REG-Petrofac Limited Petrofac Limited: RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

PetrofacAnnouncement

11/08/2022 07:15

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Petrofac Limited ( PFC)
Petrofac Limited: RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

11-Aug-2022 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.

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                                             PETROFAC LIMITED

                               RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

 

First half highlights

 

  • H1 financial performance in line with guidance with good momentum in AS and IES, offset by challenges
    in E&C’s mature portfolio
  • Business performance EBIT of US$2 million(1)(2)
  • Reported net loss of US$(14) million(2) inclusive of separately disclosed items
  • Group order intake of US$1.1 billion(3) with book-to-bill of 0.9x
  • Healthy 18-month Group pipeline of US$57 billion
  • High levels of bidding activity in E&C with opportunities expected to be awarded evenly over the second
    half
  • Backlog of US$3.7 billion
  • Net debt of US$341 million(6) and liquidity of US$511 million(7)
  • Free cash flow in second half expected to be broadly neutral

 

                         Six months ended 30 June 2022         Six months ended 30 June 2021 (restated)(9)
US$m                  Business         Separately     Reported     Business         Separately     Reported
                    performance      disclosed items              performance     disclosed items
Revenue                1,228               n/a         1,228         1,595              n/a         1,595
EBIT                     2                 n/a          n/a           49                n/a          n/a
Net profit /            (35)               21           (14)          41               (130)         (89)
(loss)(2)

 

Sami Iskander, Petrofac's Group Chief Executive, commented:

 

“Our performance in the first half continues to reflect the COVID-19 related industry challenges, as we
work towards completion on many of the projects in the legacy E&C portfolio. Moving into the second half of
2022, a significant increase in bidding activity has put us firmly on the path to grow backlog over the
full year. Supported by a strong commodity price environment and an increasing focus on energy security,
the outlook for the industry is robust and the work we have done over the past 18 months means that
Petrofac enters this important period in a strong competitive position.

 

“We made good  progress on  our new  energies strategy  having entered  into a  collaboration with  Hitachi
Energy, a leading  player in HVDC  and HVAC technology,  to provide joint  grid integration and  associated
infrastructure for the  rapidly growing  offshore wind market.  This collaboration  strengthens our  market
position and  the large  pipeline of  opportunities supports  our US$1  billion revenue  ambition from  new
energies in the medium term.

 

“Our priorities in the second half of the year are clear. First, we will continue to safely deliver the
existing backlog for our clients, while maintaining cost discipline. Second, we will focus on closing out
the delayed commercial settlements, to unwind working capital and return to positive free cash flow from
2023. Lastly, we will make progress in securing awards in E&C to deliver growth in full year backlog. Our
recent US$200 million provisional award in Algeria, while small, is evidence of our competitiveness and
marks the beginning of a multi-year upcycle.”

 

DIVISIONAL HIGHLIGHTS

Engineering & Construction (E&C)

E&C financial performance in  the first half  was in line with  the guidance given  in the trading  update,
reflecting the  lingering  effects of  the  pandemic,  including some  relatively  unfavourable  commercial
settlements with clients. The decline in revenue reflected lower levels of activity compared with the prior
year period as well as progress  delays on certain projects. The EBIT  loss of US$44 million reflected  the
immediate recognition of the additional Covid-related project costs to completion and the adverse impact of
operating leverage from lower revenue.

 

In the second half, subject to the outcome of commercial settlements, E&C expects to report a marginal EBIT
profit.

 

E&C financial results for the six months ended 30 June 2022(1)(2)

  • Revenue down 40% to US$0.7 billion (H1 2021: US$1.1 billion)
  • EBIT down to US$(44) million (H1 2021 restated(9): US$21 million)
  • EBIT margin down to (6.5)%
  • US$0.2 billion of new order intake

 

Asset Solutions (AS)

AS delivered a robust financial performance in the  first half, with revenue of US$0.5 billion,  marginally
below prior year due a slower  start in executing new awards  and the strengthening US dollar. EBIT  margin
decreased to 6.5%, in line with guidance and lower  than prior year due to contract mix and the  completion
of high margin MENA contracts in 2021 (H1 2021 restated(9): 8.4%).

 

Order intake(3) was strong with US$0.9 billion contract awards and extensions secured in the first half,
representing a book-to-bill of 1.7x. This included US$0.6 billion of awards in the Wells & Decommissioning
service line, including awards in Australia and the Gulf of Mexico where we leveraged our unique integrated
decommissioning offering at scale.

