John Wood Group PLC (WG.L) Earnings Call Transcript
June 1, 2022
Earnings Call Speaker Segments
Good day, and thank you for standing by. Welcome to the Sale of Built Environment Consulting Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Robin Watson. Please go ahead.
Thank you. Good morning, everyone, and welcome. I'm here with David, David Kemp, our CFO. And we're delighted to let you know we've reached an agreement to sell our Built Environment business to WSP for gross cash proceeds of around USD 1.2 billion and a total enterprise value of USD 1.81 billion. WSP, as you may know, is a global engineering and professional services company operating across the built and natural environment, and it's headquartered in Montreal, Canada. And they've been active in this space and offer a natural home for the business for our clients and, of course, for our people. The consideration itself implies an earnings value to EBITDA multiple of 16x comparing favorably to transactions in this space of the recent past, as an enterprise value, excuse me. The sale will result in a pro forma net cash position dramatically changing the shape of the group compared to the level of debt at our last year-end. Sale completion, of course, is subject to various conditions, including regulatory and shareholder approval, and we anticipate completion of this sale will take place in the second half of 2022. This is a very good deal. It recognizes a significant latent value that we've long believed to be in our consulting business. I'm confident this deal will not only unlock significant value for our shareholders but will also enable us to reset our balance sheet, improve future free cash flow and support our focus on our strategy, which is aligned with both energy security and sustainability. Immediate use of the proceeds will be focused on debt reduction and providing the financial flexibility we need to deliver on our strategy. Having a stronger balance sheet means we can then consider the best use of capital to maximize shareholder value, including ways of improving future sustainable free cash flow and the ongoing group through early settlement of liabilities, for example, removing the group's asbestos liability and accelerating existing regulatory payments, organic and inorganic investment to accelerate our strategy, and shareholder returns, again, for example, through the restoration of an ordinary dividend. Post-sale, we'll continue to focus on the attractive markets of energy transition and energy security as well as how best to utilize our core skills as consultants, engineers and technical leaders to explore how and where we apply our expertise in adjacent growth markets. In the short to medium term, we expect growth in our conventional energy market share, and we continue to build a strong footprint in renewables, hydrogen, carbon capture and storage and biofuels. We retain a very strong consulting business and offering to the market with over 3,500 professionals focused on this market across the globe with strong client relationships, innovative technology and a compelling track record. Consulting will continue to be our primary focus for the Wood business. The process of transferring our business will take some time, and we have a changed management team in place to lead this when the sale is complete. For now, we continue to work together as Wood focusing on delivering value for our clients, our people and of course, our shareholders. With that, and the [ RNS ], I'll now let -- David and myself will take any questions you may have. Operator, if we can maybe open the line to receive questions, please?
[Operator Instructions] And the first question comes from the line of James Thompson from JPMorgan.
And congratulations on the deal. Obviously, you're confident that the result has come through there. So kind of good to see. I just wondered if you could maybe just give us a little bit more color on the regulatory process from here. I mean, obviously, you're talking about a second half completion, which suggests that you are -- obviously, I think that this will go through quite reasonably quickly. But just if you could remind us on the process, what approvals you need from regulators because the combined WSP and Wood Group Built Environment is going to be leading, a top 2 player in the environmental consultancy business.
Yes. Let me pick that one up, James. It's your typical antitrust and FDI conditions. And so the antitrust is principally U.S. and Canada where the major part of the business but also includes Saudi. I guess our assessment is we're very confident that those approvals will be given in due course as is our counterparty, WSP.
Okay. And then just in terms of use of proceeds, I mean, I know that you're obviously going to go to net cash to begin with. I think that, obviously, is a good place. You obviously talked about some of the kind of liabilities that you'd look to address over the coming weeks and months. Can you just remind us of that, the priorities there or maybe the order that you might look to address those?
