Worley to pay 25c dividend after posting solid underlying earnings and flagging growth ahead

Worley boss Chris Ashton says margins for the contractor are improving as the company’s negotiating position with major clients gets stronger.

Worley boss Chris Ashton says the economic threat posed by global inflation appears to be receding, as the group posted a tumble in statutory profits but improved underlying earnings.

Worley will pay a 25c final dividend after booking a net profit of $37m – 78.5 per cent below last year’s final result.

The underlying performance of the business improved strongly compared to the previous financial year, however, with Worley’s statutory result affected by a previously disclosed $240m loss on the sale of a turnaround and maintenance business in North America – a legacy of the company’s $4.6bn acquisition of Jacobs Engineering Group’s energy, resources and chemicals division in 2019.

Worley group revenue ticked up 21 per cent to $10.93bn for the year, with underlying net profit – excluding one-off items – up 6 per cent to $348m and underlying earnings before interest, tax, depreciation and amortisation up 16 per cent to $635m.

Mr Ashton said on Wednesday the company’s growth profile looked strong for the coming year, with the company’s negotiating position with major clients improving and a strong pipeline of work across its mining, renewable energy and traditional oil and gas businesses.

“We‘re resetting the value proposition that over the last two decades was eroded because of less demand. And now what we’re doing is we’re just resetting the commercials that you would expect to be in place for a professional services company that generates the kind of value that we do,” he told The Australian.

Worley forecast current year earnings margins would rise to 7.5 to 8 per cent, ahead of its previous forecast of 7.5 per cent, with Mr Ashton telling analysts the company had largely finished a cost-cutting program.

The global engineering group is at the pointed end of delivering major projects across the world and is pushing heavily into renewable energy projects as well as its more traditional base in oil and gas – both areas affected by tight labour markets and supply chains on an international basis.

Mr Ashton told analysts the company’s own operations had not suffered the kind of headline cost inflation posted by headline rates across the broader economy.

But with the company better positioned than most to spot bottlenecks in global supply chains, and inflationary pressures elsewhere, Mr Ashton told The Australian he believed the worst of the recent inflation spike is over.

“I think we‘ve peaked. From an inflationary point of view, I think the impact of the interest rate rises from some of the central banks has had the desired effect and I think we’re starting to see indicators of inflation slowing down,” he said.

“And we’re starting to see a loosening in some of the supply chains. So the tightness as a result of Covid-19 is beginning to sort of loosen and normalise.”

Citi analyst James Byrne said Worley’s “growth” guidance for the current financial year includes another step up in procurement revenue.

“This is in line with WOR’s competitors who have been seeing new wins at much higher margins than the backlog average,” he said in a client note on Wednesday.

“No bad news in the result, particularly with regard to cash conversion, and a better outlook for margin guidance should bode well for Worley.”

Worley shares closed up 18c to $17.56 on Wednesday on the back of the result.

Originally published as Worley to pay 25c dividend after posting solid underlying earnings and flagging growth ahead