Wood Group gives upbeat outlook as profits take a dive

● Results reflect mixed market conditions with North Sea environment ‘challenging’

Oil and gas services giant Wood Group has reported a sharp drop in half-year profits as it counts the cost of its deal to buy rival engineer Amec Foster Wheeler.

The Aberdeen group posted a profit of $6 million (£4.7m) for the six months to the end of June, down from $45m for the same period last year.

Earnings were hit by exceptional charges of $47.6m, including $25.2m of costs relating to the £2.2 billion takeover of Amec, which is due to complete by the end of this year.

The deal is expected to trigger about 1,100 job losses from a combined headcount of 60,000 and Wood Group chief executive Robin Watson said the cuts would be “pretty well distributed around the globe”.

Announced in March, the tie-up is targeting annual cost savings of “at least” $170m but will trigger one-off costs of about $231m in the first three years after completion. The new entity will be valued at about £5bn.

Watson said: “As we get near completion, we’re very excited about the prospect of bringing the two businesses together. We’re confident of getting the deal completed in the fourth quarter.

“We’re working very well with our Amec Foster Wheeler opposite numbers – we’ve now got 100 people working across both organisations on some detailed integrated planning.”

He added: “Scale is one thing but having a FTSE 100 company based in Scotland is a prerequisite for us in terms of doing the transaction. We’re really hopeful of a good news story for the Scottish economy as a whole.”

Under the deal, the headquarters of the enlarged group will be established in Aberdeen, with some head office roles moving to the Granite City. Watson said: “It won’t be a shadow head office that is really operated out of London.”

The latest results reflected mixed market conditions across Wood’s business, with the “challenging” North Sea environment offsetting a “robust” performance elsewhere.

The Competition and Markets Authority is considering proposals that would see Amec sell off “almost all” the assets that contribute to the supply of UK upstream oil and gas engineering and construction services, as well as operation and maintenance services in the North Sea, and Watson said a shortlist of “very credible” potential buyers had been drawn up.

In the group’s Asset Life Cycle Solutions eastern region, which includes the North Sea and Kazakhstan, headcount fell by almost 11 per cent from a year ago to stand at 15,600.

Watson added: “While we’re still in challenging markets, since the turn of the year our headcount has increased across the group. The UK still has 8,000-plus people and it’s still material in our business.”

Total revenues fell 11 per cent to $2.3bn but Wood declared a 3 per cent rise in the interim dividend to 11.1 cents a share.