John Wood Group PLC (WG.L) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Wood Trading Update Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, CFO, David Kemp. Please go ahead.

Good morning, and welcome to our half-year trading update call. Before we go to Q&A, I'll take you through some of the key highlights of this morning's statement and hopefully provide you with some more color around our financial performance in the first half of 2021. There are 3 areas I want to highlight: firstly, we returned to growth in Q2 for our Consulting and Operations businesses, and our expectation of the group returning to growth in H2; secondly, the margin growth that we've seen in all of our BUs compared to H1 2020; and finally, strong backlog growth in Consulting and Operations with an improving picture in context. Looking at activity first. After a steady start to Q1, we have seen improving momentum in activity in Q2. In Consulting and Operations, we've seen growth versus Q2 2020, and we anticipate that group revenue will be higher in H2 compared to both the first half of 2021 and the second half of 2020. Our strategic actions to broaden our end market exposure across diverse energy and built environment markets have continued to deliver revenue resilience in the first half of 2021 compared to the first half of 2020. As we all know, Q1 in 2020 was largely unaffected by the pandemic. As a result, revenue will be around $3.2 billion, and it will be down around 21% on the first half of 2020 on a like-for-like basis adjusting for disposals. Looking at our markets, we've seen strength in the built environment, which accounts for around 20% of our revenue; relatively robust activity in renewables and other energy, which is around 25% of revenue; we've seen improving market conditions in the 35% of our business in conventional energy, particularly in the operations of BU; whilst activity and processing chemicals has reduced significantly as larger projects have reached completion. The benefits of our strategic broadening are also evident in the recent awards across all business units, and they reflect our positioning for growth opportunities from the energy transition and the drive for sustainable infrastructure. And these include Pre-FEED work to support ADNOC's world-scale blue ammonia facility, a scope to develop a road map for a net-0 transit network, Pre-FEED work for a CO2 pipeline network for our North American carbon capture and transportation project and a framework agreement with NEL Hydrogen for services to support the delivery of large-scale green hydrogen production plants. We've also recently entered in an agreement with a long-standing partner to jointly develop a solution utilizing hydrogen to produce renewable diesel and sustainable aviation fuel that we're very excited about. In addition, we've continued to build on our strong customer relationships, having secured a 5-year integrated services agreement with TAQA and extended our partnerships with both Hibernia and Equinor for the provision of support for offshore assets. Our financial objective in 2021 is improving EBITDA margin towards our medium-term target of 9.6%. Core to this is our 18-month long Future Fit program, which we rolled out earlier this year. The program is focused on accelerating our strategic priorities to unlock stronger medium-term growth, deliver efficiency and create value. We have made strong and early progress in H1 2021, with the delivery of our service-defined operating model with 3 global business units: consulting, projects and operations, optimized to unlock growth opportunities by leveraging global client relationships across the entire asset life cycle. We've also delivered a range of operational excellence initiatives to enhance core skills and competencies and ensure consistent project outcomes and accelerate our readiness for future skills requirements. And we've also delivered efficiency savings of around $20 million. We look forward to giving a more detailed update on Future Fit in our interim results. Strong EBITDA margin improvement compared to H1 2020 has been driven by our focus on maintaining high utilization, the successful delivery of efficiencies under our Future Fit program and improving project execution, which are more than offsetting the impact of lower activity. Margins are also benefiting from a greater proportion of revenue from high-margin consulting activity. Adjusted EBITDA will be $255 million to $265 million, down around 12% on the first half of 2020. However, EBITDA margin on a like-for-like basis will be up 60 to 90 basis points on the first half of 2020, and that's to around 8% to 8.3%, with improved margins across all business units, but most significantly in projects, which will be up over 220 basis points. Order book at the end of May was $6.9 billion is up 6% compared to December, with good growth in Consulting and Operations more than offsetting the impact of larger processing chemicals projects completing. We are seeing encouraging signs of markets recovering in projects and expect order book to grow throughout the remainder of the year. Also start-up lead times on projects. Meaning, there will be a lag until substantial revenue impact from new awards is seen. Turning to the balance sheet. Against the backdrop of unprecedented trading conditions in 2020, we delivered a significant reduction in net debt to $1.01 billion at the end of 2020. Net debt at 30th of June is anticipated to increase to $1.15 billion. This reflects a working capital outflow from the unwind of advances as large EPC contracts and projects complete. We're seeing an encouraging increase in bidding and opportunities, which supports our expectation and growth in projects order book throughout the remainder of the year. As a result, we expect the unwind of advanced payments to reverse in H2, in line with the order intake. H1 net debt also includes the impact of exceptional costs of around $35 million, including those to deliver our Future Fit program. Our leverage ratio will be around 2.5x at the end of June, and we expect that ratio to reduce in H2, in line with growing profitability. Exceptionals in H2 will include approximately $60 million related to the settlement of investigations by the U.K. SFO and by the authorities in the U.S. and Brazil, which are expected to be finalized imminently. This follows payments of around $10 million in H1 related to the settlement of the investigation by the Scottish authorities in March. The impact for 2021 as a whole is unchanged. Looking ahead, improving momentum and growth in order book underpins our confidence in delivering a stronger second half with the group returning to growth, both relative to H1 2021 and to the second half of 2020. Our full year outlook for 2021 is unchanged. Overall, we expect lower activity. In Consulting, increased activity will be driven by continued strength in built environment. Activity in projects will be lower, as larger contracts and processing chemicals complete. And growth in operations will be driven by a recovery in demand in conventional energy and growth in processing chemicals. EBITDA margin will improve from the full year 2020 level of 8.3%, driven by maintained high utilization; improved project execution; efficiency improvements, including around $40 million of efficiency savings from our Future Fit program; and our business mix weighted towards more higher-margin consulting. So to summarize before Q&A, whilst we have continued to face challenges in our markets in the first half of 2021 from the ongoing impacts of COVID, we have seen a return to growth in Q2 for Consulting and Operations. Our strategic positioning for energy transition and the drive for sustainable infrastructure is evident in new awards. We've made strong early progress in accelerating our strategic priorities through our Future Fit program, and we'll deliver strong margin improvement in H1 '21 compared to H1 2020 in all of our business units. And finally, our outlook for the full year is unchanged. Improving momentum in Q2 and our growth in order book underpin our confidence in delivering a stronger second half, returning to growth in H2 relative to both H1 '21 and H2 '20 and we anticipate EBITDA margin growth as we progress towards our medium-term target of 9.6%. With that, I'll now open the floor to questions.

