New Wood chief declares Aberdeen-based giant must do better for investors

Ken Gilmartin, who succeeded Robin Watson in July, said Aberdeen-based Wood had a “strong platform” for growth, highlighting its technical expertise and positioning to take advantage of demand from “critical industries” such as energy transition and security, decarbonisation, minerals, chemicals and life sciences.

But Mr Gilmartin, who first joined Wood as chief operating officer in September from Jacobs last year, declared that “there are some areas we need to improve on at pace”.

His comments came as Wood reported a 0.4 per cent fall in first-half revenue from continuing operations to $2.56 billion. But it emphasised its expectations of a stronger second half, following a five per cent increase in the value of its order book to $6.4bn.

The company is in the process of completing the sale of its built environment business to WSP Global for around $1.62bn, and plans to use to the proceeds to reduce its debt. The proceeds may also be used by the company to reinstate its dividend; Wood’s last pay-out to shareholders was an interim dividend in September 2019.

Wood said it was working on updating its strategy and told the City it would provide details at its capital markets day on November 29.

In a statement to the City, Mr Gilmartin said that the company has “not delivered value to shareholders” in the last few years. While this was partly because of Covid and lower customer investment, he said performance shortcomings had been “exacerbated by company-specific issues”. These include “insufficient discipline in project selection, leading to inconsistent financial outcomes”, “high levels of restructuring, both in quantity and financial costs”, and a series of “legacy issues”.

He said: “These issues, combined with the market challenges, led to a lack of cash generation, a stretched balance sheet and a failure to meet financial expectations.”

Mr Gilmartin told The Herald: “There is a reality in what we are doing. The business has however been on a journey for a period of time to start addressing some of those [issues].

“The work that we have done to de-risk the business model, moving away from higher-risk, maybe lower-return, lump-sum turnkey work to really getting into more of that cost-reimbursable contract play… that has been work that has been going on for a period of time and we will continue to drive that.

“One of the keys to unlocking a lot of what we want to do, and what we need to do from [a] shareholder return [perspective] is that consistent performance that generates sustainable free cash flow, and making sure that we can sustain that over a period of time. That is one of the key things we are going to be measured against and will be very important to shareholders.”

While Wood has steadily reduced its exposure to the North Sea in recent years, Mr Gilmartin underlined the continuing importance of the basin to the company, stating it was central to its “foundation” and “heritage”. He said that the company had won a major contract extension in the first half with Equinor, which will see it continue to provide maintenance, modifications and operations solutions to its assets in the Norwegian Continental Shelf in the North Sea until 2026.

Shares in Wood ended the day up 2.4% at 146.35p.

He also noted that Wood’s expertise in the North Sea was seen “best in class”, with specialisms in areas such as data and energy transition able to exported to other countries.

Asked if the company had been seeing an upturn in North Sea activity because of heightened concerns about energy security arising from Russia’s war in Ukraine, he highlighted that clients were re-assessing assets in the area, including their longevity, while at the same time as moving to decarbonise them, both of which Wood stood to benefit from.

Wood said that, in light of current levels of debt, its board has decided not to recommend any dividends in relation to 2022. It said it would consider its approach to dividends in 2023.

Shares in Wood closed…