The Worley Ltd (ASX: WOR) share price is taking off this morning following the release of the company's earnings for the first half of financial year 2022.
At the time of writing, the Worley share price is $12.50, 5.93% higher than its previous close.
Image source: Getty Images
Worley share price gains on boosted profits
- Revenue of around $4.66 billion – down 4% on that of the first half of financial year 2021
- Net profit after tax (NPAT) of $79 million – a 259% increase
- Underlying earnings before interest, tax, and amortisation of $251 million – up 21%
- Underlying earnings per share (EPS) of 28.6 cents – a 28% increase
- Unfranked 25 cent interim dividend
The professional project and asset services provider performed well over the first half on the back of improved market conditions.
It ended the period with an underlying operating cash flow of $110 million – down from $280 in the prior comparable period.
Its underlying earnings before interest, tax, and amortisation margin increased 1.1% to 5.7%.
While the company's revenue slipped slightly, its ongoing cost cutting activities helped its profits surge.
The company surpassed its operational savings target of $350 million of annual savings 6 months ahead of schedule. It announced a new target of $375 million in annualised savings.
The new target will be delivered by mid-2023 and will come from the company's shared services transformation. The transformation is estimated to cost around $90 million over 3 years. $30 million has been spent year to date.
The company's sustainability work accounted for $1.4 billion of aggregated revenue at the end of the half. Sustainability as a portion of its sales pipeline and backlog also increased over the period.
As of 31 December 2021, Worley's backlog was $15.1 billion – a 6% increase on where it stood on 30 June 2021 and 12% more than it was 12 months prior.
The company's chemicals sector experienced the greatest backlog growth, as demand and customer investment levels recovered. Meanwhile, the company's long-term operations and maintenance contracts mostly returned to pre-COVID-19 activity levels.
Worley stated that it's not seeing material COVID-19 impacts on its supply chains or site access. It's also not experiencing project deferrals and cancellations due to the pandemic.
What else happened in the half?
Worley's business in the Americas region brought in $1.98 billion of aggregated revenue last half – a $78 million improvement – and recorded a segment result of $112 million – down $5 million.
In Europe, the Middle East, and Africa, the company reported aggregated revenue of around $1.55 billion – down $119 million – and segment result of $132 million – a $55 million improvement.
Meanwhile, in the Australia, Pacific, Asia, and China region, the company saw aggregated revenue of $835 million – down $89 million – and a segment result of $91 million – $2 million higher.
The company's work in the energy sector saw a slightly lower aggregated revenue last half, but an improved segment result.
They came to around $2.13 billion and $150 million respectively. In the prior comparable period, they came to around $2.18 billion and $128 million.
Worley's work in the chemicals sector brought in aggregated revenue of $1.62 billion and a segment result of $133 million. In the first half of financial year 2021, those figures came to $1.65 billion and $107 million respectively.
Finally, the resources sector saw Worley pocketing $617 million of aggregated revenue and reporting a segment result of $52 million. In the prior comparable period, those numbers were $661 million and $48 million.
What did management say?
Worley CEO, Chris Ashton commented on the company's half year results, saying:
Our H1 FY22 result is indicative of the continued market improvement which is consistent with the outlook we presented at the full year FY21 results
Our capital management position continues to be supportive of our growth plans, with gearing below the target range and leverage well within our covenant definitions. We have good liquidity and continue to enjoy access to flexible debt capital sources, at attractive pricing.
We're seeing stronger market activity as our customers continue to invest in their traditional business as well as increasing investment in line with the fundamental shift towards net-zero. Our business is positioned for long-term success and our strategy places us at the centre of this investment activity.
What's next?
Worley didn't provide clear financial guidance for the remainder of financial year 2022, but it did post a positive outlook for the period.
It's expecting to spend $35 million on strategic operating expenditure in financial year 2022.
Including the expense, the company thinks it will be posting similar earnings before interest, tax, and amortisation margins in the second half as it did for the first half.
It also stated that it looks like the current half could bring improved revenue and earnings.
That belief is due to the mix and timing of projects from both the company's backlog and growth in its factored sales pipeline.
Additionally, sustainability is expected to provide a higher rate of the company's future growth. It aspires to bring 75% of its revenue from sustainability-related business within 5 years.
To speed up its sustainability-focused growth, the company is investing $100 million over 3 years.
The funds will go towards new solutions and strategic hires, digital enablement, technology selection and development, internal training, and strategic partnerships.
$13 million of that $100 million was spent last half.
Worley share price snapshot
Today's gains included, the Worley share price is 12% higher than it was at the start of 2022.
It has also gained 14% since this time last year.