[Operator Instructions] And the first question comes from the line of Victoria McCulloch from RBC.

If you could just give us a bit more color on outlook for projects first of all. And what kind of projects are you seeing coming through on these traditional oil and gas and the release -- the renewables of energy transition opportunities? And sort of you said that you expect a lag in terms of possible start-ups, I think, are secured. What kind of time line are you looking at sort of growth coming back in projects?

Victoria, yes, I can pick that up. I guess in terms of the -- our expectations around projects, in the first half of 2021, we've seen the order book decline as we've effectively completed the larger projects such as YCI. As we've gone through the first half, we have seen encouraging signs. Firstly, starting in Q1 with the bidding opportunities and then we can see the likely awards of these projects and also around the shape of our pipeline, and I look forward from that perspective. When we look at the type of opportunities, we're seeing some encouraging opportunities across all of the sectors in terms of conventional energy, processing chemicals and renewables. June looks like being a relatively good month for the project business as well in terms of awards. When I look at the broader pipeline as it stands just now, it's more dominated by processing chemicals and renewables. And the processing chemicals, we're seeing some good opportunities, both in integrated refining and chemicals. And in the more medium term, we've got good prospects in terms of the pharma market as well. So a mixture of opportunities across those 3 sectors. But yes, a more encouraging outlook for projects. In terms of revenue and how that will impact? That really is down to when projects are awarded. If you look at our Consulting business, it's very much short cycle. Lots of projects we win and book in the same period. So they barely go through backlog. Whereas new projects from awards, there's a more gradual buildup and -- which means there's a much greater lag in terms of revenue. So depending on when things are awarded in the second half will dictate how much of an impact we have on our second half revenue or whether it will impact 2022 more.

