John Wood Group Shares Plummet 60% Amid Write-Off Review Announcement

Write-Off Review Announcement Sees John Wood Group Shares Plummet 60%

In a shocking turn of events, John Wood Group, a prominent UK energy engineering company, saw its shares plummet by a staggering 60% on Thursday. This dramatic decline came on the heels of the company’s announcement that it would be conducting an independent review of one of its core divisions, following significant write-offs earlier this year. The news has sent shockwaves through the industry and raised serious questions about the company’s financial health and future prospects.

The Catalyst: A Review Prompted by Auditor Dialogue

The London-listed group revealed that it had agreed to a review of its projects division “in response to dialogue with its auditor.” This division, which is responsible for designing and procuring large engineering projects in sectors such as energy and mineral processing, has been a crucial part of Wood’s operations. The fact that this review was prompted by discussions with the auditor suggests that there may be underlying issues that require closer scrutiny.

Scope of the Review: Contracts, Accounting, and Governance

According to the company’s statement, the evaluation, to be undertaken by Deloitte, will have a broad scope. It will focus on reported positions on contracts in projects, accounting practices, governance structures, and internal controls. Perhaps most concerning for investors is the possibility that this review may lead to a restatement of previously reported financial information.

A History of Financial Struggles

This latest development is not occurring in isolation but rather against a backdrop of ongoing financial challenges for John Wood Group. In August, the company announced write-offs of almost $1 billion after deciding to exit certain types of work and recognize costs related to legacy acquisitions. These write-offs pushed the company into an operating loss of $899 million in the first half of the year.

The roots of these struggles can be traced back to the company’s £2.2 billion takeover of Amec Foster Wheeler in 2017, which left Wood burdened with high debts and legal liabilities. Since then, the company has been grappling with these financial pressures while attempting to implement a turnaround strategy.

Failed Takeover Bids and Market Pressure

Adding to the company’s woes, John Wood Group has been the subject of two failed takeover bids in the past 18 months. Earlier this year, Dubai-based Sidara (known as Dar Al-Handasah) pursued the company with a bid valuing it at approximately £1.6 billion. However, Sidara ultimately walked away in August, citing “geopolitical risks and financial uncertainty.”

This followed a previous unsuccessful attempt by private equity firm Apollo Global, which decided against concluding a 240p-a-share bid in May 2023 that would have valued Wood at about £2.2 billion, including debt. The failure of these takeover attempts has left the company in a precarious position, with its market value now reduced to a mere £345 million after Thursday’s share price decline.

Mixed Performance and Future Outlook

In the midst of these challenges, John Wood Group’s CEO, Ken Gilmartin, reported a “mixed quarter” for the three months to September. While the company’s operations division showed strong growth, the projects division experienced a disappointing quarter, impacted by delayed awards in the chemicals business and continued weakness in minerals and life sciences sectors.

Despite these setbacks, the company has reiterated its full-year guidance of “high single-digit growth.” However, analysts at Citi have noted that the trading update was “below market expectations” and called for improved operational delivery.

Implications for Investors and the Industry

The dramatic share price drop and the announcement of this review have significant implications for both investors and the broader energy engineering sector. Investors are now faced with the prospect of potential financial restatements and ongoing uncertainty about the company’s true financial position. This situation also raises questions about the robustness of financial reporting and governance practices within the industry as a whole.

For John Wood Group, the path forward appears challenging. The company must not only complete this review and address any issues uncovered but also convince investors of its ability to implement a successful turnaround strategy. With its market value severely diminished and investor confidence shaken, rebuilding trust and demonstrating sustainable financial performance will be critical for the company’s future.

As this situation continues to unfold, all eyes will be on John Wood Group and the outcomes of this independent review. The repercussions of this event may well extend beyond the company itself, potentially leading to increased scrutiny of financial practices across the energy engineering sector.

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