UPDATE 2-Contract problems hold back John Wood Group

Tue Aug 21, 2012 6:41am EDT

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LONDON Aug 21 (Reuters) - British energy services company John Wood Group is working hard to resolve problems with two key contracts that are holding it back, its chief executive said on Tuesday.

Delays in a contract with Petroleum Development Oman have ratcheted up losses on the project and weighed on John Wood's shares, but the company said that it expects improvement in the next year. It said that losses in Oman would be $15 million to $20 million in 2012.

"The financial performance on that contract has been disappointing but ... we've got a really good dialogue going with the client in a range of areas," Chief Executive Allister Langlands said in a conference call.

"Through those discussions and improvement in efficiencies, we'll get people on the contract for longer, and we do see the performance improving a bit in the second half and improving again in 2013."

The company also said that it is seeking to build up its power solutions business, which provides engineering and construction for power facilities. However, it added that contract awards have been held back by the gloomy economic environment and there has been a delay on a contract with power plant operator GWF.

"We have had a small delay on that project," Langlands said. "we think overall we'll continue to make a reasonable profit margin, and we do expect to complete that contract by the end of quarter three this year."

The contract doubts partly eclipsed strong growth in other parts of the business, with demand from companies working in the North Sea, Gulf of Mexico and in U.S. shale helping to drive first-half revenues up 27 percent at its engineering unit.

Shares in Wood Group were down 1.6 percent at 822 pence at 0827 GMT, underperforming the FTSE mid-cap index and erasing modest gains made over the past two weeks.

The company said that it expects to meet full-year expectations and intends to pay a total dividend of 17 cents per share, up 26 percent, reflecting its confidence in the long-term outlook.

"Despite the recent volatility in financial and commodity markets, Wood Group continues to see good momentum across the business," said analysts at Oriel, retaining its "add" stance on the stock.

Earnings before interest and tax were $205 million in the six months to June 30, up 53 percent year on year. Revenues rose 36 percent to $3.35 billion.

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