REG-Petrofac Limited Petrofac Limited: Trading Update

PetrofacAnnouncement

28/06/2022 07:15

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   Petrofac Limited ( PFC)
   Petrofac Limited: Trading Update

   28-Jun-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

                                 TRADING UPDATE

   Petrofac issues the following pre-close trading update for the six  months
   ending 30 June 2022.

    

    

     • Trading and expectations in line with guidance provided in the AGM
       statement
     • Given the improved macro environment, E&C is expected to secure strong
       order intake in the second half and deliver backlog growth year on
       year
     • Continued robust performance and order intake in Asset Solutions; on
       track to deliver full year EBIT margin of 5-6%, in line with guidance
     • Strong IES performance driven by higher production and stronger oil
       price
     • Well positioned with a healthy Group pipeline scheduled for award in
       the next 18 months
     • Net debt of US$345 million(4) and liquidity of US$507 million(5) at 23
       June 2022, with net debt expected to reduce in the second half

    

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

   "We have made good progress in the first half of the year to position  the
   business strategically to  capitalise on the  expected multi-year  upcycle
   ahead, supported by a strong energy price environment and ambitious growth
   plans from clients in our core  markets.  Bidding activity in E&C is  high
   and Asset  Solutions has  secured a  strong order  intake in  the year  to
   date.  IES  has delivered  a  significant increase  in production  and  is
   benefitting from  high oil  prices.  As  previously reported,  first  half
   financial  performance  has   been  adversely  impacted   by  delays   and
   cost-overruns in our small and mature existing E&C portfolio.

    

   “Looking forward, we expect Asset Solutions and IES to continue to deliver
   strong performance.  Notwithstanding  the  short-term  challenges  in  the
   existing E&C portfolio, we continue to  expect the second half of 2022  to
   mark an inflection point for a  sustained period of growth in backlog.  We
   have a healthy 18 month Group bidding  pipeline and we expect to grow  the
   E&C backlog  in  2022  and  to secure  significant  new  orders  in  2023,
   underpinned by opportunities in the UAE and offshore wind.”

    

    

    

   DIVISIONAL HIGHLIGHTS

   Engineering & Construction (E&C)

   E&C continues to be  impacted by the lingering  impact of the pandemic  as
   described in the  AGM statement that  has resulted in  cost increases  and
   some relatively unfavourable  commercial settlements  with clients.  These
   dynamics will largely play out within the year, with a number of  projects
   scheduled for completion over the course of the year and early 2023.

    

   First half  revenues in  2022 are  expected to  be around  US$0.6  billion
   reflecting the  lower levels  of  activity compared  with the  prior  year
   period and project delays. Second half  revenue is expected to be  broadly
   in line with the first half. E&C  is expected to report a first half  EBIT
   loss of approximately US$35-45 million due to the immediate recognition of
   the additional Covid-related  project costs to  completion. In the  second
   half, subject to the  outcome of the final  commercial settlements, it  is
   expected to report a marginal  EBIT profit, partially offsetting the  loss
   in the first half. 

    

   The outlook for  new awards  in E&C is  robust, supported  by high  energy
   prices and increased focus  on energy security.  Bidding activity is  high
   and the  18  month pipeline  is  approximately US$53  billion  with  US$14
   billion scheduled  for award  in 2022  and US$39  billion in  2023.  Order
   intake (1) in the first half comprised US$125 million of variation  orders
   on existing contracts  with the  majority of new  contracts scheduled  for
   award in the second half of the  year. E&C backlog is expected to grow  in
   2022 and is  well positioned to  deliver a sustained  period of growth  in
   backlog as markets continue to improve.

    

    

   Asset Solutions (AS)

   The financial performance in the first half of 2022 has been robust,  with
   revenue expected to be approximately  US$0.5 billion. Revenue is  expected
   to be higher in the second half,  supported by strong order intake in  the
   year to date.

    

   The EBIT margin for the first six months of 2022 is currently expected  to
   be between 6.0%  and 6.5%, while  full year EBIT  margin guidance  remains
   5-6%, with lower margins in the second half due to contract mix.

