Worley Limited

The Business

Worley is one of the world's largest engineering and professional services firms, providing design, consulting, and project delivery across the energy, resources, and chemicals sectors. The company employs roughly 53,000 people in 46 countries. Its defining characteristic is a reimbursable contract model, where 82% of revenue comes from cost-plus arrangements that pass inflation risk to clients rather than absorbing it. This protects margins and cash flow in ways that peers relying on fixed-price contracts cannot match. Worley also operates global integrated delivery (GID) centres in India and Colombia, handling roughly 15% of total engineering hours at significantly lower cost, giving it a structural edge that competitors are only beginning to replicate.

Recent Performance

Revenue grew 3.7% to US$12.1 billion in FY25, off a base that itself grew 6.3% the prior year. The underlying EBITA margin (a measure of operating profit before amortisation of acquired intangibles) reached 9.2% on an ex-procurement basis, the highest in at least five years. The share price, however, has fallen roughly 30% from its 2024 highs as the Hormuz Strait conflict disrupted Middle East operations and clouded the near-term outlook.

Outlook

FY26 represents a transition year. EBITDA is forecast to dip 1.4% to US$940 million as Middle East disruption weighs on margins, before recovering to US$1,003 million in FY27. The recovery hinges on a A$100 million annualised cost-out programme, of which we embed roughly 80% delivery. Revenue growth of 4-5% annually is supported by a record US$16.7 billion backlog with a book-to-bill ratio of 1.55 times, the strongest in at least four years. Energy security capex, not commodity price, is the primary demand driver, a structural shift that reduces Worley's historical sensitivity to the oil cycle.

Key Risks

Escalation of the Hormuz Strait conflict could trigger project cancellations across Worley's EMEA operations, which account for 40% of regional revenue. An oil price collapse below US$70 would reverse the energy security capex cycle that underpins 50% of the company's top line. Full margin reversion to pre-2023 levels would materially compress earnings, with the terminal margin assumption representing the single most sensitive input to any valuation of this business.

What to Watch

• August 2026 FY26 results: cost-out delivery and margin trajectory — confirmation that the restructuring programme delivers 80%+ of its A$100m target would validate the FY27 recovery thesis.
• Next 12 months ME ceasefire or Hormuz reopening — resolution would remove the largest single overhang through both earnings recovery and multiple re-rating.
• August 2027 GID hours reaching 18%+ of total — would confirm the structural margin thesis and support the case for a permanently higher margin floor.

Company Description

Worley operates across three segments. Energy is the largest, contributing roughly 50% of revenue (US$6.0 billion in FY25), and covers oil and gas, LNG, power generation, and energy security infrastructure. Resources accounts for about 29% (US$3.5 billion), serving mining, minerals processing, and critical minerals clients. Chemicals makes up the remaining 21% (US$2.5 billion), covering refining, petrochemicals, and life sciences.

A significant feature of Worley's financials is the split between procurement revenue (pass-through purchasing on behalf of clients, at near-zero margins) and ex-procurement revenue (the company's actual engineering and advisory fees). In FY25, roughly US$2.1 billion of total revenue was procurement. This distinction matters because it means headline revenue growth and margins can be misleading; the real measure of Worley's earning power is its margin on ex-procurement revenue. The company also holds a 50% stake in JESA, a Moroccan engineering joint venture that generated US$167 million in profit in FY25, roughly 20% of group earnings.

Where the Growth Is

Energy security capex is Worley's primary growth engine. This segment contributed US$6.0 billion in FY25 and is forecast to grow 7% in FY26, driven by LNG project awards (including CP2 and Alaska LNG) and government-mandated energy security infrastructure. The structural driver is geopolitical: the Hormuz Strait conflict and broader fragmentation of global energy supply chains are compelling governments and energy majors to invest in domestic or allied-nation capacity. This is a multi-decade trend, not a cyclical one. We estimate US$600-900 million of incremental revenue from energy alone over FY26 to FY28.

Competitive Position

Worley holds approximately 6% of the global E&C services market, with its share strengthening (backlog grew 22% in FY25). Three characteristics sustain its competitive position. First, its GID centres in India and Colombia deliver engineering hours at roughly 40% lower cost than onshore equivalents, providing an estimated 200 basis point margin advantage over peers. Competitors like Fluor and Jacobs are building their own offshore delivery centres, but Worley has a 3-5 year head start in scaling this capability. Second, 48% of new work is sole-sourced, meaning clients come directly to Worley without a competitive tender, reflecting deep, multi-decade relationships with energy majors. Third, Worley's strict no-LSTK policy (it will not take lump-sum turnkey contracts, where cost overruns fall on the contractor) eliminates the tail risk that has historically destroyed value at peers like Fluor and Wood Group.

Management & Capital Discipline

CEO Chris Ashton has led the business since 2020, and Chairman Andrew Grill holds roughly 10% of shares outstanding, providing meaningful alignment. Over the past five years, management completed the US$4.6 billion Jacobs ECR acquisition and integrated it without major cost blowouts, executed a A$324 million share buyback at reasonable prices, maintained the 50 cent per share dividend through the cycle, and grew backlog from US$11 billion to US$16.7 billion. Long-term incentive hurdles were recently raised to require 6-10% annual EPS growth.

One honest observation: management has not publicly acknowledged the medium-term threat that AI-assisted engineering design poses to billable hours, which is a material omission for a business whose revenue is fundamentally tied to the number of hours its engineers work.

Financial Position

Net debt sits at approximately US$1.5 billion, or 1.6 times EBITDA, well within investment-grade thresholds. Liquidity stands at US$2.8 billion (including undrawn facilities). Cash conversion runs at 95%, meaning nearly all reported profits convert to actual cash, a strong indicator of earnings quality. The balance sheet carries US$5.2 billion in goodwill and intangibles from past acquisitions, which is significant relative to total equity, but the underlying businesses generate returns on invested capital (ROIC) of 12-13%, comfortably above the 8.7% cost of capital. The company can weather a downturn without recourse to equity markets.