REG-Petrofac Limited Petrofac Limited: Results for the six months ended 30 June 2023

PetrofacAnnouncement

10/08/2023 07:15

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Petrofac Limited ( PFC)
Petrofac Limited: Results for the six months ended 30 June 2023

10-Aug-2023 / 07:00 GMT/BST

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                                         PETROFAC LIMITED

                           RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023

 

  • Major increase in Group  backlog to US$6.6 billion  at 30 June 2023  (31 December 2022:  US$3.4
    billion) with strong order intake in both E&C and Asset Solutions
  • Strong operating performance in Asset Solutions and IES, in line with expectations
  • E&C first  half EBIT  loss of  US$122 million  reflecting the  combination of  lower levels  of
    activity, onerous contracts with no margin  recognition, adverse operating leverage, and  US$67
    million one-off write downs  in contract settlements resulting  from measures taken to  protect
    full year cash flows
  • Good progress in resolving  historical contractual disputes to  release working capital in  the
    second half
  • As a result of  these actions, the  free cash outflow of  US$225 million in  the first half  is
    expected to largely reverse in  the second half, maintaining a  target of broadly neutral  free
    cash flow for the full year
  • Well positioned to  continue backlog growth  in both E&C  and Asset Solutions,  with a  healthy
    pipeline scheduled for award in the next 16 months of US$60 billion

 

                          Six months ended 30 June 2023            Six months ended 30 June 2022
                                                                           (restated)(3)
                     Business     Separately disclosed             Business     Separately
US$m              performance (1)        items         Reported performance (1) disclosed  Reported
                                                                                  items
Revenue                1,207               -            1,207        1,247          -       1,247
EBIT                   (96)               (7)           (103)         52            25        77
Net (loss)/profit      (160)              (5)           (165)         15            24        39
(2)

 

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

 

“Whilst the first half of  2023 reflected the challenges of  the legacy contract portfolio, it  was
also Petrofac’s strongest period for new awards in many years. Thanks to the efforts of our  people
around the Group, we secured US$4.3 billion of new orders in core markets and in new energies. This
high-quality backlog,  a growing  talented team  and  a diverse  pipeline of  future  opportunities
provides Petrofac with a strong base from which to move forward.

 

“As I look ahead to the second half, my  focus is on continuing to close out the legacy  portfolio,
improving our  financial resilience  and strengthening  the balance  sheet through  the  commercial
settlements and  advance payments  due in  the period,  whilst delivering  exemplary execution  and
selectively bidding to grow our high-quality backlog.

 

“After four months  as CEO,  I am  encouraged by  the energy  and drive  in the  business. We  have
demonstrated the strength  of our competitive  position with a  succession of significant  contract
wins, providing us with confidence and momentum to deliver further progress in the second half  and
beyond.”

 

 

                                       DIVISIONAL HIGHLIGHTS

Engineering & Construction (E&C)

E&C nearly tripled its backlog in  the first half, securing US$3.4  billion of new awards, in  both
our core markets, with long-standing clients, and in new energies.

 

In core markets, Petrofac won two major contracts,  a gas compressor station for ADNOC in the  UAE,
and a petrochemical facility for Sonatrach in Algeria, broadening our portfolio within this  sector
in partnership with  a petrochemicals technical  specialist. In new  energies, TenneT selected  the
Petrofac-Hitachi Energy partnership  for a  multi-year framework agreement  covering six  projects,
worth approximately €13  billion, with the  first contract already  awarded and valued  at over  €2
billion, split between the partnership.

 

E&C financial results for the six months ended 30 June 2023(1)

  • US$3.4 billion of new order  intake resulting in backlog of  US$4.5 billion (31 December  2022:
    US$1.6 billion)
  • Revenue down 32% to US$0.5 billion (H1 2022: US$0.7 billion)
  • EBIT loss of US$122 million

 

The financial  performance in  the  first half  reflected  low levels  of  activity on  the  legacy
portfolio of contracts, with the new awards driving  the growth in backlog but with minimal  impact
on other financial metrics in the period. Revenue  in the first half reflected the lower levels  of
activity from the lower opening backlog compared with the prior period. The first half EBIT loss of
US$122 million included  approximately US$67  million of  one-off write-downs  on legacy  contracts
resulting from  actions taken  by management  to protect  full year  cash flows.  E&C results  also
continue to reflect the impact of onerous  contracts with no margin recognition, adverse  operating
leverage due  to low  levels of  activity and  an element  of additional  cost overruns  on  legacy
contracts.

