Wood Group Wobbles: Aberdeen Braces as Engineering Giant Hits Financial Turbulence

The John Wood Group, once a staple of the UK’s engineering sector, has had a rough week one that’s thrown its already rocky situation into sharper focus. After announcing an independent review of its projects division, shares in the Aberdeen-based company took a nosedive, plummeting by a staggering 60%. For an organisation as long-established as Wood, the news is more than troubling; it’s a reminder of the serious issues lurking beneath its surface and the potential shock Aberdeen and the broader economy might face if these challenges persist.

The share drop followed Wood’s announcement that it would be undertaking a thorough assessment of its projects division, led by Deloitte. The division is critical for Wood, handling design and procurement for large-scale engineering projects across sectors like energy and mineral processing. The review, which Wood says is being conducted “in response to dialogue with its auditor,” will examine governance practices and whether previously reported information needs to be revised.

This independent review isn’t just another box-ticking exercise; it’s a response to deep-seated concerns about the company’s financial stability and operational management. It’s also a significant setback for Wood’s CEO, Ken Gilmartin, who is under mounting pressure to deliver a turnaround. For a company with a workforce of roughly 35,000 employees, many of them in Aberdeen, this instability is unsettling. The impact could extend far beyond the company’s walls, especially in a region heavily reliant on the energy sector for employment and economic stability.

For Wood, the warning signs have been there for some time. In August, the company reported nearly $1 billion in write-offs, largely due to its decision to exit certain types of work and account for costs related to acquisitions made years ago. These write-offs were a painful but necessary acknowledgment of missteps in Wood’s expansion strategy, notably its 2017 acquisition of Amec Foster Wheeler for £2.2 billion. The move, ambitious at the time, ended up saddling Wood with heavy debts and a set of legal liabilities that have dogged it ever since.

This history of financial strain has made Wood a tempting target for buyouts, but even potential buyers have been scared off by the complexity of its problems. Earlier this year, Dubai-based Sidara, also known as Dar Al-Handasah, made a bid for Wood, valuing the company at about £1.6 billion. Sidara ultimately walked away, citing “geopolitical risks and financial uncertainty,” marking the second failed takeover in less than a year. Prior to Sidara’s bid, private equity giant Apollo Global attempted a takeover in 2023 but also abandoned the effort after evaluating the depth of Wood’s challenges.

Following these high-profile rejections, Wood’s value has dwindled, with its market capitalisation now hovering around £345 million, significantly down from earlier valuations. Some shareholders have even urged Wood to consider relocating its listing from London, perhaps in the hope that a fresh start might improve investor confidence. Gilmartin, however, has remained firm, arguing that a change of listing wouldn’t solve the underlying issues.

Unfortunately, the recent trading update offered little to reassure investors. While the operations division showed some growth by maintaining and managing projects, the projects division had a lacklustre quarter, marked by “delayed awards in our chemicals business and our continued weakness in minerals and life sciences.” In other words, one division is holding steady, while another is struggling to find its footing. Group revenue for the first nine months of the year fell around 3% to $4.3 billion, and though Wood still insists it’s on track for “high single-digit growth” by year’s end, that goal is increasingly looking like a stretch.

Analysts at Citi were blunt in their assessment of the update, describing it as “below market expectations” and calling for “improved operational delivery.” For investors, this is a familiar refrain: they’ve been told time and again that Wood is working on a recovery plan, yet the results have been slow to materialise. Wood’s projects division, in particular, will have to prove it can stabilise if the company is to have any hope of regaining lost ground.

But this isn’t just an internal problem for Wood. Aberdeen, a city closely tied to the fortunes of the energy sector, could be in for a turbulent period if the company’s troubles continue. Should the review by Deloitte reveal even deeper issues, or if Wood is forced to restructure, Aberdeen’s workforce could feel the impact directly. Any significant job losses would ripple through the city’s economy, affecting not only employees but local businesses and services that rely on their spending.

Wood Group’s story serves as a cautionary tale of what happens when rapid expansion, high debt, and market pressures collide. While the company’s top brass works on turning things around, the people of Aberdeen are left holding their breath, hoping the review doesn’t trigger a wave of layoffs. Wood is one of the city’s major employers, and any cuts would be felt across the region, from housing markets to local shops, restaurants, and public services.

In the meantime, the company’s next steps remain uncertain. Deloitte’s review could conclude that prior financial information needs to be restated, which would further erode investor trust and create an even steeper climb for Wood. Gilmartin and his team have assured the market that they’ll provide an update “as appropriate” once the review is complete, but there’s no telling what that will bring.

For now, Wood Group is in a holding pattern, and its future rests on whether Gilmartin can steer the company through its tangled web of financial and operational challenges. As for Aberdeen, the city can only hope that one of its largest employers manages to regain stability, sparing it from yet another economic setback.