REG-Petrofac Limited Petrofac Limited: Trading update

PetrofacAnnouncement

12/04/2023 07:00

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   Petrofac Limited ( PFC)
   Petrofac Limited: Trading update

   12-Apr-2023 / 07:00 GMT/BST

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                                 Press Release

    

   12 April 2023 

                                 TRADING UPDATE

                                        

   Petrofac issues the following trading update ahead of the announcement  of
   its full year results for the year ending 31 December 2022.

    

   During the extended post-balance  sheet period for  the Group’s full  year
   2022  consolidated  financial  statements,  management  has  conducted   a
   thorough review  of the  portfolio  of contracts,  associated  outstanding
   contractual and commercial issues  and opportunities to improve  liquidity
   by accelerating working capital inflows.

    

   As a  result  of  the  portfolio  review,  the  Group  is  recognising  an
   additional EBIT reduction of US$140 million to US$160 million in the  full
   year financial  statements  for  2022.  This  comprises  both  incremental
   project costs and a cautious view of the quantum and timing of recognition
   of certain revenue claims that would have partly offset those costs.

    

   As a consequence, Petrofac  now expects to report  a full year Group  EBIT
   loss of approximately US$150 million to US$170 million for 2022, including
   an EBIT  loss  of  approximately  US$240  million  to  US$260  million  in
   Engineering & Construction (E&C) (1).

    

   Approximately 50% of these additional costs  are expected to be paid  over
   the remainder of  2023, with the  balance spread over  2024 and 2025.  Any
   future recoveries from clients would mitigate this outflow.

    

   Additional costs

   Thai Oil  Clean Fuels:  following the  December 2022  Trading Update,  the
   execution strategy for this uniquely  complex project has been subject  to
   further review during Q1  2023, in consultation  and cooperation with  our
   client  and  joint  venture  partners.  In  order  to  de-risk   delivery,
   operational changes have been made, including changes to subcontractors. A
   significant proportion of the resulting costs are expected to be recovered
   but discussions have  not yet reached  a sufficient level  of maturity  to
   recognise this incremental revenue.

    

   Legacy contracts: additional costs  relate to final completion  activities
   on our legacy portfolio, primarily on projects that are now  substantially
   completed (2). The figures announced  today also include an allowance  for
   adverse settlements as part  of our efforts to  accelerate the release  of
   working capital balances.

    

   Liquidity

   Net debt at  31 December 2022  was US$349 million  (3), with liquidity  of
   US$506 million (4).

    

   Petrofac remains focused on ensuring the Group has sufficient liquidity to
   support its strategy, including unlocking the significant working  capital
   balances built up over the period  of the pandemic, as well as  collecting
   cash advances on new awards.

    

   The Group  has  made  significant  progress  in  extending  its  borrowing
   facilities, having  reached agreement  in principle  with its  lenders  to
   extend all three facilities by 12  months to October 2024. We will  update
   the market following the signing of the extension agreements.

    

   Tareq Kawash,  Petrofac’s  Group  Chief  Executive as  of  1  April  2023,
   commented:

   “Petrofac’s  focus  is   on  completing  legacy   contracts  as   quickly,
   efficiently and safely  as possible.  We are  taking steps  to ensure  the
   financial strength of the business by unlocking working capital and, where
   appropriate, balancing long-term value against near-term liquidity.

    

   “Although we are disappointed to announce additional costs on these legacy
   contracts, in  particular  the  Thai  Oil  Clean  Fuels  project,  ongoing
   collaboration with clients and partners will de-risk future delivery.

    

   “I joined Petrofac because the  business has a significant opportunity  to
   deploy its leading capabilities to help clients deliver much needed energy
   infrastructure. This was demonstrated in the recent significant award of a
   long-term  agreement   to   support  critical   European   offshore   wind
   infrastructure.  Alongside  converting  a   healthy  pipeline  of   future
   opportunities – with a number of awards at preferred bidder stage – we are
   working to draw a line under the projects of the past, putting Petrofac in
   a strong position to deliver future growth.”

    

    

   NOTES

    1. In the December 2022 Trading Update, the Group EBIT loss was  forecast
       to be US$100 million and the E&C  EBIT loss was forecast to be  US$190
       million. The Group has further analysed the appropriate timing of  the
       recognition of  the incremental  costs  on the  Thai Oil  Clean  Fuels
       project identified in  2022 and  concluded that  a post-balance  sheet
       adjustment should have been  made in the income  statement of the  E&C
       division for  2021.  As a  result,  we will  be  making a  prior  year
       adjustment of approximately  US$90 million to  the 2021 comparator  in
       the full  year  2022  consolidated financial  statements.  This  is  a
       reallocation of  costs from  2022 to  2021 and  has no  impact on  the
       Group’s financial position  at the  end of 2022.  This adjustment  has
       been included in the 2022 EBIT loss figures disclosed in the main body
       of this trading update.
    2. Substantially completed contracts  are contracts  where a  Provisional
       Acceptance Certificate  or the  transfer of  care and  custody to  the
       client are imminent and no substantive work remains to be performed by
       Petrofac.
    3. Net debt comprises interest-bearing loans and borrowings less cash and
       short-term deposits (i.e. excludes IFRS 16 lease liabilities).
    4. Liquidity consists  of gross  cash and  undrawn committed  facilities.
       Gross cash includes balances held in certain countries whose  exchange
       controls significantly  restrict  or  delay the  remittance  of  these
       amounts to foreign jurisdictions. It  also includes balances 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

    

    

   For further information contact:

    

   Petrofac:

   James Boothroyd, Head of Investor Relations

    1 James.boothroyd@petrofac.com

    

   Sophie Reid, Group Head of Communications

    2 Sophie.reid@petrofac.com

    

   Teneo (for Petrofac):

   +44 (0) 207 353 4200

    3 petrofac@teneo.com

    

    

    

   NOTES TO EDITORS

    

   About 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
   8,000 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  4 www.petrofac.com.

    

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   Dissemination of a Regulatory Announcement that contains inside
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   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
   OAM Categories: 2.2. Inside information
   Sequence No.:   236099
   EQS News ID:    1605237


    
   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
   3. mailto:petrofac@teneo.com
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