Energy firm’ s shares up following takeover news Oil: Wood expects bigger cost savings

Wood’s shares lifted yesterday after the energy service giant revealed its takeover of Amec Foster Wheeler (AFW) would generate bigger cost savings than previously anticipated.

The Aberdeen-headquartered firm expects to achieve annual cost synergies of £164 million within three years of the acquisition, up £30m compared to earlier estimates.

Wood chief executive Robin Watson said the revised estimate was “a real positive endorsement” of the firm’s confidence in the £2.2 billion AFW deal completed last autumn.

Shares were up 7.65% to £7.12 at the market close in London.

Wood said it was encouraged by recent oil price stability and it hoped to benefit from predicted increases in “international upstream spending”.

Oil and gas remains Wood’s “core market”, accounting for about 60% of its revenue.

Mr Watson said he was “pleased” with the firm’s trading performance in the first half of 2018, as group revenue on a pro forma basis rose by 13.4% to £4.2bn.

But the company reported pre-tax losses of £19.7m in the first six months of 2018, against a surplus of £10.5m a year ago. Net debt totalled £1.2bn at the end of June.

“We are encouraged by our ability to broaden our UK footprint”

Wood’s balance sheet was hit by non-cash amortisation charges of £97m. It was also impacted by exceptional costs of £79m, including anticipated costs of delivering synergies and an impairment charge on its EthosEnergy venture with Siemens.

M r W a t s o n s a i d EthosEnergy’s “relatively p o o r ” p e r f o r m a n c e hindered efforts to offload Wood’s stake in the turbine services business.

But he said Wood was determined to get the right value for its stake, adding the company was not interested in “fire sales”.

Mr Watson also said North Sea activity levels were picking up from a “modest starting point”.

He added: “I spend a lot of time in airport taxis and, from speaking to taxi drivers, I do get a sense that Aberdeen has picked up in terms of activity.”

Wood employs about 13,000 people in the UK, about a third of whom work in its North Sea business, both onshore and offshore.

Mr Watson said: “We’re encouraged by being one of the biggest North Sea employers, but also by our ability to broaden our UK footprint to make sure we have a sustainable business going forward.”

David Barclay at the Aberdeen office of wealth management firm Brewin Dolphin, said it “may not be long before Wood makes a return to the FTSE 100”. The FTSE 100 fell by 0.3%, or 25.56 points to 7,565.7 yesterday.

BHP Billiton shares stumbled 34.6p to 1,610.6p having reported a 37% drop in full-year net profits following a multi-billionpound hit from a shale gas impairment charge.

Shares in online booking site Hostelworld slumped 15p to £2.77 after it said demand was dented by the recent World Cup tournament and European heatwave.

Hostelworld said it was keeping a “rigorous” control on costs to help offset some of the bookings woes.

Games Digital surged 4.05p to 31.6p despite it saying full-year revenue would edge lower and profits would come under pressure.

It is also working to renegotiate store leases with landlords, as retailers come under intense pressure from falling consumer spending and soaring costs.

Brent oil prices were up 0.8% at around $72.66 per barrel amid prospects of restricted oil supplies due to US sanctions on Iran.

PERFORMANCE: Wood chief executive Robin Watson believes activity is picking up