Okay. That's helpful. If I could just have 1 follow-up. And since you have mentioned Consulting, certainly, energy transition played a significant role in Consulting and some of the opportunities you've talked to us about. Are you seeing any margin pressure there as a result of everyone being quite [indiscernible] on the energy transition [indiscernible]?

No. Again, in terms of consulting, we're really pleased with how that's performing. We've seen significant growth in order book. In the first half, it's up just under 15%. In the book-to-bill, it was 1.22 to the end of May. So we've actually had some really encouraging growth in order book in Consulting. And equally, in terms of delivered margins, we're pleased with how they're tracking. The first half was up significantly versus the first half of last year, it was down compared to the second half due to the -- largely, the roll off of temporary cost savings such as the salary reduction, which actually affected Consulting disproportionately. But again, we're not anticipating margins declining in Consulting as a whole over the full year. So we're not sacrificing margin to flatter the order book.

And your next question comes from the line of Amy Wong at UBS.

Question on your net debt evolution, particularly in the second half, there's quite a few moving parts you flagged as a $60 million settlement. You're also flagging working capital or advanced payments coming in. So the question there is, can you just walk through those moving parts again? And kind of thinking about, can you give some guidance on where you'll end up at the end of year net debt position, above or below where we are in -- versus the half year mark?

Okay. Well, let me try and pull together what we've said today. I'll probably start with 2020. We saw a significant reduction in our net debt in 2020 from $1.4 billion to just over $1 billion. And that is obviously in a fairly difficult environment. In each one, we've had a working capital outflow, and that's not unusual in our business that we have a working capital outflow. Typically, our peak revenue months are spring/summer. And so we build working capital going into that. And then our lowest revenue months are typically December, January, and so we typically release working capital towards the end of the year. So that's not unusual in itself. Probably -- the bit that probably is more unusual is what we flagged in advances. So we had a significant unwinded advances in 2020 as larger projects completed, such as YCI. And we've seen that come through to a lesser extent in H1. And again, that's tied to project awards in the first half. And so we've had life project awards in the first half and that's resulted in our advances unwind. As I said in the previous answer, we expect to be building project backlog from this point forward. And so we would expect that advances to be an inflow rather than an outflow in the second half. And so we expect that to largely compensate itself in the second half. In terms of exceptionals, we have $35 million roughly in the first half. The biggest chunk of that was around Future Fit and the cost around Future Fit. We also had around $10 million from the settlement of Crown Office in Scotland regulatory investigations. Overall, we expect exceptionals to still be around the $135 million, and that's dominated by the regulatory investigations and settlements there, and we expect a further $60 million in the second half. In terms of net debt, overall, our net debt-to-EBITDA, we expect to be around 2.5x at the end of June. And that's been driven by the fall in profitability due to COVID. Our profitability fell about 20% in the first half, and it's fallen further in the first half of '21. As we flagged, we do feel we've reached that inflection point. We've seen the inflection point in Consulting and Operations, and we expect the inflection point for the group as a whole in the second half. So that improving profitability will start to drive down that net debt-to-EBITDA from this point forward.

Okay. So the exceptional in the second half are going to be a very big headwind to reducing the absolute net debt for year-end then?

Yes. That's right. So they're looking for the exceptionals unchanged, and it's dominated by the regulatory settlement of $70 million, which is consistent with what we said in March. But it is going to provide a significant headwind to reducing net debt.

Okay. Okay. All right. A second unrelated question is on the cost overruns on legacy projects. Give us some color on which products this relate to? What's the status of these projects? If they're nearing completion? Have they reached commercial settlement yet? And -- just so that we can get a sense of where we are on this really long tail of projects that seem to always be hitting profitability.

