TIDMPFC
RNS Number : 7122V
Petrofac Limited
11 August 2020
PETROFAC LIMITED
RESULTS FOR THE SIX MONTHSED 30 JUNE 2020
-- Continuing to safely execute our projects and operations worldwide
-- On track to deliver US$125 million of cost savings in 2020 and up to US$200 million in 2021
-- Trading and awards materially impacted by COVID-19 and the sharp fall in oil and gas prices
-- Business performance net profit (1)(2) of US$21 million
-- Reported net loss (2) of US$78 million
-- New order intake (3) of US$1.0 billion year to date
-- Net debt (4) of US$29 million at 30 June 2020
-- Announcing net zero emissions target and 30% gender diversity target by 2030
Six months ended 30 June Six months ended 30 June
2020 2019
US$m Business Exceptional Total Business Exceptional Total
performance items and performance items and
certain certain
re-measurements re-measurements
------------- ----------------- ------ ------------- ----------------- ------
Revenue 2,103 2,103 2,821 - 2,821
------------- ----------------- ------ ------------- ----------------- ------
EBITDA 129 n/a n/a 305 n/a n/a
------------- ----------------- ------ ------------- ----------------- ------
Net profit/(loss)
(2) 21 (99) (78) 154 (15) 139
------------- ----------------- ------ ------------- ----------------- ------
Ayman Asfari, Petrofac's Group Chief Executive, commented:
"Our first half results reflect the deterioration in market
conditions triggered by the Covid-19 pandemic and subsequent
decline in oil prices. In response, we are doing everything in our
control to protect both the health and well-being of our people,
suppliers and communities, as well as the long-term health of the
business.
"These swift and decisive actions are structurally reducing
costs, conserving cash and maintaining our competitiveness. At the
same time, we have preserved core capability whilst continuing to
invest in digitalisation and client relationships.
"Furthermore, our longer-term strategy has transformed Petrofac
into a more resilient, capital light business with a strengthened
balance sheet and a clear commitment to sustainability. I am
confident that this strategy and our actions best position Petrofac
for the recovery when it occurs. In the meantime, I want to thank
all our people and suppliers for their hard-work, commitment and
support in continuing to deliver best-in-class execution for our
clients."
DIVISIONAL HIGHLIGHTS
Engineering & Construction (E&C)
Financial performance has been materially impacted by the
COVID-19 pandemic, which has disrupted project schedules and
increased costs. Furthermore, the decline in oil prices has
resulted in a contraction in capital spending by clients in the
period, resulting in delays in tender awards, the termination of
our Dalma contracts and a tighter commercial environment. Despite
these challenges, E&C has continued to safely deliver its
projects and has taken swift action to reduce costs.
E&C financial results for the six months ended 30 June
2020:
-- Revenue down 28% to US$1.6 billion, driven by COVID-19 related project delays
-- Net margin down 4.4 ppts to 2.1%, largely reflecting COVID-19
related costs, project mix and the non-recurring Jazan commercial
settlement
-- Net profit down 76% to US$35 million
-- US$ 0.4 billion of new order intake year to date , reflecting the decline in industry awards
Engineering & Production Services (EPS)
EPS' financial performance has proved more resilient,
benefitting from strong order intake. Robust project related
activity was offset by a modest decline in operations, the COVID-19
related closure of our training centres and a lower contribution
from associates . Furthermore, the expected year-on-year reduction
in margins has been partly mitigated by overhead cost
reductions.
EPS financial results for the six months ended 30 June 2020:
-- Revenue of US$426 million, down 5% on prior year
-- Net margin down 4.1 ppts to 4.0% driven primarily by a
contraction in brownfield project contract margins and lower
associate income (5)
-- Net profit down 53% to US$17 million (H1 2019 restated: US$36 million)
-- US$0.6 billion of awards year to date, representing a book-to-bill of 1.5x
Integrated Energy Services (IES)
Good underlying operational performance in IES and a material
reduction in operating and other costs was more than offset by the
decline in oil price in the period.
