Britain’s Engineering Giant Wood Group Forecasts Negative Cash Flow

John Wood Group Faces Financial Turmoil as Shares Plummet 55%

John Wood Group, a global leader in oil and gas engineering, faced a severe blow to its stock price on Friday as its shares plummeted 55% on the London Stock Exchange. The drastic decline followed the release of a discouraging trading update, which revealed that the company’s cash flow for the year would be negative—contrary to its earlier projections of a positive cash flow. This news sent shockwaves through the financial markets, raising concerns about the firm’s financial health and operational stability.

The update also highlighted the findings of a major operational review conducted by Deloitte, which uncovered significant weaknesses and failures in Wood Group’s governance. These findings underscored deeper structural issues within the company, further rattling investor confidence. In response to the crisis, Ken Gilmartin, Wood Group’s CEO, acknowledged the challenges, stating, “This is a difficult announcement amid our transformation. While we have made progress, I am disappointed in our financial performance. Consequently, we are taking decisive actions to ensure we can meet the opportunities we have in growing markets, principally energy.”

Governance Failures and Financial Struggles

The Deloitte review, which focused on Wood Group’s projects division, exposed material weaknesses and failures in governance, raising red flags about the company’s internal controls and decision-making processes. These issues have been a long time coming, as the Aberdeen-based firm, which operates in 60 countries and employs around 35,000 people, has faced significant challenges in recent years. Pressure from activist investors has been a constant factor, with calls for strategic changes, including the potential sale of the company.

Two major takeover deals were abandoned in recent years, further destabilizing the company’s position. The first, a proposed acquisition by Sidara, a Dubai-based firm, was scrapped due to global market turmoil and geopolitical risks. The second, a bid by Apollo Global, a U.S.-based private equity firm, worth approximately £2.2 billion, was also dropped in May 2023 after months of negotiation. These failed deals have left Wood Group in a state of flux, struggling to chart a clear path forward.

Strategic Measures to Address Financial Woes

In an effort to stabilize its financial position, Wood Group has announced a series of strategic measures. The company is working to strengthen its financial culture, governance, and controls, directly addressing the weaknesses identified in the Deloitte review. Despite the negative cash flow projection, Wood Group has emphasized that the review’s findings are unlikely to have a material impact on its cash position or ability to generate cash in the long term.

The company has also set its sights on returning to positive free cash flow by 2024, after预计 a potential negative free cash flow of up to $200 million in 2025. To achieve this, Wood Group is focusing on generating cash through asset sales and implementing a cost-cutting program. One significant step in this program is the cancellation of employee bonuses, a move that reflects the severity of the financial challenges the company is facing.

Operational Challenges and Future Outlook

Wood Group attributes its poor financial performance, in part, to weaker trading in the fourth quarter, which has compounded the difficulties it has been facing. Despite these challenges, the company remains optimistic about its future, particularly in the growing energy markets. However, the road to recovery will not be easy. In its recent filing, Wood Group acknowledged that while the measures it is taking will put the business on a firmer operational footing, cash generation has yet to materialize, and significant work is needed to restore financial strength.

The company projects underlying earnings for 2024 to be lower than anticipated, with EBITDA expected to fall between $450 million and $460 million. This compares unfavorably to its reported 2024 revenue of approximately $5.7 billion, highlighting the scale of the financial pressures it is under. The challenges facing Wood Group are further compounded by its substantial debt burden, which has been a major issue since its acquisition of rival Amec Foster Wheeler in 2017 for £2.2 billion.

The Road Ahead for Wood Group

As Wood Group navigates this difficult period, the focus will be on restoring investor confidence, improving governance, and ensuring financial stability. The company’s ability to execute its strategic plans, particularly in terms of cost-cutting and asset sales, will be critical in determining its future trajectory. While the outlook for 2024 and 2025 appears challenging, Wood Group remains optimistic about its ability to capitalize on opportunities in the energy sector, a market that is expected to grow as the world transitions to cleaner energy sources.

However, the company’s success will also depend on its ability to address its governance failures and operational weaknesses, as identified by the Deloitte review. Without significant improvements in these areas, Wood Group risks falling further behind its competitors and struggling to regain its footing in the global oil and gas industry. For now, the company is taking a cautious approach, focusing on the immediate steps needed to stabilize its finances and position itself for long-term growth. The coming months and years will be pivotal for Wood Group as it works to overcome its current challenges and build a more sustainable future.