Yes. I probably wouldn't quite describe it in that way, Amy, unsurprisingly. If you look at our Projects business, we've seen a good uptick in margin. And the margins are up almost 220 basis points. And we have some project challenges in 2020 in the Americas. And we've put a great deal of investment into resolving that. And we do feel these are much more in the rearview mirror, and we're starting to see that coming through in terms of the margins, and so we still expect improvement going forward. And so a lot of the improvements are related to our Future Fit program. We appointed a COO, and we've made a lot of investment around operational excellence initiatives, and these are starting to come through. I think the area you're probably flagging is in investment services, where we expect that to be a loss of $7 million in the first half. Investment services is really where we keep our legacy liabilities and almost our discontinued projects. And so we do expect that to go up and down a bit. In the first half of 2020, we had some benefit of closing things out. In the second -- in the first half of '21, we've got some increased costs mostly on the Aegis project, where we're 90-odd percent complete, but finalizing that project has been more challenging. The stage we're at requires a lot of American nationals. And because of COVID, it's been difficult to get American nationals into Poland, which is delayed completion of that project.

And your next question comes from the line of Mark Wilson at Jefferies.

David, I'd like to ask a couple of questions. First, where is your -- the headcount trending versus year-end, please, particularly with activity looking ahead and your comments regarding Consulting order book improving? And second point, on the backlog that you've announced now $6.9 billion, just how much of that is expected for the second half of the year? And then the last point, could you just give us an update on where that receivable facility is, please? I mean that was $190 million drawn at year-end.

Okay. I'll maybe go through them in a reverse order. The receivable facility, we expect to be there or thereabouts at the end of the year, the facility, we keep it below that $200 million limit. And so I'd expect it to be $190 million to $200 million, Mark. We don't expect much change there. In terms of backlog, about $5.8 billion of our revenue is covered for 2021. And -- so that includes revenue for the first half and what's in backlog to the end of May. If I look at where that is, it's slightly below where we're normally expected or compared to last year, but we're in a much better macro environment. So it's not something that's giving us a lot of concern. So we feel relatively comfortable with our revenue coverage. In terms of the backlog itself, as I said, the backlog has grown 6% to the end of May. We've seen really good backlog growth in Consulting and Operations, both of those are just under 15% and really strong book-to-bills in both of those business units. In projects, we do feel the outlook is improving from this point. And we've reached that sort of bottom, and we would expect it to improve from this point forward. When I look at where we are in June, June looks at being a relatively good month. There's always a danger in looking at it every month and that we book awards and sometimes they can skew it, but we're very comfortable with the momentum that we've seen over the sort of longer period. And that momentum started at the back end of 2020, I think. We had 5% growth in December, and then we've had another 6% through the first half, and June is looking like being a pretty good month as well. So albeit it's not complete yet. So we're really comfortable with the momentum we've had in our order book, and that's going to translate into growth in the second half. In terms of headcount, the headcount relative to the end of the year is slightly down. It's 1% to 2% at the end of June.

Okay. That's great. Would you anticipate adding headcount given the -- certainly, the working consulting that's coming through?

Yes. Albeit one of our focus areas in the first half was around our Future Fit program, which was around making ourselves more efficient. And we're always looking at how we can make ourselves more efficient? How we can drive better utilization as well? So it's not just about adding headcount, it's also how we do things differently. One of the pillars of our Future Fit program is around digital and technology. And part of that is around disconnecting some of our revenue and margins from straight headcount.

Okay. Okay. And this may be a broader question, but I think you said renewables are -- revenue is still 25%. Some people might consider that to be relatively low considering that the focus of Wood Group and the renewable abilities you've got. Would you expect that to grow, given what you're seeing in the order book over the coming years? And also, I should always ask, are there any disposals planned at the moment? Or should we be expecting acquisitions, possibly bolt-on M&A, in the coming years?

