Wood Group profits tumble before £2.2bn Amec takeover

WOOD GROUP profits have plummeted by over three quarters in the first half of this year as it prepares to swallow its oil services rival Amec Foster Wheeler and conditions remain tough for oil industry contractors.

The dramatic plunge in pre-tax profits to $13.5m (£10.5m) for the six months to June from $59.3m the year before underlines the Aberdeen-based group’s rationale for the £2.2bn deal.

Oil services are continuing to struggle in the wake of the market crash in 2014 as major oil companies cut back on spending and increasingly take a do-it-yourself approach to maintaining their oil rigs. Wood Group hopes the deal will reduce its reliance on the oil industry, where market prices are expected to stall over the coming years, in favour of Amec’s more diverse portfolio of clients.

Robin Watson, Wood Group’s chief executive, said the painful first half is the result of “difficult market conditions” across the industry and would give way to a better second half. His expectations for the full year are therefore unchanged. In contrast, Amec’s final results before the deal completes revealed better-than-expected earnings and a return to profit for the first half of the year, due in large part to the overhaul it started before Wood Group’s approach.

Jon Lewis, Amec FW boss, insisted the deal is still a “no-brainer” for the company because it is the “right thing to do” from a strategic point of view.

“It’s a value-creating deal which will create one of the world’s largest engineering construction companies against a backdrop of accelerating consolidation in the space,” he said. Before Wood’s approach the debt-wracked company was on the brink of a £500m rights issue to shore up its balance sheet. Mr Lewis’s turnaround scheme helped drive the company from a pretax loss of £446m last year to a £77m profit for the first half of this year.