Chairman and CEO's Review 2016
We made substantial progress during the year on our near-term priorities including improving our level of customer satisfaction, reducing internal costs, streamlining our service delivery and strengthening our balance sheet.
Our cost reduction program lowered overheads by $170 million when compared to the prior year. By the end of June we have achieved annualized cost reductions of $200 million, exceeding our target of $120 million. These savings reduced the impact of lower revenues on our underlying EBIT margin.
Our customers continue to face difficult market conditions. The ongoing weakness in commodity prices has led to further declines in capital expenditure across the resources and energy sectors.
Importantly in this environment, our customer feedback results are the best we have ever achieved, validating the action we have taken over the last 12 months including the realignment of the business into the four business lines of Services, Major Projects, Improve and Advisian. While significant progress has been made, continuing to adapt and innovate will be a necessary and integral part of doing business. The Company is now leaner and better able to meet the challenges in the market.
In order to improve our service delivery, specific offerings were developed to deliver further value to WorleyParsons’ customers. We launched the Advisian business line, integrated the Breakthrough Project Delivery model into the Project Management Consulting (PMC) offering and accelerated work process transfers to the Global Delivery Centers (GDC).
We closed 30 offices with an associated floor space reduction of 73,000 square meters. We maintain a presence in 42 countries. In addition, we finalized the sale of Exmouth power station and we identified non-core assets to be held for sale including the South African public infrastructure business and the Company’s interest in Cegertec WorleyParsons in Quebec.
We have made progress in strengthening our balance sheet. Efforts to date have achieved an improvement in day sales outstanding by 4 days, with more than half our locations showing improvement from December to June. However, we still have more to do if we are to achieve our target of industry average of 65 days. Cash outflows were reduced by approximately $255 million through a combination of lower capital expenditure, reduced capital spending on acquisitions and no interim dividend.
While we are making progress towards our near term goals, and in most cases exceeding our own targets, we still have considerably more to do. Our management and organization as a whole remain focused on doing what is necessary to align our business with the prevailing marketing conditions, while also looking for opportunities where we can grow into the long term sustainable markets of the future.
Realize our future
At the core of the longer term sustainability of the business are the five strategic themes we introduced during financial year 2015, focused on defending and growing our business through the development of enhanced capabilities and offerings. With our local operations, the objective is to free them up to focus on excellence in delivery so they are able to make the most out of the opportunities in their markets. Refer to pages 10 and 11 of this Annual Report to read more on our journey to Realize Our Future.
The Company continues to defend and strengthen its leadership position in upstream oil and gas. We continue to expand our capability in the growing sub sectors of chemicals, power and water. Key focus areas are the development of the Company’s emerging digital and new energy capabilities. Geographically, Saudi Arabia and China’s “One Belt, One Road” initiative continue to represent significant opportunities for the Company.
(The Chairman and CEO's Review continues on page 3 of the Annual Report.)