REG-Petrofac Limited Petrofac Limited: Trading Update

PetrofacAnnouncement

20/12/2023 07:00

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   Petrofac Limited ( PFC)
   Petrofac Limited: Trading Update

   20-Dec-2023 / 07:00 GMT/BST

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                 This announcement contains inside information

    

    

                                PETROFAC LIMITED

                                 TRADING UPDATE

    

   Petrofac issues the following pre-close trading update for the year ending
   31 December 2023.

    

   FINANCIAL AND STRATEGIC UPDATE:

     • Second contract award under the six-project, US$14 billion, multi-year
       Framework Agreement with TenneT announced today. Petrofac’s portion of
       the second contract valued at approximately US$1.4 billion.
     • Performance guarantee secured for the first contract awarded under the
       Framework Agreement with  TenneT. Performance  guarantee terms  agreed
       for the first ADNOC Habshan contract  – expected to be issued by  year
       end. Active  discussions ongoing  to  secure guarantees  required  for
       other new contracts.
     • Net debt(1)  expected  to  be  modestly higher  than  at  the  interim
       results, with positive free  cash flow generation  by the business  in
       the second  half offset  by  an increase  in collateral  required  for
       guarantees.
     • Near-term focus  remains  on  strengthening  the  balance  sheet  with
       ongoing review of strategic and financial options.

   OPERATIONAL PERFORMANCE:

     • Asset Solutions and IES underlying performance in line with  guidance,
       before  a  one-off   bad  debt   provision  in   Asset  Solutions   of
       approximately US$12 million.
     • Expect a full year EBIT loss  in E&C of approximately US$215  million,
       including US$110 million one-off  write downs in contract  settlements
       to protect cash flows.
     • Good progress in reaching contractual settlements in the second  half,
       with approximately US$180 million collected year-to-date.
     • Completion of remaining legacy E&C contracts progressing in line  with
       guidance.
     • Thai  Oil  Clean  Fuels  project  progress  remains  on  track,   with
       negotiations ongoing to recover additional committed costs.

   BACKLOG AND OUTLOOK:

     • Exceptional new order intake(2) across  both E&C and Asset  Solutions,
       totalling approximately US$6.8 billion in the year-to-date, with Group
       backlog(3) expected to be approximately  US$8.0 billion at the end  of
       the year.
     • Robust business outlook  underpinned by strong  backlog and a  healthy
       Group pipeline scheduled  for award  in the  next 18  months of  US$62
       billion, including the remaining projects in the TenneT multi-platform
       Framework Agreement.

    

    

   Tareq Kawash, Petrofac’s Group Chief Executive, commented:

    

   “Our focus  on  rebuilding  the backlog  and  unwinding  historic  working
   capital has  resulted in  tangible progress  against our  organic plan  to
   strengthen the Group’s financial position.

    

   “To further accelerate progress,  my near-term priority,  and that of  our
   Board and  leadership,  remains  on  improving  liquidity  and  materially
   strengthening the  Group’s  balance sheet,  to  deliver on  our  long-term
   potential.

    

   “We are  completing  contracts in  the  legacy portfolio  as  planned,  we
   continue to deliver well in the initial phases of the contracts awarded in
   2023, and, as a  result of excellent  order intake, we  enter 2024 with  a
   high-quality  backlog  in  both   traditional  and  renewable  energy   of
   approximately US$8 billion. This provides us with good revenue  visibility
   and demonstrates  the continued  confidence customers  have in  Petrofac’s
   delivery.”

    

    

   FINANCIAL AND STRATEGIC UPDATE

   The Group has made  good progress on its  near-term priorities, since  its
   announcement on 4 December  2023. Today, we announced  that the Group  has
   secured the performance guarantee for the first contract awarded under its
   Framework Agreement  with TenneT,  which was  also supplemented  with  the
   second contract award  under the  agreement. The Group  remains in  active
   discussion with credit providers and its clients to secure the  guarantees
   required for other new contracts in its portfolio.

    

   Cash flow and net debt(1)

   The Group  has continued  to advance  contractual settlements,  collecting
   approximately US$180 million  in the year  to date. As  referenced in  the
   business update  on  4  December  2023, due  to  the  delays  in  securing
   guarantees, the Group no longer expects to collect advance payments on new
   contracts before the year-end.

    

   Measures taken by management  resulted in positive free  cash flow in  the
   second half, even in the absence of advance payment receipts, albeit  this
   was offset  by  an increase  of  over  US$100 million  in  collateral  for
   guarantees. As a result, net debt  at year-end is expected to be  modestly
   higher than at the interim results (30 June 2023: US$584 million).

