite reporting a large decline in profit in 2015 as the rout in the oil and gas sector continues.
John Wood shares were trading up 7.4% to 626.50 pence per share on Tuesday afternoon.
The FTSE 250-listed oilfield services and engineering firm saw its pretax profit from continuing operations in 2015 plummet to USD138.6 million from USD475.1 million as revenue fell to USD5.85 billion from USD7.61 billion.
However, John Wood still raised its dividend for the year to 30.3 cents per share - more than 10% above the 27.5 cents paid in 2014. More importantly, the company said there has been "no change" to its dividend approach and said it intends to grow the dividend this year by a "double-digit percentage".
Earnings before interest, tax and amortisation in 2015 fell by 15% to USD469.7 million from USD549.6 million, as the Ebita margin increased to 8% from 7.2%, mitigating some of the fall in revenue in the period.
John Wood said global oil and gas markets spent around 20% less in capital expenditure in 2015 compared to a year earlier, as explorers and producers rein in their spending in light of lower oil prices, which fell by around 30% over the year, to prioritise projects that can deliver near-term value at a reasonable price.
John Wood's results coincided with a release from Oil & Gas UK, the trade body representing the UK offshore industry - a key market for one of John Wood's largest divisions.
The trade body said less than GBP1.00 billion will be invested in new projects in the North Sea this year - only a fraction of the GBP8.00 billion spent on average per year over the last five years - which the trade body said is "sparking fears for the long term future of the industry".
Wood Group Engineering, which houses the company's Mustang and Kenny units, focuses on providing specialist engineering services to the entire supply chain of the oil and gas markets. The division reported a 19% fall in revenue in the year to USD1.72 billion, leading to a 7.5% decline in Ebita to USD214.7 million despite its Ebita margin improving to 12.4% from 10.9%.
Providing services to the upstream oil & gas market, which focuses on producing, contributed around 35% of the division's overall revenue in 2015 whilst sales of subsea & pipelines generated around 40% of the division's overall revenue. The balance was generated from providing services to the downstream segment of the market, focused on refining and other activities.
"The breadth and diversity of our Engineering business will continue to benefit us and we enter 2016 with backlog in a similar position to the previous year. Although there remains a lack of visibility of significant upstream and subsea projects, recent awards evidence continued customer support for our differentiated service offering," said John Wood.
The other major division, Wood Group PSN, focuses on providing services to brownfield projects in oil and gas markets, focusing on its customers' existing projects rather than new developments. The division saw revenue in 2015 fall by 26% to USD3.44 billion to produce Ebita of USD258.0 million, 25% lower than a year ago.
John Wood said the fall in revenue and earnings at PSN was mainly the result to a drop in activity in the UK North Sea and in the Americas, but said activity in other international markets "remained relatively robust".
The Americas, which includes the US, accounted for around 40% of the division's overall revenue and was hampered by the ongoing pressure on the US onshore market, whilst the UK North Sea contributed an similar proportion of revenue, with the rest coming from other markets, specifically the Middle East and Africa.
"Market conditions remain very challenging, particularly in our core onshore US and North Sea markets. Elsewhere, we continue to be encouraged by good opportunities internationally and we will benefit from a good contribution from the completed acquisitions of Infinity and Kelchner," said the company.
Wood Group PSN also houses a unit focused on joint ventures providing services for industrial gas turbines. Following the declines in other divisions, revenue fell 21% to USD676.0 million, but the unit went against the grain and reported a 33% lift in Ebita to USD44.2 million after its Ebita margin significantly increased to 6.5% from only 3.9%.
However, the turbine division was also the cause of a USD159.0 million impairment charge in 2015, which was booked against EthosEnergy and already announced prior to the results.
"In our turbine activities servicing the oil and gas markets we are focused on delivering efficiencies to support our customers and protect performance. On the power side, we are looking to drive performance with a continued focus on cost and efficiency," said John Wood.
Net debt at the end of the year stood at USD290.0 million - the lower end of John Wood's target to keep it within its "typical range" of 0.5 times to 1.5 times Ebitda. At the end of 2014, net debt stood at USD295.7 million.
"The group continues to benefit from a strong balance sheet and we are comfortable with the flexibility, diversity and maturity of our funding following the extension earlier this year of our USD950.0 million bilateral facilities to 2020," said John Wood.
"Our solid funding position facilitates productive reinvestment in our business. Organic investment and mergers & acquisitions remain our preferred uses of cash," it added.
The company has continued to invest despite the current market conditions, spending a total of USD234.0 million on small bolt-on acquisitions throughout the year, which was in addition to the USD83.0 million spent in capital expenditure on infrastructure, software and system investment, it said.
John Wood said the overall group managed a "relatively resilient performance" that was in line with expectations, as the company streamlined the business by focusing on cost efficiency, which included making a significant number of job cuts.
John Wood said it delivered annual overhead cost savings of USD148.0 million in 2015, and over 8,000 members of staff left their roles throughout the year - representing a 20% cut to the company's overall workforce.
The company's Engineering division saw its headcount fall by 21% after 2,300 people left the division whilst PSN reduced its staffing numbers by more than 10% as 2,700 members of staff were let go.
"Further spending reductions by customers will require continued focus on the controllable elements of our business. Our continued actions to reduce costs, improve efficiency and broaden our service offering through organic initiatives and strategic acquisitions, position us as a strong and balanced business in the current environment and when market conditions recover," said Chief Executive Robin Watson.
John Wood warned the tough trading conditions in 2015 have continued into the first quarter of 2016, and they look set to prevail throughout the rest of 2016.
"The expectation of a lower-for-longer commodity price environment has prompted many global E&P customers to reassess capex and opex spending plans. Industry commentators are anticipating further spending reductions in 2016, which would represent the first consecutive annual declines in spending in more than 20 years. In other markets we have seen more resilient demand for our services," said the company.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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Wood Group (J) (WG.)