Salary, headcount, and capex reductions ahead as Wood braces for lower activity levels
UK oilfield services provider Wood has decided to implement salary, headcount, and capex reductions as a response to the volatile market conditions. Wood will also be withdrawing its final dividend recommendation.
Wood said on Thursday it has taken significant steps to enable its workforce to work from home due to the coronavirus pandemic, resulting in over 40,000 employees successfully working remotely.
Wood entered 2020 with a balance sheet foundation with c$1.4bn of headroom against its debt facilities.
Robin Watson, Wood Chief Executive, said: “Like many companies, Wood is being affected by the unprecedented event of COVID-19 and its impact on the global economy – an event compounded by the sharpest decline in oil price in 20 years.
“Our strategy has led to a substantial broadening of our business across the energy and built environment markets, reducing our reliance on any one industry or sector.”
Watson added: “Today we announce a series of actions which keep our people safe and healthy and will further protect our business and our stakeholders by reducing cost, protecting cashflow, and ensuring continued balance sheet strength. This includes the board’s prudent and appropriate decision to withdraw its recommendation to pay the proposed 2019 final dividend.”
Although it is too early to quantify the impacts of COVID-19 and the substantial reduction in oil price, Wood said it is taking early action to significantly adjust the cost base in anticipation of a reduction in activity levels.
These actions include salary reductions. The board, executive directors, and senior leaders have elected to take a voluntary, temporary 10% reduction in base salary. An additional group of employees is also being asked to do the same. In total, Wood anticipates that this will generate overhead savings in 2020 of c$40m.
Wood’s actions also include headcount reductions, temporary furloughing, unpaid leave, and operational salary reductions. In response to changing activity levels, Wood is focusing on redeploying people wherever possible alongside considering reduced working hours, unpaid leave and furloughs. Employee reductions are also being made in certain areas reflecting the reduction in operational activity.
Wood’s plan of actions also includes capital expenditure reductions.
“We have taken the decision to pause the implementation of our ERP system and other discretionary capex which is expected to generate a c$20 – 25m reduction in capex in 2020,” Wood said.
Finally, Wood also plans other overhead cost reductions including the stoppage of discretionary spend, travel costs and further utilization of shared service centers and high-value engineering centers.
Wood’s board in March recommended a final dividend of 23.9 cents per share (total cost $160m).
Given the unprecedented levels of uncertainty and measures being taken to protect cashflows and preserve long term value, Wood said that the board considers it prudent and appropriate to withdraw its recommendation.
Therefore, the board will no longer propose a resolution to approve the dividend at the AGM and will review the future policy once there is greater clarity on the impact of COVID-19 and the substantial fall in oil prices.
Wood’s order book at the end of February before the recent fall in oil prices was $8bn with around 70% of 2020 activity delivered or secured. Looking ahead, Wood anticipates that some of the existing order book will be subject to postponement and that new order intake will slow due to the impact of COVID-19 and lower oil prices.
Wood has also decided to postpone its annual general meeting, scheduled to be held on May 7, 2020, as a result of the requirements of the UK and Scottish Governments with regard to social distancing.
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