Wood Group's £76m profits expected to allay shareholder fears
www.sundayherald.com By John Phelps
WOOD Group, the Aberdeen-based energy services company that swept the board at last week's Scotland plc Awards, could face a cooler reception from investors tomorrow when it checks in with its first set of annual results since floating on the stock exchange last year.
Through no fault of its management, led by chairman and chief executive Sir Ian Wood, the bulk of Wood Group's more recent investors are sitting on sizeable losses following a sharp fall in the company's share price since the group made its splash on flotation last May.
The shares, offered for sale at 195p each, quickly climbed to 230p early last summer but are now trading at just 145p amid stock-market worries about the impact of the crisis in Venezuela and fears over the pending conflict in Iraq.
Small shareholders may fret but the biggest losers are the Wood family who still own 48% of the company and have seen their investment decline from more than £500 million to a current level of around £275m.
Despite the share-price slide, Sir Ian is expected to confirm that his company has gone some way towards justifying its new title of Scotland's plc of the Year by matching earlier forecasts of maiden annual profits of around £76.5m.
He will emphasise that the Middle East as a whole only accounts for about 6% of business, a similar level to its exposure in South America, and that the group has a high degree of protection through its spread of business activities in more than 30 countries around the world.
These activities include an increasing involvement in safe areas such as the Gulf of Mexico and the US while Wood's work in the North Sea includes project management and detailed engineering for BP Clair, the largest current new field development.
The group also has expanding interest in gas turbines services and has high hopes for its new test facility in Aberdeen which has been carrying out work for Alstom Tornado and Typhoon light industrial turbine engines.
Wood is also in a comfortable situation to ride out current uncertainties because of the strength of its balance sheet following the flotation -- net debts worked out at around £131m at the end of June, just 27% of the value of the group's net assets.
While prospects must be clouded by current global uncertainties, most brokers believe Wood Group is poised for further growth in the current year and a consensus produced by Multex forecasts an increase in earnings before interest, tax, depreciation and amortisation from £100m to £122.7m.
Their optimism reflects the chairman's own view that the business can continue to grow in a hostile climate.
'The group has the management team, strategy and market opportunities to continue to develop a major international energy services business capable of delivering significant growth in shareholder value,' he said.
Those who clambered aboard last year's flotation must be hoping that he is right.
As things stand, the forecasts illustrate the huge strides made under Sir Ian, who was feted as Scottish chief executive of the year at last week's awards dinner. When he took over the family business in 1964, it was mainly involved in fish processing and farming before he steered it into new areas such as ship repair and sheet metal. Then, in 1972, Sir John spotted the potential of the nascent North Sea oil industry.
Despite almost breaking the $40-a-barrel mark 10 days ago, oil prices were more stable on Friday ahead of a key report on Iraq by United Nations weapons inspector Hans Blix. After Blix delivered a mixed report on the disarmament process in the country, Brent crude futures for April initially rose 26 cents to $33.79 a barrel, while US light crude rose 50c to $37.45 a barrel.
One US oil analyst admitted that crude oil would continue to remain hostage to higher prices because inventory levels were now at record lows.
'There seems to be no chance for immediate relief as Opec [the Organisation of the Petroleum Exporting Countries] is also at the upper end of its production limits,' he said.
Oil prices have been volatile in recent weeks, with the threat of war in the world's eighth-largest oil exporter combining with fears about world energy stocks and the effects of strike action in Venezuela.
Iraq's deputy oil minister warned on Friday that if a US-led invasion begins, the price of oil could reach $70 a barrel.
After US markets reacted badly to disastrous US jobless figures and several poor company results, the FTSE-100 closed on Friday 63.8 points, or 1.79%, lower at 3491.6, having earlier slid as much as 2.3%.
www.woodgroup.co.uk