John Wood Group saw its shares plunge 55% in London on Friday, after issuing a trading update that revealed the firm’s cash flow would be negative this year, having stated previously that it would be positive.
The oil and gas engineering giant also said a review of its operations carried out by Deloitte’s consultants had discovered material weaknesses and failures in its governance.
“This is a difficult announcement amid our transformation,” said Wood Group’s CEO Ken Gilmartin. “While we have made progress, I am disappointed in our financial performance. Consequently, we are taking decisive actions to ensure we can meet the opportunities we have in growing markets, principally energy.”
The Aberdeen-based firm, which operates in 60 countries and has about 35,000 employees, has been struggling in recent years. The company was pressured by an activist investor to consider a sale and two takeover deals were eventually abandoned.
After Wood Group wrote off several large projects, the company announced that Deloitte would carry out a review of its projects division.
The company’s trading update said it was taking steps to strengthen its “financial culture, governance and controls” because of the “weaknesses and failures” the review had identified. Wood Group also said Friday that it doesn’t expect the review to have a material impact on its cash position or its ability to generate cash.
The company said its free cash flow could be negative by as much as $200 million in 2025, but it now expects to return to positive free cash flow next year.
Wood Group blamed weaker trading in the fourth quarter as one of the contributing factors, but the company is aiming to generate cash from asset sales this year that will help support its balance sheet and maintain its debt levels. It’s also pursuing a cost-cutting program that includes cancelling employee bonuses.
“Following these actions, the business will be on a firmer operational footing, but cash generation has yet to materialize and financial strength needs significant improvement,” Wood Group said in its filing.
Wood Group said it expects lower underlying earnings for 2024, projecting EBITDA of $450 to $460 million. It reported 2024 revenue of roughly $5.7 billon.
Last year, Wood Group was almost acquired by Sidara in a deal that would have valued it at about £1.6 billion, but the Dubai-based firm abandoned the bid, blaming global market turmoil and geopolitical risks.
Apollo Global decided to end its months-long pursuit to acquire Wood Group in May 2023. The U.S. private equity firm had bid deal roughly £2.2 billion to take over the Scottish firm.
Wood Group has been managing a hefty debt pile since acquiring rival Amec Foster Wheeler for £2.2 billion in 2017.