 

We remain focused  on closing  out legacy  contracts, with five  of the  remaining eight  contracts
expected to be completed(5) during the  second half of the year or  early in 2024. On the Thai  Oil
Clean

Fuels contract,  good progress  is  being made  on  the construction  phases  of the  project.  The
execution

plan remains in line with  the update provided with the  2022 year-end results and operational  and
commercials discussions with the client are ongoing.

 

Bidding activity  remains high  with a  total  pipeline scheduled  for award  in the  16-months  to
December 2024 of approximately US$44 billion, of which US$8 billion is scheduled for award in 2023.
Activity on new contracts  is moving apace  and we continue  to build on  our existing talent  base
through active recruitment across the project delivery disciplines.

 

Asset Solutions

Asset Solutions delivered a  robust financial performance  in the first  half, with backlog  growth
resulting from the new  order intake of US$0.9  billion in the period.  It maintained its core  40%
market share in the UK, and a renewal rate of over 80% for operations and maintenance contracts. In
line with our strategy to leverage our UK centre of excellence and expand our geographic  footprint
into higher  margin  markets,  in July,  Petrofac  was  awarded a  three-year  multi-million  pound
integrated services contract for an FPSO(7) vessel by CNRI in Ivory Coast, growing our presence  in
Africa.

 

Asset Solutions financial results for the six months ended 30 June 2023(1)

  • US$2.1 billion in backlog with a book-to-bill of 1.4x in the first half of 2023
  • Revenue up by 34% to US$0.7 billion (H1 2022: US$0.5 billion)
  • EBIT of US$14 million (H1 2022: US$33 million)

 

Asset Solutions also delivered revenue  growth in the first half,  underpinned by the strong  order
intake in 2022 and the year  to date. EBIT margin decreased to 2.1%  (H1 2022: 6.5%), in line  with
expectations, due to contract mix  across the service lines, with  the completion of historic  high
margin contracts in the first half of 2022, and a higher contribution of pass-through revenue.  

 

In new energies, we saw increased levels of activity  in the first half, as we continued to  secure
further early-stage  awards  and  strategic  alliances  with  technology  providers,  including  an
exclusive partnership with OCI Global to deliver their gasification-based green methanol  projects.
We remain well positioned over the medium-term to secure engineering, procurement and  construction
scopes of work, as well as other execution  phase project work, as projects reach final  investment
decision.

 

Integrated Energy Services (IES)

IES delivered another period of strong financial performance in the first half, with higher revenue
and higher production compared to the prior period.

 

IES financial results for the six months ended 30 June 2023(1)

  • Net production up 16% to 640 thousand barrels of oil (kboe) (H1 2022: 553 kboe)
  • Revenue increased 13% to US$63 million (H1 2022: US$56 million)
  • EBITDA increased to US$48 million (H1 2022: US$44 million)

 

 

                                      CASH FLOW AND NET DEBT

In the first half, there was a free cash outflow of US$225 million, which resulted in a net debt of
US$584 million at 30 June 2023 (31 December 2022: US$349 million). This movement reflects both  the
operating loss and a net working capital  outflow. The net working capital outflow was  principally
in the E&C operating segment  due to delays in the  settlement resolutions required to secure  cash
collections. Progress on these resolutions was made  in the first half however, with  corresponding
receipts expected during  the second half.  Alongside cash advances  on the new  contract wins,  we
expect that this will result in  a broadly neutral free cash  flow for the full year.  Liquidity(8)
was US$253 million at 30 June 2023 (31 December 2022: US$506 million).

 

In the short term, the Group is reliant on  a small number of relatively high value collections  in
respect of the conclusion of historical contracts, settlements and new awards. The expected  timing
and realisation of these  collections reflect management’s assessment  of the most likely  outcome.
However, the resolution of these matters is not wholly within Petrofac’s control and, consequently,
there remains a level of  uncertainty which is disclosed within  note 2.4 to the interim  condensed
consolidated financial statements.

