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Worleyparsons Limited (ASX:WOR) Exceeds Cost Savings Target

Professional services firm Worleyparsons Limited (ASX:WOR) said operating profit margin improved on exceeding its overhead reduction target of $300 million in annualized savings. WOR achieved $500 million savings in the year to June 30, pushing the operating profit margin to 5.9% from 5.3% in the previous fiscal.

ASX:WOR WorleyParsons Future Revenue and Net Income by Simply Wall St
ASX:WOR WorleyParsons Future Revenue and Net Income by Simply Wall St

Primarily serving the resources and energy industries, WOR took a big it to its top-line due to budget controls exercised by its clients amid a major correction in commodity markets — revenue for the year dropped 23.6% to $4.38 billion. The investment to meet a growing demand for energy and resources in the future remains subdued, said CEO Andrew Wood. “However, many of our customers are now indicating that they are returning to modest capital and operational expenditure growth albeit in an environment of uncertainty”, he added.

A major concern for WOR during the downturn was to revive its balance sheet. “We made significant progress on our initiative of strengthening the balance sheet during the second half of the year with our total net debt position improving by $153.5 million in the period to $766.7 million”, commented Mr Wood. The company improved its cash collection with a $78.9 million cash generation from operations, while it’s on its way to cut the capital required to operate by $300 million “over the medium term”. A lower working capital points to higher operating efficiency and a smaller amount of time taken in generating cash from sales. Although the cost reduction plan, launched in Feb’16, has achieved its targets, the company board decided against reinstating dividends, citing challenging conditions for its customers. WOR said the activity is improving in some areas, but it’s not enough to change its medium term revenue outlook, which “remains uncertain”.

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