Energy services group, Worley has emerged as a major victim of COVID after a trading update Monday for the first six months of 2020-21 revealed a big slump in revenue and earnings.
The contents of the update saw shares in the company slump to a near three-month low as Worley warned said the global acceleration of COVID-19 infection rates since October had further impacted demand in its end markets, including ongoing project deferrals.
Shares fell 15% per cent to $9.54 the lowest since early November but then steadied and edged back to end the day down 10.9% at $10.18.
Worley said it is now looking at a 25% fall in revenue for the half year to a range of $4.4 billion to $4.5 billion compared to last year’s $6 billion.
Underlying earnings before interest, tax, and amorisation (EBITA) is forecast to be in the range of $200 million to $210 million.
This compares to forecast EBITA of $366 million. That’s a huge impact and judging from what the company said there seems to be more hope than certainty that the second half will see a significant turnaround.
Management noted the pandemic had seen several projects deferred and tried to be upbeat.
While project start dates have been pushed back, Worley says it is seeing few cancellations. Management hopes these deferred projects will restart when the global economy improves.
It also was quick to point out that the group “continued to generate strong operating cash flow” and had vcut net debt by $1.2 billion to its lowest since its ECR acquisition in 2018.
Operating cashflow for the half was estimated at $A250 million to $255 million, short of the $277 million for the December,2019 half year.
Further, the company says the earnings weakness is being partially offset by cost savings from a headcount reduction to around 47,600 and synergies from the ECR transaction (They were promised three years ago in the wake of the $A4.5 billion ECR takeover).
Adding to the feeling of ‘hope’ rather than certainty, Worley management believes the new US Biden presidency will be great for its business.
That is seeing Worley changing focus towards renewable energy projects and away from carbon.
“The clear shift in the political environment in the USA as well as ongoing policy rollout and anticipated increases in investment in the UK, Europe and Canada provide near-term opportunities in hydrogen, electrification, carbon capture, offshore wind and nuclear, while North America remains buoyant in renewable fuels and circular economy projects,” Worley said in the statement.
CEO Chris Ashton said in Monday’s statement “Although the ongoing impacts of the pandemic are deferring some of our existing projects, we expect they will restart when economic circumstances improve. We’re still winning new work and we’re actively engaged in supporting our customers on their sustainability journey.
“Cash continues to flow from our customers on previously agreed terms and we’ve improved our liquidity position. We have a new and more efficient way of working, continue to manage headcount and have ongoing overhead cost saving programs in place.
“The actions we’ve taken to manage what’s in our control and our pivot to sustainability have provided us with a strong platform to grow the business as COVID-19 related economic circumstances improve and deferred projects restart,” he said.
The firm will announce its statutory interim result on February 23.
