Market conditions remain challenging in 2016 and we have seen further margin pressure in an environment of expected lower activity by operators. Year to date financial performance, although down on 2015, continues to benefit from the breadth of our offering, our focus on management of utilisation in response to demand, and structural overhead cost savings. We anticipate that full year EBITA to 31 December 2016 will be around 20% lower than 2015, in line with current analyst consensus expectations.1
In Upstream, we have continued to provide follow on and operating support services on Det Norske Ivar Aasen and Hess Stampede and have commenced work on our six year c$400m maintenance and modifications contract with Statoil in Norway. Activity levels also increased on Peregrino phase II for Statoil and a significant automation scope with Tengizchevroil, as these projects progress towards the detailed design phase. Overall, there is no change in the slow pace of sanctioning significant new detailed engineering projects.
In Subsea, we continued our activity on projects such as BP Shah Deniz and also progressed to the detailed design phase of the Greater Western Flank Phase 2 project for Woodside in Australia. Also in Australia we marked a 10 year milestone on our successful joint venture working on Chevron Gorgon, where we are now engaged on pre-FEED work around additional tie backs. In a very subdued market, our solution-independent model is securing a number of smaller conceptual, FEED and consultancy workscopes including Shell Prelude and a number of awards with Statoil in Norway. Our US onshore pipelines business continues to perform well with customers including Dow and ETC, with work on the Dakota access pipeline project expected to continue throughout 2016.
Our underlying Downstream, process and industrial activities, including the refinery modification project for Flint Hills, are performing in line with prior year.In April, we completed two small Engineering acquisitions which enhance our technology offering. Ingenious Inc is a Houston based supplier of performance monitoring and production planning software which will enhance our automation offering. SVT Engineering Consultants is an Australia vibration analysis consultancy whose services will significantly enhance our offering in integrity management building on the acquisition of Beta and organic investment in 2015.
In the Americas, we expect relative strength in South and Latin America, together with the contribution of the acquisitions of Kelchner and Infinity in the fourth quarter of 2015, to largely offset weaker performance in our underlying US shale business. In US shale we are seeing continued pressure on volumes and pricing in our opex focused lease maintenance and labour supply business. We are taking further steps around structural cost reduction in this area which will position us well to respond when the market recovers.
The tough operating environment in the North Sea has persisted and we are seeing additional pressure on margins. We remain aligned with customers’ efficiency initiatives and in February we further reduced contractor rates and continue to focus on reducing our cost base. Customer support remains strong. In addition to renewals with Taqa and Nexen, our commitment to cost effective solutions was recognised in the award of a three year contract with Shell for maintenance and construction work on eight of their North Sea assets. This award predominantly replaces the scope under our previous contract. Our industrial services business also secured new work with Shell and with Babcock in the marine sector.
Performance in our international business has been robust. We have benefitted from work in Iraq, where we have recently secured two new three year contracts; our brownfield contract with Conoco in Australia announced in December 2015; and our five year contract with Shell in Gabon awarded in August 2015. In April, we also secured a new $500m contract for EPCM services on BP’s offshore assets in Azerbaijan.
In Turbine JVs, a robust performance in RWG has been somewhat offset by performance in EthosEnergy.
Cash flow, financing and dividend
We recently extended our $950m bilateral bank facilities until 2021 at the same competitive rates. Our balance sheet strength, cashflow generation and longer term confidence support our intention to increase the dividend per share by a double digit percentage in 2016.
As previously announced, David Woodward will retire from the Board at the AGM and Jann Brown will follow David as senior independent director. Richard Howson, Chief Executive of Carillion plc, will join the Board on 12 May and will also join the Board’s Nomination and Safety, Assurance & Business Ethics Committees.
Market conditions remain challenging in 2016 and we have seen further margin pressure in an environment of expected lower activity by operators. We anticipate that full year EBITA will be around 20% lower than 2015, in line with current analyst consensus expectations.1 Our continued focus on reducing costs, improving efficiency and broadening our service offering through organic initiatives and strategic acquisitions, positions us as a strong and balanced business in both the current environment and for when market conditions recover. A trading update for the first half of the year will be provided on 30 June 2016.
Martin Lane, representative at www.money.co.uk, commented:
‘More bad news for Wood Group after last week’s announcement that the firm is looking to make even more redundancies. With no end in sight of rock bottom oil prices the engineering company have their hands tied.
‘There are many winners and losers when oil is cheap, however consumers benefit with low-priced petrol at the pumps and reduced energy tariffs. Inflation is also kept low and the UK economy grows faster, all good news for consumers. A word of caution though-don’t get too used to these reduced prices, they can’t stay this low forever, it’s simply not sustainable.’
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