PETROFAC LIMITED
Petrofac Limited ( PFC)
Trading Update
16-Dec-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
PETROFAC LIMITED
TRADING UPDATE
Petrofac issues the following pre-close trading update for the year ending 31
December 2020.
? Trading in line with expectations for 2020 in a difficult environment
? Challenging market conditions mitigated by swift actions to protect
margins and conserve cash
? New order intake (1) of US$1.4 billion in the year to date reflects
broader industry dynamics
? Liquidity of c.US$1.0 billion at 30 November 2020
? Taking additional measures to increase 2021 cost saving target to c.US$250
million (2)
Ayman Asfari, Petrofac's Group Chief Executive, commented:
"The COVID-19 pandemic and collapse in oil prices have had a material impact
on our industry in 2020. Notwithstanding these unprecedented challenges, we
have continued to deliver for clients whilst doing everything within our
control to protect the health and wellbeing of our people. We have also taken
decisive action to protect our balance sheet, liquidity and the long-term
health of the business. All these actions have protected margins and cash
flow, and the Group is trading in line with expectations as we approach the
year end.
"Of course, the near-term economic outlook remains unclear. Clients are
delaying awards and adopting tough commercial positions. In this environment,
our strategic priorities are clear. We are focused on conserving cash, cutting
costs and rebuilding backlog, while delivering operational excellence. In the
very near term, we are taking additional measures to reduce costs further in
2021 while preserving our core capability. These measures - together with a
strong bidding pipeline, our long-established position in attractive markets,
our track record for delivery and a sharp focus on competitiveness - will
position us well for opportunities when the market recovers.
"It has been my privilege to grow Petrofac into a leading international
service provider to the energy industry over the last 30 years, but I am
delighted to be handing over to a highly capable team led by Sami Iskander on
1st January. I look forward to the next phase of the Company's evolution under
Sami's stewardship."
Sami Iskander will present the results for the 12 months ended 2020 and
discuss the outlook for 2021 at the Group's full year results, currently
scheduled for 24 February 2021.
Group trading
Financial performance in the second half of 2020 has continued to be impacted
by COVID-19. In addition, lower oil prices coupled with the uncertain
near-term outlook have resulted in a wide-ranging delay in the award of new
projects across the industry as well as in a more challenging commercial
backdrop. As a result, management continues to expect to report lower Group
revenue of approximately US$4.0 billion and full-year profitability materially
lower than in 2019. The Group also remains on track to reduce gross overhead
and project support costs by at least US$125 million in 2020 (2).
Looking forward, it remains unclear how long business activity in our industry
will be impacted by market conditions. Low order intake over recent years will
result in a decline in revenue next year. The Group has therefore announced a
further set of measures to right-size the organisation. These will result in
total estimated gross savings of US$250 million in 2021, which will seek to
protect the business from lower revenues and ongoing pressures on margins.
These actions will also create a leaner, more competitive business whilst
preserving our core capabilities.
Engineering & Construction (E&C)
Full year E&C revenues are expected to be around US$3.0 billion, driven by a
decline in project activity, COVID-19 related project delays and lower
variation orders. Swift management action to reduce costs and lower tax has
partly mitigated the decline in full year margin caused by COVID-19 related
cost increases, changes in project mix and the recognition of losses on a
small number of contracts.
Year to date we have secured new orders worth US$0.6 billion in E&C (2019:
US$2.1 billion), comprising the EPC contract for the Seagreen offshore wind
project and net variation orders. Our bidding pipeline remains strong,
including more than US$8.0 billion tendered on projects in the second half of
this year, which have not yet been awarded.
Engineering & Production Services (EPS)
EPS' financial performance in the year has benefitted from strong order intake
and lower overhead costs, which has helped mitigate the impact of weaker
market conditions. Full year revenue is expected to be broadly comparable to
the prior year, with growth in Projects largely offsetting lower activity from
Operations. In addition, the expected year-on-year decline in contract margins
and contribution from associates (3) has been partly mitigated by overhead
cost reductions and lower tax.
We have secured US$0.8 billion of awards and extensions in the year to date
(2019 US$1.0 billion), increasing backlog despite tightening market
conditions. Most notably, EPS continued to secure new energies opportunities
with the award of an engineering and project management support contract for
the Acorn Carbon Capture and Storage project in the UK, as well as the award
of a Front End Engineering Design (FEED) contract for the Arrowsmith project,
which may become one of Australia's largest commercial scale green hydrogen
complexes.
Integrated Energy Services (IES)
IES' full year revenue in 2020 is expected to be materially lower, reflecting
the fall in commodity prices, lower equity production and lower cost recovery
in Mexico. Average realised oil price (4) in 2020 has fallen by 42% to
US$39/boe (2019: US$67/boe). Equity production is expected to be approximately
1.9 million barrels of oil equivalent (mmboe) in 2020 (2019: 2.1 mmboe),
largely due to the completion of the sale of the Group's remaining 51%
interest in its Mexico assets on 3 November 2020. The expected net loss (3) in
2020 has been partly mitigated by reductions in operating and overhead cost
savings, as well as lower interest, tax and depreciation.
Order backlog
Group order backlog (5) was US$5.1 billion on 30 November 2020:
30 November 31 December 2019
2020
US$ billion US$ billion
Engineering & Construction 3.4 5.7
Engineering & Production 1.7 1.7
Services
Group 5.1 7.4
Looking ahead, the Group currently has US$3.0 billion of secured revenue for
2021, comprising US$2.2 billion in E&C and US$0.8 billion in EPS. In addition,
the Group has a pipeline of around US$42 billion of bids scheduled for award
by the end of 2021, comprising around US$31 billion of E&C opportunities and
around US$11 billion of EPS opportunities. Approximately 11% of the Group's
bidding pipeline consists of new energies opportunities.
Financial position
Net debt (6) was US$272 million as at 30 November 2020 (30 June 2020: US$29
million net debt) reflecting the expected working capital outflow and lower
proceeds from the disposal of the Group's remaining interest in its Mexico
assets. Liquidity was approximately US$1.0 billion at 30 November 2020 (7) (30
June 2020: US$1.2 billion). Year to date, the Group has secured US$250 million
in additional liquidity, including a US$50 million three-year term loan in
November, and we are in discussions with lenders to complete the exercise to
pre-fund 2021 maturities.
Cost saving initiatives, the suspension of dividend payments and a reduction
in capital investment has conserved approximately US$275 million of cash flow
in the year. In addition, we have received US$140 million in gross proceeds
from the sale of non-core assets in 2020, following the accelerated collection
of an element of deferred consideration from the Greater Stella Area disposal
and completion of the sale of the Group's remaining 51% interest in its
Mexican operations. These actions have strengthened the balance sheet, reduced
capital intensity and best position us for recovery.
Conference call
Alastair Cochran, Chief Financial Officer, will host a conference call for
analysts and investors at 8am today.
Registration and access to the call for listen-only participants is available
at the following link:
https://www.speakservecloud.com/register-for-call/41d84c9b-5183-407d-bfd1-88af
00bd80df [1]
Notes
1) 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.
2) In accordance with IFRS 15, the benefit of project support cost savings
for E&C are spread over the life of the relevant contracts.
3) 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.
4) Average net realised price is net of royalties and hedging gains or (MORE TO FOLLOW) Dow Jones Newswires
December 16, 2020 02:00 ET (07:00 GMT)