 

 

                                           ORDER BACKLOG

The Group's backlog(6) increased substantially to US$6.6 billion at 30 June 2023 (31 December 2022:
US$3.4 billion), reflecting significant order intake in E&C (US$3.4 billion) and in Asset Solutions
(US$0.9 billion), with three  major EPC project awards  in the first half  of the year, which  also
included a  six-project €13  billion framework  agreement expected  to provide  an additional  five
future 2GW HVDC  projects, with the  first contract  awarded in March  2023 and valued  at over  €2
billion, split between the partnership.

 

                           30 June 2023 31 December 2022
                            US$ billion      US$ billion
Engineering & Construction          4.5              1.6
Asset Solutions                     2.1              1.8
Group backlog                       6.6              3.4

 

                                              OUTLOOK

The outlook for new awards in E&C is robust, with a total pipeline scheduled for award by  December
2024 of approximately US$44 billion, of which US$8 billion is scheduled for award in 2023.  Bidding
activity also remains high, with US$6 billion of bids submitted.

 

E&C has secured revenue  of US$0.5 billion for  the second half of  2023, approximately a third  of
which from contracts  with no  future margin  contribution. Due to  the small  portfolio of  active
contracts, and an adverse operating  leverage, we expect an EBIT  loss of approximately 10% in  E&C
for the full year, before the impact of the US$67 million of write-downs.

 

Asset Solutions has a strong  pipeline of opportunities with US$16  billion scheduled for award  by
December 2024, of which US$7 billion is scheduled for award in 2023.

 

Asset Solutions has secured revenue of US$0.7 billion for the second half of 2023. The business  is
expected to continue to perform  well, with revenue growth  driven by focused geographic  expansion
and new order  intake in  Well Engineering  & Decommissioning.  We expect  EBIT to  be second  half
weighted, with a healthy full year EBIT in 2023, albeit lower than 2022, reflecting the roll-off of
certain high margin contracts and a higher proportion of pass-through revenue.

 

IES is  expected  to  deliver  another  robust production  performance  in  2023,  with  production
marginally lower than 2022. At US$85/bbl oil price, EBITDA is expected to be in the range of  US$65
million to US$75 million, taking into account hedging.

 

At Group level, we expect cash flow to be broadly neutral in 2023. In the second half, we expect  a
positive tailwind from cash advances collected from new  E&C awards won in the first half,  coupled
with an unwind of working capital.

 

 

                                       FINANCIAL STATEMENTS

Click on, or  paste the following  link into your  browser, to view  the Group’s interim  condensed
consolidated   financial    statements    for   the    six    months   ended    30    June    2023:
 1 https://www.petrofac.com/media/i4khgz50/petrofac-half-year-2023-results-financial-statements.pdf

 

                                           PRESENTATION

Our half year results presentation and equity analysts call will be held at 8:30am today and will
be webcast live via:

 2 https://broadcaster-audience.mediaplatform.com/#/event/64bf64ce1c86d434a61289d6/registration

 

 

                                               NOTES

 1. Business performance before separately disclosed items.  This measurement is shown by  Petrofac
    as a means of measuring  underlying business performance. See note  4 to the interim  condensed
    consolidated financial statements.
 2. Attributable to Petrofac Limited shareholders.
 3. The prior  year numbers  are  restated; see  note 2.6  to  the interim  condensed  consolidated
    financial statements
 4. 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.
 5. Completed and substantially completed contracts:  contracts where (i) a Provisional  Acceptance
    Certificate (PAC) has been issued by the client, or (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.
 6. 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.
 7. Floating Production Storage and Offloading (FPSO) vessel.
 8. Gross liquidity of US$253 million  on 30 June 2023 consisted  of US$253 million of gross  cash.
    Gross cash  included US$9  million  held in  countries  whose exchange  controls  significantly
    restrict or delay the remittance  of these amounts to  foreign jurisdictions. It also  included
    US$127 million 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.

 

 

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

 3 James.boothroyd@petrofac.com

 

Sophie Reid, Group Head of Communications

 4 Sophie.reid@petrofac.com

 

Teneo (for Petrofac)

+44 (0) 207 353 4200

petrofac@teneo.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 7,950 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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The issuer is solely responsible for the content of this announcement.

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   ISIN:          GB00B0H2K534
   Category Code: IR
   TIDM:          PFC
   LEI Code:      2138004624W8CKCSJ177
   Sequence No.:  263566
   EQS News ID:   1700213


    
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