 

Asset Solutions financial results for the six months ended 30 June 2022(1)(2)

  • Revenue down 3% to US$508 million (H1 2021: US$526 million)
  • EBIT down 25% to US$33 million (H1 2021 restated(9): US$44 million)
  • EBIT margin down 1.9 ppts to 6.5%
  • US$0.9 billion of awards, representing a book-to-bill of 1.7x

 

New Energy  Services  has an  established  position  in offshore  wind,  enhanced by  the  recently  signed
collaboration with Hitachi. In  our other focus  areas (carbon capture,  hydrogen and waste-to-value),  the
strong momentum of 2021 has continued  into 2022, leading to a  series of early-stage awards. Our  strategy
for these emerging areas is to develop alliances with technology providers and develop a strong engineering
track record to position the Group for project execution work as markets mature.

 

 

Integrated Energy Services (IES)

IES delivered strong financial  performance in the  first half, with a  significant increase in  production
compared with prior year and  benefitting from higher oil prices.  Alongside this increase, we delivered  a
material reduction in emissions intensity through a well workover to isolate a gas zone of the reservoir. 

 

Net production for the first half of the year was 553 thousand barrels of oil (kbbls) (H1 2021: 210 kbbls),
reflecting the additional production from  the East Cendor development, which  commenced in June 2021,  and
the partial reinstatement of the  main Cendor field production with  a temporary gas lift system  following
the outage that occurred in December 2020.

 

IES financial results for the six months ended 30 June 2022(1)(2)

  • Revenue increased to US$56 million (H1 2021: US$15 million)

       ◦ Average realised oil price(5) up 44% to US$99/boe, including the impact of hedging
       ◦ Net equity production up 163% to 553 kbbls

  • EBITDA increased to US$44 million (H1 2021: US$4 million)
  • EBIT of US$21 million (H1 2021: US$(6) million)

SEPARATELY DISCLOSED ITEMS

The reported net loss(2) of US$14 million (H1 2021 restated(9): US$89 million) includes a net credit for
separately disclosed items and certain re-measurements of US$21 million (H1 2021 restated(9): charge of
US$130 million). This comprised impairment adjustments to our fixed assets, fair value gains on disposals
and charges relating to cloud ERP software implementation costs. Consistent with previous periods, all
COVID-19 related costs have been treated as business performance.

 

CASH FLOW, NET DEBT AND LIQUIDITY

In the first half there was a free cash outflow of US$193 million, which resulted in net debt of US$341
million at 30 June 2022 (31 December 2021: US$144 million). This was largely driven by lower EBITDA, a
working capital outflow, and the payment of the US$104 million SFO Court penalty, partly offset by US$98
million of divestment proceeds related to the Greater Stella Area and the Mexico operations. The increase
in working capital was primarily a result of the delays in concluding commercial settlements in E&C and the
release of provisions in Asset Solutions following the completion of certain contracts.

 

Liquidity(7) was US$511 million at 30 June 2022 (31 December 2021: US$705 million) and the Group remained
in compliance with its banking covenants(8). Due to the expected timing of commercial settlements, net debt
at the year end is now expected to be broadly in line with the position at 30 June 2022. This is
principally due to timing as certain receipts previously expected in the second half of 2022 are now
expected to be received in the first half of 2023.

 

DIVIDEND

The Board recognises the importance of dividends to shareholders and expects to reinstate a dividend policy
in due course, once the Group's performance has improved.

 

ORDER BACKLOG

The Group's backlog  decreased marginally  to US$3.7  billion at  30 June  2022 (31  December 2021:  US$4.0
billion), reflecting progress delivered on the existing project portfolio and low new order intake in  E&C,
partly offset by strong order intake in Asset Solutions.

 

                           30 June 2022 31 December 2021
                            US$ billion      US$ billion
Engineering & Construction          1.8              2.4
Asset Solutions                     1.9              1.6
Group backlog                       3.7              4.0

 

IMPLEMENTATION OF 1TEC

We are  making  excellent  progress in  embedding  1tec,  our functional  excellence  and  value  assurance
programme. This will be the backbone of our consistent best-in-class execution to a single global  Petrofac
standard as we rebuild the backlog and transition  back to delivering sector-leading margins in the  medium
term. 

 

OUTLOOK

The market outlook for E&C continues to improve and we are optimistic that the opportunities we are bidding
on will start to be awarded in  the second half of the year. E&C  has a US$45 billion 18-month pipeline  of
opportunities, with  US$7  billion of  bids  already  submitted and  a  further $7  billion  under  tender.
Opportunities scheduled for the second half of 2022 are expected to be awarded evenly over the period.  Our
reinstatement to ADNOC’s commercial directory provides significant growth potential from 2023, and activity
is picking up across many of our core markets.

