Wood Group Announces FY24 Trading Update, Independent Review, and Refinancing Plans
Why we think this is bad
The RNS indicates a challenging trading environment for Wood Group, with weaker-than-expected performance in Q4 2024 leading to lower-than-expected adjusted EBITDA and EBIT. The company is also facing significant issues identified by an independent review, including material weaknesses and failures in its financial culture, governance, and controls. This, combined with the expected negative free cash flow in 2025 and the need for further cost reduction actions, suggests a deteriorating business outlook. While the company remains optimistic about its long-term growth potential, the near-term challenges and uncertainties are concerning.
Key Points
- Weaker-than-expected Q4 2024 trading performance
- Adjusted EBITDA of $450-$460 million and adjusted EBIT of $205-$215 million in FY24
- Order book increased to £6.2 billion, reflecting major contract wins
- Independent review identified material weaknesses in financial culture, governance, and controls
- Negative free cash flow of $150-$200 million expected in 2025
- Targeting $150-$200 million in disposal proceeds in 2025 to offset negative free cash flow
- Positive free cash flow expected from 2026 onwards
Summary
Wood Group announced its FY24 trading update, providing details on its financial performance, operational highlights, and an updated outlook for 2025. The key points include:
- FY24 adjusted EBITDA of around $450-$460 million and adjusted EBIT of $205-$215 million, broadly in line with guidance but supported by actions taken in Q4 2024.
- Order book increased to around £6.2 billion, reflecting major contract wins in Projects and Operations.
- An ongoing independent review has identified material weaknesses and failures in the company's financial culture, governance, and controls, which the company is now addressing.
- Negative free cash flow of $150-$200 million expected in 2025, due to the impact of weaker trading, costs related to the review, and legacy claims liabilities.
- Targeting proceeds from disposals of $150-$200 million in 2025 to offset the negative free cash flow.
- Positive free cash flow expected from 2026 onwards, supported by cost reduction actions and underlying business growth.
The broker targets indicate a mix of Buy and Hold recommendations, with price targets ranging from 150p to 250p.