Wood Group board may have to splinter

Living up to the blurb on the website can flummox some boards. Not at John Wood Group, where the crew led by chairman Roy Franklin and chief executive Ken Gilmartin labour under the modest banner “Brilliant minds live here”.
Still, how do they go about proving it, you ask? Well, how about this? First by letting two putative bids slip through their fingers: the first last year’s £1.66 billion effort from buyout firm Apollo at 240p a share, the second this year’s tilt from private engineering and consulting collective Sidara at a slightly reduced 230p. And then via this ingenious caper: a bombshell update, starring an accounting review and other joys, that’s just sunk the shares 60 per cent to a mere 49.84p.
How brilliant is that? It had taken Apollo five knocks on Wood even to get in the door, given Franklin’s confidence in the value locked up in the business and his faith in Gilmartin’s turnaround. Sidara needed four. And, of course, it was bit of a downer that, having had a squint at the books of the energy-focused consulting services group, Apollo aborted its landing, while Sidara scarpered too in an apparent funk over “geopolitical risks and financial market uncertainty”.
Yet, the word from the board at August’s half-year results was that, armed with a $6.2 billion order book, Gilmartin was on the cusp of delivering the key thing investors wanted: “significant” free cash flow by next year. And now? After what looks to have been a dust-up with auditor KPMG, the board has brought in Deloitte for an “independent review” of its accounting. Meantime, amid an iffy third-quarter update, the best Wood can now promise on the cash flow front is just a bit of “guidance” for 2025 at this year’s full-year results.
Deloitte’s accounting review comes after Wood responded to the loss of Sidara’s bid by unveiling half-year losses of £983 million. Yes, that was mainly due to new finance chief Arvind Balan lopping $815 million off goodwill and then a further $140 million after getting out of large-scale projects.
Yet, Deloitte now looks to be going back for more. Wood said the review would “focus on reported positions on contracts” in the remaining projects wing and also over “accounting, governance and controls, including whether any prior year restatement may be required”. The hint? That KPMG, which did not sign off the half-year figures, has issues over continuing accounting controls, not least in the lacklustre projects wing, where year-to-date sales and ebitda are down.
No director was brave enough to discuss Wood’s howitzer update, while investors were also treated to two other delights. First, a lower-than-expected order book at $5.4 billion. Second, news that full-year net debt excluding leases would be at “similar” levels to 2023’s $694 million, despite disposal proceeds: a clue more cash has been going out the door.
So, no shock shareholders freaked out. Yes, Gilmartin insists “we continue to make progress on our turnaround”, with Wood guiding to “high single digit growth” in underlying “adjusted ebitda” this year. Yet, progress doesn’t look the right word. As Panmure Liberum analysts noted, “the potential scale of further writedowns is set to weigh on the shares”.
Yeah, it already has. Either Franklin or Gilmartin has to pay for this fiasco. Wood’s board needs only so much brilliance.
Speed-dial pace at BT isn’t always easy to spot. Its newish boss, Allison Kirkby, says that, over the first half of the year, she “accelerated the modernisation” of the telecoms group. But her reward for that was a 4 per cent drop in the shares to 137p, as investors fretted over missed revenue targets, the lack of news on asset disposals and competition from “alt-nets”.
Who they? Rival broadband providers, who keep nicking BT’s customers while it transitions from a legacy copper network to zippy fibre. Kirkby flagged not only the best ever broadband rollout last half from its Openreach wing — an extra 2 million premises passed to top 16 million, or more than half the country — but a record quarter for adding customers. Some 446,000 signed up, making 833,000 for the half.
Yet that doesn’t tell the whole story. Most are existing ones shifting across from copper, with BT actually losing 377,000 broadband punters last half — a 2 per cent drop in its “broadband base”. True, as Kirkby points out, Ofcom wants to see a bit of a shift to encourage competition. But en route to building the UK’s biggest fibre network, aiming to pass 25 million homes by the end of 2026, BT could look like it’s running hard to go backwards.
Then, thanks to the troublesome global operation that’s up for sale, revenues won’t be flat this year but down “1 per cent to 2 per cent”, with Kirkby admitting: “The market doesn’t like surprises”. Yes, the miss is from low-margin stuff, such as supplying kit to international companies. And, not only did free cash flow improve 57 per cent last half to £715 million, but BT remains on track for £8.2 billion adjusted ebitda this year. Still, it’s a reminder that Kirkby’s route to annual free cash flow of £3 billion by 2030 still needs some untangling.
A £140 million bill for Sainsbury’s, £100 million for BT, £60 million apiece for Wetherspoon’s and Marks & Spencer and billions more costs across corporate Britain. Plus companies warning that Rachel Reeves’s budget, bringing higher national insurance and minimum wage costs to UK employers, will force them to cut costs, raise prices and hire fewer people.
On top, thanks to the inflationary impact of the budget (and potentially Trump trade wars), the Bank of England is signalling that a quarter point cut to 4.75 per cent is enough for now. The chancellor’s budget claims that it would not hit “working people” look dafter by the day.
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