In terms of renewables, we -- I probably wouldn't characterize it as you do there in terms of that expectation. If we look at what we're seeing, particularly in the project space and the project is driving the material revenue in renewables. And for us, that's largely a U.S. story around solar and wind. And we see lots of opportunities in solar and wind, but we're also very thoughtful around the type of opportunities that we take in because these are EPC lump-sum projects. And so they come with risk. And we've worked hard on our risk appetite over the last 3 years. So we really are quite selective in terms of renewables awards. We've got some good opportunities that one should convert in June in terms of the final contract. And so we are thoughtful around what we take into it. So it's balancing that risk appetite also with the renewables opportunities. If I broaden that to other energies, we are seeing some -- and we've listed some of the opportunities. We're seeing a lot of good opportunities from energy transition as well. And so just now these are more at the early stage, but there's a really exciting range of opportunities that we're managing to secure. One that will get announced in due course that we flagged is, we've entered into an agreement with a partner to jointly create a solution, utilizing hydrogen to produce renewable diesel and sustainable aviation fuel, and we're really excited about that as an opportunity. So -- if I broaden it to energy transition, we think actually the positioning that we've done is standing us in -- really in good state, and we're starting to see that coming through in our order book. In terms of disposals and acquisitions, we've no material disposals or acquisitions in progress just now. And as I stand, I wouldn't expect those to be a feature of H2. As we see the recovery in net debt-to-EBITDA, we would like to move back to bolt-on acquisitions, and we've been quite clear about that in the past.

And your next question comes from the line of Henry Tarr at Berenberg.

Just 2 quick questions. One on activity levels, more broadly. I guess, the way you're thinking about it, does this first half 2021 potentially mark a sort of a turning point? I suppose revenues have been coming down since 2018 and now looking into the second half with the macro as it is, we should start seeing increasing order momentum and revenue that potentially could take through into the first half of next year as well? And then the second question is just on the SFO and the timing around that. So I think you said $60 million payment this year and then further payments in future years. And when do we get the kind of final verdict on that?

Okay. I'm going to start with the SFO. You'll have seen from the trading update that what we've said is unchanged from what we said in March. And so there's no change in anything we're seeing around the SFO. We still expect it to be done by the end of Q2 2021. And so we do expect it to be imminent, and you can work out from there. In terms of the payments, we expect $60 million in the second half of 2021. And then in 2022, 2023, '24, we expect that just to be over $40 million. And again, that's unchanged from what we said at March. And again, philosophically, we recognize that that's a significant sum of money. But equally, we've spent a lot of time and effort on these cases, and it will be good to get them into the past. In terms of activity, I think you captured it right. We do see the first half of '21 as the inflection point. And it's at different points in our businesses. But as a whole, we expect the second half of '21 to grow relative to the first half of '21, also grow relative to the first half -- the second half of 2020. So we do see that inflection point. In the Consulting and Operations, our Q2 activity was higher than in Q2 of the previous year. And so we've seen that inflection in projects. We expect that to be in the second half. So as we map that forward and we look at some of the macro that's supporting our business, again, we get some good encouragement. I've talked about -- a bit about the recovery in projects and what we're seeing there. In terms of Consulting, we've seen excellent build in backlog in the first half of '21, and we expect the macro to support that going forward. There's obviously a big U.S. stimulus bill as there is a Canadian and European stimulus bill. And that we feel that will be very supportive for our Consulting business, as we go through into 2022. And again, just to remind you what we've said around stimulus, particularly in the U.S., our guys on the ground expect the impact on revenue to take about 6 months from when a stimulus bill is passed. So just now we're seeing good backlog growth, and that's before the stimulus has been passed.

And your next question comes from the line of Mick Pickup from Barclays.

Just a few clarifications, if I can? You talk about Consulting being a pretty rapid turnover business. Does that mean we can take that 13% backlog growth in 1H as a good guide to where the 2H sort of revenue movement is going to go?

It is relatively short cycle. We've not given out direct guidance around the second half revenues. We do expect Consulting to grow as a whole compared to 2020. And it's basically flat in the first half. So we are expecting growth in the second half relative to the second half of 2020.