 

The E&C pipeline includes US$7 billion relating to  New Energy Services. Approximately 70% of this  relates
to offshore wind where,  through the collaboration  with Hitachi, we  are well positioned  to compete on  a
large number of HVDC offshore wind opportunities in Germany and the Netherlands. For the other new energies
sectors, we have applied a risk factor to the pipeline to reflect that they are less mature and the  timing
of awards is uncertain.   

 

E&C has US$0.6 billion of  backlog scheduled for execution  in the second half of  2022 and is expected  to
deliver a marginal EBIT profit in H2 2022.  

 

Asset Solutions has a  US$12 billion 18-month  pipeline of opportunities, with  US$4 billion scheduled  for
award by the end of 2022. While the order intake is expected to be first-half weighted, Asset Solutions  is
expected to deliver  a book-to-bill  greater than  1.0x for the  full year  in 2022.  There are  attractive
near-term opportunities for  all service  lines, both  in the  UK and  internationally, as  we continue  to
successfully leverage our market-leading  UK integrated services capability  to support clients around  the
globe.   

 

Asset Solutions has US$0.5 billion of backlog scheduled for  execution in the second half of 2022 and  EBIT
margins for the full year are expected to be in line with the 5-6% guidance range. 

 

In IES, net production  in the second  half is expected to  increase further, with  guidance for full  year
average production maintained at 3.0-3.5 kbbls/d (H1 2022 average net production: 2.9 kbbls/d). Assuming an
average US$100 Brent  price for  unhedged production  for the remainder  of 2022,  IES is  now expected  to
deliver EBITDA of between US$90 million and US$100 million.

 

Overall, we are optimistic about the outlook for  the second half, with improved Group performance and  the
start of a sustained period of backlog growth.

 

NOTES

 1. Business performance before  separately disclosed items.  This measurement  is shown by  Petrofac as  a
    means of measuring underlying business performance.
 2. Attributable to Petrofac Limited shareholders.
 3. 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.
 4. 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.
 5. Average net realised  price is  net 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.
 6. Net debt  comprises interest-bearing  loans and  borrowings  less cash  and short-term  deposits  (i.e.
    excludes IFRS 16 lease liabilities).
 7. Gross liquidity of US$511 million on 30 June 2022  consisted of US$430 million of gross cash and  US$81
    million of undrawn committed  facilities. Gross cash  included US$32m held  in certain countries  whose
    exchange controls  significantly  restrict  or  delay  the  remittance  of  these  amounts  to  foreign
    jurisdictions. It also included US$233m in joint operation bank accounts which are generally  available
    to meet  the working  capital  requirements of  those joint  operations,  but which  can only  be  made
    available to  the Group  for  its general  corporate use  with  the agreement  of the  joint  operation
    partners.
 8. Certain adjustments for one-off costs related to COVID-19 were permitted for the calculation of  EBITDA
    for the purpose of testing the covenants. The Group was compliant with its covenants throughout the six
    months ended 30 June 2022 (see note 16 of the consolidated financial statements).
 9. The prior period  numbers are  restated in  relation to the  adoption of  the IFRIC  decision on  cloud
    configuration and customisation costs in April 2021; see note 2.6 of the interim condensed consolidated
    financial statements.

 

 

FINANCIAL STATEMENTS

Click on, or paste the following link into your browser, to view the Group's financial statements for the
six months ended 30 June
2022:  1 https://www.petrofac.com/media/vnjlzzjz/petrofac-half-year-2022-results-financial-statements_.pdf 

 

PRESENTATION

Our half year results presentation will be held at 8.30am today and will be webcast live via:
 2 https://broadcaster-audience.mediaplatform.com/#/event/62e7c859368bde6d2842e876

 

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) 20 7811 4900

 

Jonathan Yarr, Head of Investor Relations

 3 jonathan.yarr@petrofac.com

 

Sophie Reid, Group Head of Communications

 4 sophie.reid@petrofac.com

 

 

Tulchan Communications Group

+44 (0) 20 7353 4200

petrofac@tulchangroup.com

Martin Robinson

 

 

 

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 8,200  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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   ISIN:           GB00B0H2K534
   Category Code:  IR
   TIDM:           PFC
   LEI Code:       2138004624W8CKCSJ177
   OAM Categories: 1.2. Half yearly financial reports and audit
                   reports/limited reviews
   Sequence No.:   180595
   EQS News ID:    1417977


    
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References

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   3. mailto:jonathan.yarr@petrofac.com
   4. mailto:sophie.reid@petrofac.com


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