“In the first half we have seen continued momentum in trading, cost and revenue synergy delivery. Increased activity in the first half has been led by minerals processing and automation & control.
Our full year outlook is unchanged. We are continuing to see early signs of recovery in our core oil & gas market and good contract awards in broader industrial sectors. We remain on track to deliver growth in 2018”, said Robin Watson, Chief Executive.
H1 trading performance and outlook:- In the first half, continued trading momentum has resulted in higher activity delivering revenue growth across our business. We anticipate delivering first half revenue of c$5.1bn – c$5.2bn and EBITA in the range of c$250-c$260m.
Net debt at the end of June is anticipated to be approximately $1.7bn which reflects improved operational cash generation. We remain confident of delivering a stronger second half due to our typical second half bias and the phasing of cost synergies, projects and market recovery.
Asset Solutions Americas:- Capital projects accounts for c85% of segment revenue. We have seen increased EPC activity on projects in power and in downstream & chemicals, and these are the largest contributors to capital projects revenue.
Improvement in US shale is continuing, with activity focused on the Permian and Niobrara basins. In offshore upstream we remain active on a number of greenfield projects. Our operations services work accounts for c15% of segment revenue.
Challenging conditions in the Gulf of Mexico and the completion of commissioning work in 2017 have resulted in weaker performance in H1 2018. In US shale, we are seeing an improvement in maintenance activity as expected.
We have made good progress on revenue synergies, securing the engineering, procurement & construction, commissioning and operations scope for upstream assets in Trinidad.
Asset Solutions Europe, Africa, Asia and Australia:- Capital Projects accounts for c40% of segment revenue. Activity remains robust on projects including PMC work in Kuwait, our engineering and project management scope on the Marjan field for Saudi Aramco and our rejuvenation project for Brunei Shell Petroleum.
We are encouraged by recent wins including the Saudi Aramco/SABIC integrated crude oils to chemicals complex and the engineering, procurement and construction management scope for the TEVA biotech facility.
We are seeing the strongest growth in Asia Pacific, where the Exxon Mobil contract in Papua New Guinea continues to perform well, and also in the Middle East where our work with Basra Gas Co is increasing.
North Sea activity is showing moderate growth on 2017 albeit from a low base and is expected to strengthen in the second half. Turbine joint ventures accounts for c15% of revenue.
Relative strength in RWG is being offset by weaker performance in EthosEnergy. Operations services activity accounts for c45% of segment revenue.
Specialist Technical Solutions:- In minerals processing we have good visibility on work in South America and in Australia including the Gruyere gold EPC project and are encouraged by recent wins including the Tasiast gold mine expansion project in Mauritania.
Volume in automation and control is up with the TCO project a significant contributor. Activity in nuclear is improving and subsea remains robust. Our full year outlook is unchanged. We are confident of delivering FY 2018 EBITA in line with guidance and market expectations.
Environment and Infrastructure Solutions:- E&IS is seeing good activity across environmental remediation consultancy and engineering & construction project management services predominantly in North America.
Full year performance will benefit from increased activity as a result of US government and industrial spending and the cost overruns on projects experienced in 2017 not repeating.
Synergies:- Our integration programme remains ahead of schedule. We have delivered c$20m of cost synergies in the first half against an expected total of >$50m for the full year.
We anticipate an exit run rate of >$80m by the end of the first year post completion, with the majority of cost synergies being recognised in the Asset Solutions business units.
In line with previous guidance, costs to deliver are expected to be c$65m with c$40m recognised in exceptional costs and c$25m in capital spend. Around half of the $65m will be recognised in H1.
We remain confident of delivering annualised run rate cost synergies of at least $170m by the end of the third year following completion. We are making good progress on revenue synergies and have secured work on multi-year contracts worth >$300m.
This includes our contract with Saudi Aramco/SABIC to support their integrated crude oils to chemicals complex and an engineering, procurement & construction, commissioning and operations scope for upstream assets in Trinidad.
We are also seeing a number of awards that leverage involvement in earlier stages of projects, strong in-country presence and enhanced capabilities including a maintenance scope with an IOC in Qatar.
Deleveraging and cash flow:- Net debt at the end of June is anticipated to be approximately $1.7bn which reflects improved operational cash generation. Despite our usual H1 working capital outflow, we anticipate strong operational cash generation.
On a proforma basis, our continued focus on working capital management has delivered a significantly improved working capital position than H1 2017. In addition our recently established receivables facility provides working capital funding at a cost lower than our existing facilities.
The facility can be drawn for up to $200m and has accelerated cash of around $50m as at 30 June. The payment of the 2017 final dividend of $155m, capex, tax, interest costs and a number of expected exceptional items offset the strong cash generation from operations.
The expected exceptional costs include c$20m of costs to deliver synergies, c$20m in respect of onerous leases, c$15m in respect of transaction related costs and c$10m in respect of deferred consideration on acquisitions.
Deleveraging to within our preferred range of 0.5x to 1.5x within approximately 18 months post completion remains a key priority. We currently anticipate that net debt and our net debt to EBITDA ratio will improve in the second half as we grow the business and continue our focus on working capital management.
In addition, our focus on capital discipline will reduce capex and intangible spend to c$80m in 2018 which includes c$25m related to cost synergies delivery. Our asset disposal programme is progressing well and we anticipate announcing disposals in the second half.