Yes. And I know you've not given direct second half revenues, but consensus is for about $600 million gain in the second half, and you've got a 13% uplift in Consulting and you're telling me projects is backlog building, but revenues will lag it. So I'm just -- it sort of looks like the second half revenue number in consensus looks a touch too high.

Yes. The consensus that we have from a build in terms of the split is formed from a very narrow range of analysts. I think the split in H1 and H2 revenues was, I think, related to 4 analysts. So when we look at Consulting in terms of the revenue, we do see good growth. You talked about 13%, we do see good growth in revenues in Consulting in the second half relative to the first half. And the backlog that we've seen in terms of the growth there of -- in Consulting was 13% is going to come through because it is a short-cycle business.

Okay. Magic. And then just on the project margin. Obviously, I think you said it's 7.5%, which for project business, to my mind, looks very good. Is there anything in that due to the fact that, obviously, revenues are coming down and you've got a lot of late life projects in the -- and not many owned projects?

Not especially. If I look forward to the second half, we don't see that margin stepping down because we completed projects in the first half. We've completed a couple of the projects are just [ bigger projects. ] And they've not had a disproportionate impact in terms of margin in the first half.

And your next question comes from the line of Amy Sergeant at Morgan Stanley.

Just 2 quick questions from me. So just to follow on from one of the previous ones. As you think about sort of where you want the business and the mix to go from here, do you have the capacity and the capability both in terms of, I guess, headcount but also in terms of expertise that you would need for this? Or is there anything that think you need to develop? And then the second question is just in general on these projects sort of not specific to the energy transition type work, are you seeing any kind of increasing competitiveness and margin pressure on the bidding as you sort of see this pickup in activity as people are keen to get backlogs built up again?

In terms of talent and that build, I don't think there's anything specific in terms of capability. One of the pillars of our Future Fit program is around accelerating future skills development. And so we've kicked off a few works regimens there, which is really looking at, well, how do skills -- how does the mix of skills we need to change in the future? And some of that is tied in with digital and technology. So that's more with an eye to the future and how we build that capability within our group. In terms of delivering the backlog, if we look within the Consulting business, we expect that to be competitive for talent, particularly if we see the impact of stimulus. Again, we're pretty comfortable in terms of the offering that we have for people in terms of how competitive we are in terms of salaries and opportunities and actually, the business that we have. And I think one of the things around our strategy and our focus over the last few years around energy transition and sustainable infrastructure, it has been attractive to talent in a way that perhaps if we've remained a pure-play oilfield services, that would have been more difficult. In terms of the second question around margin pressure and pricing pressure, when we're -- if I look in the project space, we are bidding on projects in a competitive basis, largely. We do work very hard around our differentiation and that's differentiation in terms of our capabilities and in terms of our relationships with customers. There's nothing I would particularly flag just now in terms of pricing pressure driving down margins.

And your next question comes from the line of Nick Konstantakis at Exane.

I have a couple of ones, please. The first one is following a bit on the Amy's, trying to think about moving parts for the net debt in the second half of the year. So if I think of it a half-on-half basis, you have $95 million or so less on exceptionals and payments, et cetera, do you expect the working capital inflow from the advances to offset that?

Yes. So Nick, as I said, we expect the working capital inflow in the second half. In a normal year, we would expect -- we usually have an outflow in the first half and an inflow in the second half. I guess the other aspect this year is the impact of advances. And so we've had an unwind in the first half, and we expect that unwind to reverse in the second half as we start to book projects and awards.

Okay. Fair enough. And then on the [ greenfield, ] it's quite encouraging all of the early work that you're doing, and we are looking for some of this stuff to materialize into larger EPC-type of awards. Can you just talk to us a bit -- I mean, obviously, you have worked a lot on risk management, risk appetite and reducing the lump-sum proportion of your work. When we think about a lot of these projects be in predominantly developed markets, how do you think about getting large EPC work in developed markets? How do you think about the risk there? Have you thought about different kind of commercial arrangements? Can you give us any more color as this becomes a bigger part of your business, hopefully?

