Trading Update
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Petrofac Limited ( PFC)
PETROFAC LIMITED TRADING UPDATE Petrofac issues the following pre-close trading update for the year ending 31 December 2020.
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:
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-bfd1-88af00bd80df
Notes
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
Aaron Clark, Investor Relations & Communications Manager
Alison Flynn, Group Head of Communications
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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| ISIN: | GB00B0H2K534 |
| Category Code: | TST |
| TIDM: | PFC |
| LEI Code: | 2138004624W8CKCSJ177 |
| Sequence No.: | 89774 |
| EQS News ID: | 1155494 |
| End of Announcement | EQS News Service |
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