Yes. I think when we did our results in April, we set out that clearly, the first use of the proceeds is around strengthening our balance sheet and reducing our net debt. And then after that, we have a variety of options, of which we've been consulting with shareholders, and we'll consider that -- we'll continue that consultation. So one of them is, as you identified, reducing liabilities, such as we have an asbestos liability. And alongside this process, we've also been running a sales process for that asbestos liability. We also have options around looking at our regulatory payments. We're still $80 million of payments to make, $40 million in 2023 and $40 million in 2024. And so these are the liabilities that we're looking at. Well, in paying these off early, we would significantly improve our future sustainable free cash flow. And that's attractive to us and has also been attractive to -- generally, to our investors. There's also other options around the cash flow that we've identified. Clearly, there's organic and inorganic investment to accelerate our strategy and then the shareholder returns. And in our mind, that's closely linked to improving that future free cash flow. We want to be in a position where the free cash flow that we generate year in, year out supports investment and supports a return of our ordinary dividend.
Next question comes from the line of Kevin Roger from Kepler Cheuvreux.
Yes. I would have a question that is relatively, let's say, outside of the deal that you announced this morning, but in the press release, you say that you have revised the covenant on the revolving credit facility. So clearly, it's a short-term effect because it will be net cash. But the fact that you revised the RCF covenant, does it mean basically you would have break it at the H1 earnings, if you would keep it at 3.5x?
Yes. The reason we -- the principal reason we extended our covenants to 4.5 is related to the working capital statements that we produced in the circular. So it's protecting against the downside risk that we -- analysis that we would go through as part of that working capital statement in the circular. So it's not intended to give any guidance about the half year. For the avoidance of our guidance at the half year in terms of our net debt is the same. We expect our net debt to increase at the half year, principally driven by our typical working capital cycle but also because we've made the $40 million of regulatory payments in the first half that we are scheduled to make.
Okay. I understand. And sorry for this technical question, but can you explain us why you are mentioning the EBITDA pre-IFRS 16 in the multiple that you mentioned, the 16x EV/EBITDA pre-IFRS. Because if you include it, it's at 12x. So I was wondering what are the reasons for mentioning an EBITDA pre-IFRS, please? It was the technical element.
Yes. No, I can pick that one up. Surely because it is almost traditional in terms of deals of those types to use the pre-IFRS 16 multiple. Obviously, post-IFRS 16 is not uniform across the world. When we've looked at -- and we've talked about the transactions multiples before we've used pre-IFRS 16. And I think on various calls and engagements, we highlighted a range that we thought from recent precedent transactions that was 12x at the bottom end of that range, PA Consulting, which was a 15x multiple, I understand. And then at the top end was a 17x multiple. And so these were all pre-IFRS 16 multiples. And if you relate it back to our deal, we're near the top end of that range, which obviously we're very pleased about.
Next question comes from the line of Rachel Fletcher from Morgan Stanley.
Two very kind of quick ones for me. So could you give any timing on when we may expect the circular fees? And then also on kind of net debt and net cash, so including the sale year-end net debt would be -- you'd now be in a net cash position. How should we think about net debt for Wood and what the right level of net debt might be going forward?
Okay. I can pick them up, Rachel. In terms of the circular, we hope to get the circular out within the next couple of weeks. Some of that is not within our control. Obviously, it was an interaction with the FCA there. But we've been going through that process already. So it's quite well progressed. So we'd expect it to go out in relatively short order. In terms of net debt, what the circular will see and what the press release says, over the -- beyond the initial transaction, we expect to manage our net debt within the range of 0.5 to 1.5x net debt to EBITDA. And so that would be the range going forward. Clearly, on day 1, as we're highlighting, the proceeds will be just used to pay down debt.
[Operator Instructions] There are no more questions at this time. Please continue.
If there's no further questions, we'll maybe wrap it up there. If there's any further questions, obviously, you can reach out to Simon. And maybe just to close, just to reiterate, we are very pleased to conclude a sales purchase agreement for the Built Environment business. We think it's a very attractive multiple. And we're very pleased that we've delivered it in the time frame that we said we're going to deliver it in. And so with that, I wish you all good morning and end the call.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.
Read the full transcript via the API
You're viewing the first half of this call. Get the complete John Wood Group PLC transcript - plus 251,000+ transcripts from 12,000+ companies, speaker segments and full-text search - through the EarningsAPI REST API or hosted MCP server.
Get an API key View API docs →For developers and AI pipelines
Programmatic access to John Wood Group PLC earnings transcripts and 251,000+ others is available through the
EarningsAPI REST API and the hosted MCP server.
Quarterly plans from $105 - full transcripts, speaker segments, full-text search,
and the /api/v1/transcripts/recent polling endpoint for ETL pipelines.