Yes. Quick start there. I think in terms of risk appetite, we've been clear since we made the Amec Foster Wheeler acquisition, we've tried to drive a lower risk appetite across the group as a whole. And so I think at the end of 2017, about 65% of our business is reimbursable, about 35% was lump-sum, and that's changed to 75% reimbursable. Also, the proportion of bigger lump-sum projects has reduced. And so we do have a lower risk appetite. So that doesn't mean that we've no risk appetite for EPC activities. It's just that we're very thoughtful around making sure the projects we take in, we're confident that we can deliver the margin. That said, we don't feel that's restricting our opportunity set. We -- some of the bigger projects we do are reimbursable projects. Some of the bigger projects we do are not EPC projects, the EPCM projects. So we feel, even when we look at new technologies, there is enough of an opportunity set for us. I think the other thing we flagged, one of the sort of medium-term mix impacts, we do expect the business over the medium term through cycle to be more weighted to consulting than it has been in the past, and that will be margin accretive for us.

And your next question comes from the line of James Thompson at JPMorgan.

Two questions for me. Firstly, I mean, obviously, the oil macro is extremely strong, much stronger than people expected at this point if we go back 6 months. I just wondered if you could maybe talk us through how you see things developing in the shale business, how you see things developing in the subsea arena? Are you now seeing a lot more tendering activity? Maybe just give an insight into those 2 items. And then secondly, at least in my model, D&I looks quite a lot lower than I was expecting. I was just wondering if you could talk us through the moving part there and whether depreciation and amortization is moving to be structurally lower over the next couple of years, obviously, to helping in?

Yes. I'll maybe start with the depreciation and amortization. You're right. It's -- we do expect it to be significantly less than 2020. So depreciation is order of magnitude $30 million to $40 million less and amortization is in order of magnitude the same, $30 million to $40 million less than 2020. In terms of the depreciation, part of that is linked to effectively working from home. So we have an extensive property footprint. With IFRS 16, that converts into depreciation on those leases. And over the next 3 years, a large part of our property portfolio turns over. And we anticipate having less property. Just now we think that's order of magnitude 30% less property space because we'll be moving to effectively a blended working. And so that's having an impact. We made decisions in 2020 and we'll make decisions in 2021 as these come up. And so that's driving lower depreciation. In terms of the amortization, we've just got the roll off of amortization on previous acquisitions. And so these have come to an end. So both of those trends, we would expect to continue in the future. In terms of the second one, in terms of the oil macro, the oil price picture is encouraging. That seems to be having an impact in pockets of our business in terms of conversations we're having with clients. In terms of U.S. shale, it's been relatively muted in terms of actual activity to date. I think I was reading yesterday around fracking crews are up significantly. We typically follow after that in terms of our activity. So part of it, we wouldn't expect to be first in line for an activity increase. I think what we're also seeing and what I'm reading is, there is more discipline in U.S. shale than there has been in the past. So perhaps it's not as immediate change as we've seen in the past. As soon as the oil price goes up, we see an uptick in activity. In terms of subsea, subsea is a relatively small part of our business now, largely in the consulting world. It's held up relatively well through the cycle. But it's a relatively small part of our business now.

[Operator Instructions]

Okay. If there's no more questions, we'll wrap it up there. I just finish by returning to the start in my script, there's 3 areas that we wanted to highlight to you and that we're very pleased with. One is that return to growth. We've seen the inflection point in Consulting and Operations, and we expect to see that inflection point in the second half of '21 for the group as a whole. We're encouraged by margin progression in the first half. All of our BUs are up. We've seen particularly good progress in projects, and we expect to grow our margin for the full of the year. And we do feel we've got good momentum in our backlog, driven by Consulting and Operations and with a brighter outlook on projects. So with that, I'll end the call and wish you all a good day.

Thank you. That does conclude the conference for today. Thank you for participating. You may all disconnect. And David, please standby.