    

   Order intake (1) has been strong  with US$0.8 billion contract awards  and
   extensions secured in the first half, including significant awards in  the
   Wells & Decommissioning service line in Australia, the Gulf of Mexico  and
   Mauritania. Asset Operations and Asset Developments have secured awards in
   the UK  and  India.  While  order intake  is  expected  to  be  first-half
   weighted, AS is expected  to deliver a full  year book-to-bill of  greater
   than 1.0x, supporting revenue growth in 2023.

    

   In New  Energy Services,  the strong  momentum in  2021 has  continued  to
   increase in 2022  with a series  of early-stage awards  and we are  making
   material  progress  with  developing  further  strategic  alliances   with
   technology  providers.  In  line  with  our  strategy,  a  number  of  the
   early-stage opportunities we  have performed engineering  works on in  new
   energy  sectors  beyond  offshore  wind  are  maturing  and  we  are  well
   positioned to secure execution phase project work later this year.

    

    

   Integrated Energy Services (IES)

   IES financial performance in the first half of the year has been strong,
   with a significant increase in production compared with prior year and
   higher oil prices. Net production is expected to be over 500 thousand
   barrels of oil (kbbls) for the first half of the year (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 post the
   outage that occurred in December 2020. 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).  

    

   The average realised oil price (net of royalties) (3) for the first half
   is expected to be approximately US$100/bbl (H1 2021: US$70/bbl), including
   the impact of hedging. 

    

   As previously guided, assuming an average US$100 Brent price for unhedged
   production for the remainder of 2022, IES is expected to deliver EBITDA of
   between US$80 million and US$90 million. Depreciation, which is highly
   correlated to production, is expected to be approximately US$45/bbl, in
   line with prior year.

    

    

   ORDER BACKLOG

   The Group's  backlog (2)  is  expected to  decrease marginally  to  US$3.8
   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, partially offset by strong order intake in Asset Solutions.

    

    

                              30 June 2022 31 December 2021
                               US$ billion      US$ billion
   Engineering & Construction          1.9              2.4
   Asset Solutions                     1.9              1.6
   Group backlog                       3.8              4.0

    

    

   CASH FLOW, NET DEBT AND LIQUIDITY

   Net debt (4) was US$345 million at 23 June 2022 (31 December 2021: US$144
   million) reflecting the payment of the US$104 million SFO penalty and a
   working capital outflow largely driven by slower payments from clients,
   partially offset by the final US$51 million of proceeds from the Greater
   Stella Area divestment and US$47 million from the settlement related to
   the dispute on consideration payable from the divestment of the Mexico
   operations. Liquidity (5) was US$507 million at 23 June 2022 (31 December
   2021: US$705 million).

    

   Net debt is expected to reduce in the second half of the year due to a
   reduction in working capital in E&C.  As previously guided, principally as
   a result of the E&C performance and despite delays in cash collections due
   to extended commercial settlements, the Group expects to have a modest
   free cash outflow in the year.

    

   Conference call

   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)330 336 9601,
   confirmation code: 1605431

    

   The Group’s half year results for period ended 30 June 2022 are scheduled
   to be announced on 11 August 2022.

      

    

    

   NOTES

    1. 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.
    2. 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.
    3. 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.
    4. Net debt comprises interest-bearing loans and borrowings less cash and
       short-term deposits (i.e. excludes IFRS 16 lease liabilities).
    5. Liquidity of US$507 million consists  of US$426 million of gross  cash
       and US$81 million of undrawn committed facilities. Gross cash includes
       US$37 million  held  in  certain  countries  whose  exchange  controls
       significantly restrict or  delay the  remittance of  these amounts  to
       foreign jurisdictions.  It  also  includes  US$220  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) 20 7811 4900

    

   Jonathan Yarr, Head of Investor Relations

    1 jonathan.yarr@petrofac.com

    

   Alison Flynn, Group Head of Communications

    2 alison.flynn@petrofac.com

   +44 (0) 20 7811 4913

    

   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:  TST
   TIDM:           PFC
   LEI Code:       2138004624W8CKCSJ177
   OAM Categories: 3.1. Additional regulated information required to be
                   disclosed under the laws of a Member State
   Sequence No.:   170953
   EQS News ID:    1384937


    
   End of Announcement EQS News Service

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References

   Visible links
   1. mailto:jonathan.yarr@petrofac.com
   2. mailto:alison.flynn@petrofac.com


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