    

   The  Group  has  continued  to  maintain  liquidity  above  its  financial
   covenant.

    

   Review of strategic and financial options

   On 4 December 2023, the Group  announced that Aidan de Brunner had  joined
   the Company as a Non-Executive  Director to drive engagement with  finance
   providers, investors  and  other  stakeholders  in  an  active  review  of
   strategic  and  financial  options   with  the  objective  of   materially
   strengthening the Company’s  balance sheet, securing  bank guarantees  and
   improving short-term  liquidity. Further  announcements  will be  made  as
   appropriate.

    

    

   GROUP TRADING

   The Group continues to perform well for its clients. Management expects to
   report Group  revenue  of  approximately  US$2.5  billion,  in  line  with
   guidance. Full-year  business  performance EBIT  loss  is expected  to  be
   approximately US$180 million. This  includes approximately US$110  million
   one-off write-downs in contract  settlements to protect  cash flows and  a
   one-off bad debt  provision of  approximately US$12 million  for a  client
   going into administration in the Asset Solutions business unit.

    

    

   DIVISIONAL HIGHLIGHTS

   Engineering & Construction (E&C)

   The financial performance in E&C reflected the low opening backlog and the
   maturity of  its legacy  contract portfolio.  Full year  E&C revenues  are
   expected to  be around  US$1.0 billion,  with  a full  year EBIT  loss  of
   approximately US$215 million,  including approximately  US$110 of  one-off
   write-downs on legacy contracts to protect and accelerate cash flows.

    

   Following E&C’s  strongest  order  intake  in  many  years,  it  has  good
   visibility of future revenue and profit growth. Guidance will be  provided
   with the Group’s annual results, as usual. 

    

   Operationally, the initial phases of the new contracts secured in 2023 are
   progressing well. We previously  guided that five  of the remaining  eight
   legacy  contracts  were   expected  to  be   completed  or   substantially
   completed(4) during 2023 or  early 2024. Progress  remains on track,  with
   two reaching that milestone  in 2023 and the  remaining three expected  to
   follow in early 2024.

    

   With respect to the Thai Oil Clean Fuels project, good progress  continues
   to be made  on the construction  phases and we  are achieving our  interim
   milestones. Negotiations  are  ongoing with  our  client and  partners  in
   relation to the reimbursement of additional committed costs. The timing of
   these  negotiations  is  not  wholly  within  the  Company’s  control  and
   therefore, there  is a  risk to  the  2023 EBIT  numbers stated  above.  A
   project and commercial update will be provided with the publication of the
   Group’s full year results in 2024.

    

   Year-to-date,  following  the  second  contract  award  under  the  TenneT
   framework agreement, E&C  has secured new  orders of approximately  US$5.3
   billion,  split  broadly  evenly  between  our  core  markets  and  energy
   transition projects under the TenneT framework. Backlog is expected to  be
   approximately US$5.9  billion at  31 December  2023, of  which almost  90%
   relates to contracts secured in 2023.

    

   Asset Solutions

   Asset Solutions has had another successful year, with order intake for the
   year-to-date of US$1.5 billion comprising renewals and extensions in  core
   markets and new contract awards in both core markets and new geographies.

    

   Full year revenues are expected to be US$1.4 billion with EBIT of  between
   US$20  million  and  US$25  million,   following  a  bad  debt   provision
   approximately   US$12   million   relating   to   a   customer    entering
   administration. Excluding this one-off event, expected underlying EBIT  of
   between US$32  million  and  US$37  million  reflects  the  completion  of
   historic high  margin  contracts in  2022  and a  higher  contribution  of
   pass-through revenues.

    

   Integrated Energy Services (IES)

   IES has  continued to  deliver ahead  of expectations.  Net production  is
   expected to be broadly in line with the prior year (2022: 1,261kboe).  The
   average realised oil price (net of  royalties)(5) for the year to date  is
   expected to be  approximately US$90/bbl, including  the impact of  hedging
   (2022: US$110/bbl),  with  the full  year  EBITDA expected  to  marginally
   exceed the guided range of US$65 million to US$75 million.

    

    

   ORDER BACKLOG

   The Group's backlog(3) is expected  to be approximately US$8.0 billion  at
   31  December  2023  (30  June   2023:  US$6.6  billion),  reflecting   the
   exceptional order intake in both E&C and Asset Solutions.