IES financial results for the six months ended 30 June 2020:
-- Revenue down 39% to US$61 million
o Average realised price (6) down 46% to US$37/boe (H1 2019:
US$69/boe)
o Equity production up 10% to 1.1 mmboe (net)
o Lower PEC tariff income and cost recovery
-- EBITDA down 51% to US$22 million (H1 2019 restated: US$45 million)
o Lower revenue, largely driven by the decline in average
realised oil price
o Reduction in operating and other costs
o Depreciation of the Mexican Peso
-- Net loss of US$10 million (H1 2019 restated: net loss US$6 million)
o Lower depreciation, tax and minority interests
Exceptionals and certain re-measurements
The reported net loss of US$78 million (H1 2019: US$139 million
net profit) was negatively impacted by exceptional items and
certain re-measurements of US$99 million, of which approximately
US$88 million were non-cash items:
-- A non-cash impairment charge of US$64 million (post-tax)
following a review of the carrying amount of the investment in
Block PM304 in Malaysia;
-- A loss of US$5 million (post-tax) recognised on early
settlement of deferred consideration from Ithaca Energy in April
2020 and impairment of contingent consideration of US$9 million
(post-tax), both relating to the sale of the Greater Stella Area in
the UK;
-- A downward fair value adjustment of US$8 million (post-tax)
due to uncertainty concerning the timing and outcome of migration
of the Pánuco PEC to a PSC and consequently whether the contingent
consideration pay out conditions will be achieved; and,
-- Other net exceptional items of US$13 million (post-tax),
including Group reorganisation and redundancy costs and SFO related
legal fees.
The carrying amount of the IES portfolio ( (7) decreased to
US$0.3 billion at 30 June 2020 (31 December 2019: US$0.4 billion)
reflecting asset disposals and impairment charges.
NET CASH AND LIQUIDITY
Net debt was US$29 million at 30 June 2020 (31 December 2019:
US$15 million net cash), reflecting the anticipated reversal of
temporary favourable working capital movements at the end of 2019.
A free cash outflow of US$13 million ( 30 June 2019 : US$123
million inflow) principally reflected the impact of lower EBITDA,
negative working capital movements and a reduction in capital
expenditure. Liquidity was approximately US$1.2 billion at 30 June
2020 (9) (31 December 2019: US$1.5 billion (10) ) following the
repayment and retirement of US$275 million of facilities during the
period. Our leverage covenant was 0.5x (8) at the period end.
DIVID
The Board recognises the importance of dividends to
shareholders, but has decided to continue to suspend dividend
payments and therefore not pay an interim dividend in 2020 (2019:
12.7 US cents per share) to conserve cash. At this time of
considerable economic uncertainty, the Board is prioritising
maintaining a strong balance sheet and does not expect to resume
the payment of dividends until there is a sustained recovery in new
order intake.
SUSTAINABILITY
Petrofac has also today announced a number of important targets
as part of its evolving sustainability agenda, as a key tenet of
its purpose to help clients meet the world's evolving energy needs,
and to work, collectively with industry, to achieve a more
sustainable energy sector.
Sustainability is at the core of our strategy, underpinning
best-in-class delivery, future growth and enhanced returns. The
targets announced today include:
-- our ambition to reach Net Zero in Scope 1 and 2 emissions by 2030; and,
-- to further advance our diversity agenda, including 30% (11) of women in senior roles by 2030.
For more information please see:
http://www.rns-pdf.londonstockexchange.com/rns/7122V_2-2020-8-10.pdf
OUTLOOK
We remain confident that the actions we have taken to strengthen
the balance sheet, invest in our core capability and reduce
structural costs will best position us for the recovery when it
occurs. Whilst COVID-19 and low oil prices are continuing to
disrupt business activity and delay project awards, there are early
signs of improvements in the supply chain and Government related
restrictions are easing.
Our focus is on rebuilding our order book, which was US$6.2
billion at 30 June 2020 (31 December 2019: US$7.4 billion). This
provides near-term revenue visibility, with US$1.7 billion
scheduled for execution in the second half of 2020.
