Scottish engineering giant Wood has posted a near $1 billion (£0.8bn) loss but said it remains busy in the North Sea amid fears that tax hikes will devastate the area.
Aberdeen-based Wood lost $983 million after tax in the first six months compared with $56m last time as it slashed the valuation of operations acquired under previous management.
The company booked a $815m charge after concluding some of the businesses would make lower profits than previously expected.
Chief executive Ken Gilmartin said the bulk of the charge related to operations acquired through the $2.7bn takeover of Amec Foster Wheeler in 2017.
This was master-minded by former chief executive Robin Watson, whom Mr Gilmartin succeeded in 2022.
Mr Watson said the acquisition would help Wood expand in markets such as windpower and hydrogen and reduce its reliance on oil and gas work.
READ MORE: Green energy output slump poses challenge for SNP Government
However, Wood has had to deal with a series of issues at Amec Foster Wheeler following the takeover.
Mr Gilmartin said the write offs formed part of a “tidy-up” process that he completed with new chief financial officer Arvind Balan.
Stressing the accounting provisions would not trigger cash charges, he said Wood performed well in the six months to June 30. The group is delivering to plan, 18 months into what is a three-year turnaround strategy.
This involves focusing on higher margin business areas and reducing the group’s exposure to large fixed-sum contracts, under which it had to cover cost overruns. Wood booked a $140m charge in the first half related to its withdrawal from that market.
Mr Gilmartin noted that Wood grew its order book 4% in the first half, to $6.2bn from $6bn. The value of the group’s sales pipeline increased by 8% in the second quarter.
Mr Gilmartin said Wood has enjoyed success in recent months in the market to support North Sea oil and gas firms, in which the group made its name.
READ MORE: Oil firms cut 'major' North Sea deals amid Labour tax hike threats
The group’s operations unit, has benefited from a spike in activity. It helps firms maintain existing assets.
“In our pipeline from an operations standpoint … it’s the strongest it has been for a period of time,” said Mr Gilmartin.
He added: “We’re seeing clients continue to squeeze more out of installed assets.”
Wood’s clients are also continuing to invest to support the drive to reduce emissions associated with production and to reduce its carbon intensity, noted Mr Gilmartin.
The positive report comes amid fears that oil and gas firms will slash North Sea investment in response to the Labour Government’s plans to increase the windfall tax rate and to scrap related allowances.
Industry leaders say the changes could deter firms from developing new assets.
Without criticising Labour’s plans, Mr Gilmartin warned that tax changes could scare off the investors the UK will have to rely on to fund the transition to a lower carbon energy system. He stressed that this must be done at the same time as ensuring the security of energy supplies.
Wood’s share price has plunged since earlier this month when a middle eastern bidder that had stalked the business since May decided to walk away.
Sidara dropped plans to make a 230p per share bid for Wood after completing due diligence citing rising geopolitical risks and financial market uncertainty.
In April a significant investor in Wood, Sparta, said Wood may have to be sold to allow shareholders to recoup some of the value lost following falls in the group’s share price.
READ MORE: Scots engineering giant under fire as stock market 'curse' hits country
However, Mr Gilmartin insisted the growth plan he has put in place will create value for shareholders.
He said the group is on course to start generating significant free cash flow from its operations from 2025. This will represent an inflexion point for Wood.
Wood grew earnings before interest and tax by 14% in the first half, to $102m from $89m.
Total revenues fell to $2.85bn from $3bn.
Wood faced a £1.7bn takeover bid from Apollo last year but the US investment giant decided to walk away.
John Moore, senior investment manager at RBC Brewin Dolphin, said it was noteworthy that Wood had attracted bids at a significant premium to its current share price.
Noting that the results statement indicated that strong free cash flow and greater profitability are on the horizon, he said execution of the group’s strategy would be key to its independence and future prosperity.
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