• Decrease in Clients spending impacted the group’s fiscal year of 2015 performance: Worleyparsons Limited (ASX: WOR) reported underlying revenue decline of 1.8% yoy to $7,227.5 million as falling commodity prices coupled with the oil prices pressure forced the group’s customers to decrease their capital as well as operating expenditure. On the other hand, WOR has built a diversified revenue base and delivered better performance in its other markets which had partially offset the group’s overall revenue pressure (from its Improve business in Canada and Services business in North America and Australia). However, Worleyparsons reported a statutory loss after tax of $54.9 million during the period impacted by the heavy non-cash impairment of goodwill of $198.6 million, which is over 10% of the group’s total goodwill. Underlying net profit after tax fell 25% yoy to $198.6 million. Worleyparsons has decreased its employee base to over 31,400 people as of the 2015 fiscal year end spread across its 148 offices in 46 countries, as compared to its 35,600 employees in 157 offices across the world as fiscal year end of 2014. But, the group managed to get 105 substantial awards during the fiscal year against the 90 awards during financial Year 2014.
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• Realigning business to position itself for growth and withstand the market pressure: The group realigned its strategy on May 2015 and accordingly intends to further develop its front end capability and several project delivery capabilities across their execution project phases as well as enhance its integrated offerings to become a full asset management services provider. Accordingly, the group is first targeting on Advisian, its world class consulting business which is now the group’s standalone business line (since July 2015) and comprises over 3,000 consultants spread across 19 countries having technical as well as management consulting capabilities. Worleyparsons is also placing itself to be a major PMC provider of choice and accordingly increasing its proficiency of its Improve business to offer better integrated service in specific market. Accordingly, the firm finished the acquisition of a management consulting firm, MTG during the period which specializes in the oil and gas, petrochemicals and chemicals sectors. The group also acquired a Canadian based consulting business Atlantic Nuclear, which focuses in nuclear technology comprise the CANDU technology. Meanwhile, the group is also placing itself to be the major PMC provider and accordingly enhancing its Improve business to offer better integrated service in specific markets. As per the group’s core services business, WOR is working to further simplify this division to be the most agile local service domestic and global provider with technical capability.

• Balance sheet Highlights: Worleyparsons cash flow from operations fell by 54.3% yoy to $251.3 million during fiscal year of 2015, impacted by poor 2015 fiscal year performance pressure. Accordingly, management reported an unfranked final dividend of 22.0 cents per share, which is a decrease of 57% yoy as compared to the prior corresponding period. Worleyparsons gearing ratio increased to 28% in fiscal year of 2015 as compared to 18.7% in pcp. On the other hand, the group improved its facility utilization to 59.4% in FY15 from 50% in FY14. But Net Debt/EBITDA rose to 2x during the period against 0.9x in 2014 financial year. Meanwhile, the group’s total liquidity slightly decreased by 2% yoy to $1,229 million during the period and even reduced bonding facility utilization to 63% in FY15 from 72% in FY14.
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• Segment Highlights: The group’s segment performance and margins have been impacted by investment reductions by their clients on the back of the tough commodity and infrastructure markets leading to Customer rate concessions consequently impacting the margins. Accordingly, WOR services division Operational EBIT margin fell to 8% in FY15 as compared to 9.7% in pcp, partly impacted by charges. Major projects segment’s Operational EBIT margin plunged to 5% during the period from 7.8% in FY14, due to decrease in engineering activity leading to margins pressure. Improve business division Operational EBIT margin decreased to 5.7% in FY15 against 6.1% in FY14 as the segment’s revenues were hurt on the back of lower activity levels in Alberta. On the other hand, the group’s Development segment’s Operational EBIT margin surged to 9.1% in FY15 as compared to just 1.4% in pcp, driven by the eight months contribution from recent MTG acquisition. With regards to the sector highlights, Hydrocarbons aggregate revenue fell by 1% yoy to $5,332.1 million, due to discounts negotiated by customers as well as rising competition. Minerals, Metals & Chemicals aggregate revenue plunged 15% yoy to $903.7 million due to the overall industry pressure. But the Chemical subsector witnessed better performance in North America, Middle East and Asia during the period. On the other hand, the group was able to improve its Infrastructure aggregate revenue by 7% to $991.7 million in the fiscal year of 2015, as compared to the prior corresponding period, driven by its enhanced capabilities. Meanwhile, Worleyparsons has built a diversified revenue base across geographies, wherein its APAC regions were able to offset the overall revenue decline during the 2015 financial year to some extent.
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• Outlook: The group believes that its diversified sector base as well as geography would be continue to offer them some support to offset their overall revenue performance in 2016, given the ongoing volatile market conditions. Worleyparsons intends to optimize costs, enhance services to offset subdued market activity in the coming financial year. Although Customer rate concessions would continue to hurt its Major projects segment margins, the group has protected the segment’s backlog activity by shifting to the construction phase. WOR intends to continue to optimize its Improve division performance and accordingly shifted the segment’s workload from North America to APAC. However, the group expects the ongoing rates pressure and volatile oil prices impact on Improve performance. On the other hand, the group is focusing on its Advisian business and is also expanding this division regionally as well as targeting the growing Chemicals sector in North America. As per the sector outlook, Hydrocarbons sector would continue to witness pressure from customers and therefore the group is decreasing the division overheads to underpin the sector’s earnings. Minerals, Metals & Chemicals sector would be flat and estimates a better investment plans for Chemicals customers in the coming periods. Despite tough conditions for Infrastructure sector, WOR is focusing on emerging non-resource infrastructure opportunities in water, ports, transport and power. But Services division activity levels might be under pressure in FY16 from North America and Europe.

• Stock Performance: The shares of WOR plunged over 47% in the last fifty two weeks and delivered a year to date decline of over 24.9%, due to falling commodity prices and reduced investments by its clients across the sectors. Therefore the group is making all efforts to position itself for future growth and has accordingly made acquisitions, initiated cost optimization efforts, realigned strategy and maintaining diversified revenues. WorleyParsonsCord recently won a contract from Cutbank Ridge to offer cutback with pipe fabrication, module assembly and field construction services for its Partnership Program’s 03-07 Tower Sweet Gas Plant Project. WorleyParsonsCord estimates a revenue of over CAD164 million from this contract. Consequently, the group’s shares surged over 17.5% in the last four weeks. Investors are attracted to its outstanding dividend yield of over 7.4% given the current volatile market conditions. We believe that the stock has the potential to deliver further growth in the coming months, and accordingly place a “BUY” recommendation on the stock at the current price of $7.20

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