Backlog (12) 30 June 2020 31 December
2019
US$ billion US$ billion
Engineering & Construction 4.3 5.7
Engineering & Production Services 1.9 1.7
Group 6.2 7.4
We are committed to maintaining a strong balance sheet by
exercising capital discipline. We remain on track to reduce
overhead and project support costs by at least US$125 million in
2020 and by up to US$200 million in 2021. Cost reductions, a 40%
reduction in capital investment and the suspension of dividend
payments in 2020 will conserve at least an incremental US$200
million of cash flow this year. Group reorganisation and redundancy
costs for the full year are expected to be approximately US$50
million.
The Group has a busy tendering pipeline with around US$46
billion of opportunities scheduled for award by the end of 2021.
Whilst we are actively bidding on several large opportunities and
are maintaining strict bidding discipline, we are prudently
assuming that capital discipline by clients will delay the majority
of awards until 2021.
Longer term, we expect to continue to benefit from a strong
competitive position and a differentiated in-country value
proposition in the Middle East where the cost of production is low.
Furthermore, our growth in the renewables and low-carbon sectors
has been underpinned by recent offshore wind and carbon capture
& storage awards. This has the potential to deliver attractive
growth as the energy transition evolves.
SFO INVESTIGATION
No charges have been brought against Petrofac, or any officers
or current employees. Petrofac continues to engage with the SFO and
will respond to any further developments as appropriate. We are
focused on bringing this matter to closure as quickly as possible
and believe this is in the best interests of all stakeholders.
NOTES
(1) Business performance before exceptional items & certain
re-measurements. This measurement is shown by Petrofac as a means
of measuring underlying business performance.
(2) Attributable to Petrofac Limited shareholders.
(3) New order intake comprises new contract awards and
extensions, net variation orders and the rolling increment
attributable to EPS contracts which extend beyond five years.
(4) Net debt comprises interest-bearing loans and borrowings
less cash and short-term deposits (i.e. excludes IFRS 16 lease
liabilities)
(5) Associate income from the Group's investment in PetroFirst
Infrastructure Limited entities was reclassified from IES to EPS
with effect from 1 January 2020. Prior year comparables have been
restated.
(6) 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.
(7) Share of net assets attributable to Petrofac Limited Shareholders.
(8) Our debt covenant limit is 3.0x net debt (adjusted for net
lease liabilities) to EBITDA (12-month historic)
(9) Gross liquidity of US$1.2 billion consisted of US$0.8
billion of gross cash and US$0.4 billion of undrawn committed
facilities.
(10) Gross liquidity of US$1.5 billion as at 31 December 2019
has been restated from US$1.6 billion. The difference of US$100
million related to overdraft facilities, which the Group no longer
considers to be liquidity on the basis that it is repayable on
demand.
(11) Women members of the Executive Committee and senior leaders
who are direct reports to Executive Committee members.
(12) Backlog consists of: the estimated revenue attributable to
the uncompleted portion of Engineering & Construction division
projects; and, for the Engineering & Production Services
division, the estimated revenue attributable to the lesser of the
remaining term of the contract and five years.
Click on, or paste the following link into your browser, to view
the Group's financial statements for the six months ended 30 June
2020:
http://www.rns-pdf.londonstockexchange.com/rns/7122V_1-2020-8-10.pdf
PRESENTATION
Our half year results presentation will be held at 9.30am today
and will be webcast live via:
https://webcast.merchantcantoscdn.com/webcaster/dyn/4000/7464/16532/123210/Lobby/default.htm
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 based on current knowledge and
assumptions and involve risks and uncertainties. Various factors
could cause actual future results, performance or events to differ
materially from those described 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
Jonathan Yarr, Head of Investor Relations
jonathan.yarr@petrofac.com
Aaron Clark, Investor Relations & Communications Manager
aaron.clark@petrofac.com
Alison Flynn, Group Head of Communications
alison.flynn@petrofac.com
Tulchan Communications Group
+44 (0) 207 353 4200
petrofac@tulchangroup.com
Martin Robinson
LEI 2138004624W8CKCSJ177
NOTES TO EDITORS
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 six values - safe; ethical; innovative;
responsive; quality & cost conscious; driven to deliver - 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 10,700 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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END
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