    

                              31 December 2023 (forecast) 30 June 2023
                                              US$ billion  US$ billion
   Engineering & Construction                         5.9          4.5
   Asset Solutions                                    2.1          2.1
   Group backlog                                      8.0          6.6

    

    

    

   Conference call

   Tareq Kawash,  Group  Chief  Executive  and Afonso  Reis  e  Sousa,  Chief
   Financial Officer, will host a conference call for analysts and  investors
   at 8.30am today.

    

   Analysts and  investors can  access the  call on:  +44 (0)  330 551  0200.
   Password: Quote ‘Petrofac Trading Update’ when prompted by the operator.

    

    

    

   NOTES

    1. Net debt comprises interest-bearing loans and borrowings less cash and
       short-term deposits (i.e. excluding IFRS 16 lease liabilities).
    2. New order intake is defined as new contract awards and extensions, net
       variation orders  and  the  rolling increment  attributable  to  Asset
       Solutions contracts which extend beyond five years.
    3. Backlog  consists  of:  the  estimated  revenue  attributable  to  the
       uncompleted portion of Engineering  & Construction division  projects;
       and,  for  the  Asset   Solutions  division,  the  estimated   revenue
       attributable to the lesser of the  remaining term of the contract  and
       five years.
    4. Completed and substantially completed contracts: contracts where (i) a
       Provisional Acceptance  Certificate  (PAC)  has  been  issued  by  the
       client, (ii) transfer  of care  and custody  (TCC) to  the client  has
       taken place, or (iii) PAC or TCC are imminent, and no substantive work
       remains to be performed by Petrofac.
    5. Average net realised price is inclusive of royalties and hedging gains
       or losses.  It  is based  on  sales  volumes, which  may  differ  from
       production due to under/over-lifting in the period.

    

    

   ENDS

    

   Disclaimer:

   This announcement contains  forward-looking  statements  relating  to  the
   business, financial performance and  results of Petrofac and the  industry
   in which Petrofac operates.  These statements may  be identified by  words
   such as "expect", "believe",  "estimate", "plan", "target", or  "forecast"
   and similar expressions, or by their context. These statements are made on
   the basis  of current  knowledge  and assumptions  and involve  risks  and
   uncertainties. Various  factors   could  cause   actual  future   results,
   performance or events to differ  materially from those expressed in  these
   statements  and  neither Petrofac  nor   any  other  person  accepts   any
   responsibility  for  the  accuracy  of  the  opinions  expressed  in  this
   presentation or the  underlying assumptions. No  obligation is assumed  to
   update any forward-looking statements.

    

    

   For further information contact:

   Petrofac Limited

   +44 (0) 207 811 4900

    

    

   James Boothroyd, Head of Investor Relations

    1 James.boothroyd@petrofac.com

    

   Sophie Reid, Group Director of Communications

    2 Sophie.reid@petrofac.com

    

   Teneo (for Petrofac)

   +44 (0) 207 353 4200

   petrofac@teneo.com

    

    

    

   NOTES TO EDITORS

    

   Petrofac

    

   Petrofac is  a  leading  international  service  provider  to  the  energy
   industry, with a diverse  client portfolio including  many of the  world's
   leading energy companies.

    

   Petrofac designs,  builds,  manages  and  maintains  oil,  gas,  refining,
   petrochemicals and  renewable energy  infrastructure.  Our purpose  is  to
   enable our clients  to meet the  world's evolving energy  needs. Our  four
   values -  driven,  agile,  respectful and  open  -  are at  the  heart  of
   everything we do.

    

   Petrofac's core markets  are in the  Middle East and  North Africa  (MENA)
   region and the UK  North Sea, where  we have built  a long and  successful
   track record of safe, reliable and innovative execution, underpinned by  a
   cost effective and local delivery model with a strong focus on  in-country
   value. We operate in several  other significant markets, including  India,
   South East  Asia and  the United  States. We  have 8,500  employees  based
   across 31 offices globally.

    

   Petrofac is quoted on the London Stock Exchange (symbol: PFC).

    

   For additional information, please refer to the Petrofac website at
   www.petrofac.com

    

    

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   Dissemination of a Regulatory Announcement that contains inside
   information in accordance with the Market Abuse Regulation (MAR),
   transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   ISIN:          GB00B0H2K534
   Category Code: TST
   TIDM:          PFC
   LEI Code:      2138004624W8CKCSJ177
   Sequence No.:  292987
   EQS News ID:   1800591


    
   End of Announcement EQS News Service

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References

   Visible links
   1. mailto:James.boothroyd@petrofac.com
   2. mailto:Sophie.reid@petrofac.com


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