DJ Petrofac Limited: RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020
Petrofac Limited ( PFC) Petrofac Limited: RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020 20-Apr-2021 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. =---------------------------------------------------------------------------------------------------------------------- PETROFAC LIMITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020 - Protected margins and conserved cash in challenging market conditions - Achieved cost savings of USUSD140 million, ahead of target - Business performance net profit of USUSD48 million (1)(2) - Reported net loss of USUSD180 million post impairments and separately disclosed items (2) - New order intake of USUSD1.6 billion; 22% of awards in new energies (3) - Net debt of USUSD116 million and liquidity of USUSD1.1 billion (8) Year ended 31 December 2020 Year ended 31 December 2019 USUSDm Business Separately disclosed Reported Business Separately disclosed Reported performance items performance items Revenue 4,081 - 4,081 5,530 - 5,530 EBITDA 211 n/a n/a 559 n/a n/a Net profit / (loss) 48 (228) (180) 276 (203) 73 (2)
Sami Iskander, Petrofac's Group Chief Executive, commented:
"Since joining Petrofac at the beginning of November, I have spent a lot of time listening to our people, our clients and our stakeholders. These discussions have confirmed the fundamental strengths that have made Petrofac one of the leading service providers to the energy industry over many years. They have also clarified what we need to do better to restore confidence and set the business on a course to grow with existing and new clients. This period has also been challenging following the SFO's announcement in early January. However, I am reassured by our uncompromising approach to compliance and ethics that is consistent with international best practice, independently audited, and critical to our future success.
"Our 2020 results demonstrate it has been a difficult year for Petrofac and the industry. The way the business has adapted to new ways of working to deliver for our clients - whilst reducing costs and conserving cash - is testament to the hard work, agility and resilience of our people.
"We look to the future with a clear plan and refreshed strategy focused on consistent best-in-class execution, returning to growth and delivering superior returns. This means reshaping our business to rebuild our backlog by capitalising on the recovery in addressable markets, diversifying into new geographies and accelerating our pivot to new energies. In parallel, we will deliver on our ESG commitments and continue to improve our cost-competitiveness. I am confident that we will recover to deliver sustainable value for all our stakeholders over the medium term."
Engineering & Construction (E&C)
E&C's financial performance in the year was materially impacted by the COVID-19 pandemic, which has disrupted project schedules and increased costs, as well as the recognition of losses on a small number of contracts. Furthermore, the decline in oil prices 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 12 months ended 31 December 2020: (1)(2) - Revenue down 31% to USUSD3.1 billion, driven by lower activity and variation orders - Net profit margin down 4.2 ppts to 2.0%, largely reflecting COVID-19 related cost increases, a change in project
mix and the recognition of contract losses, partially mitigated by cost savings - Net profit of USUSD62 million - USUSD0.7 billion of new order intake, reflecting the decline in industry awards
Engineering & Production Services (EPS)
EPS delivered a resilient financial performance in the year, benefitting from robust order intake and lower overhead costs, which helped mitigate the impact of weaker market conditions and the expected year-on-year decline in contract margins and contribution from associates. Order intake has benefitted from awards in new energies, building our presence in carbon capture, utilisation and storage (CCUS), hydrogen and waste-to-fuels.
EPS financial results for the 12 months ended 31 December 2020: (1)(2) - Revenue up 5% to USUSD0.9 billion, with growth in Projects offsetting lower Operations activity - Net profit margin down 1.2 ppts to 4.2%, with declines in both contract margins and the contribution from
associates (5) partly mitigated by overhead cost reductions and lower tax - Net profit down 19% to USUSD39 million - USUSD0.9 billion of awards, representing a book-to-bill of 1.0x
Integrated Energy Services (IES)
IES' financial performance in the year was largely defined by the sharp fall in commodity prices and completion of the sale of our remaining interests in Mexico. Production was also impacted by an unplanned outage at Cendor in PM304 in December, which is ongoing. These materially reduced revenue, with subsequent losses mitigated by reductions in operating and overhead cost savings, as well as lower interest, tax and depreciation.
IES financial results for the 12 months ended 31 December 2020: (1)(2) - Revenue down 43% to USUSD110 million - Lower average realised price (6) down 42% to USUSD39/boe - Equity production down 10% to 1.9 mmboe (net) - Lower PEC tariff income and cost recovery - EBITDA down 54% to USUSD39 million (5) - Decline in revenue, largely driven by the fall in oil price - Depreciation of the Mexican Peso - Material reduction in operating and overhead costs - Net loss of USUSD18 million (2019: USUSD4 million loss (5)) - Lower interest, tax and depreciation
SepArately disclosed items
The reported net loss of USUSD180 million (2019: USUSD73 million net profit) was negatively impacted by separately disclosed items and certain re-measurements of USUSD228 million (2019: USUSD203 million), of which approximately USUSD209 million were non-cash items. These predominantly related to: - A non-cash impairment of USUSD79 million and a fair value adjustment of USUSD42 million (both post-tax) as a result of
the fair value of the consideration received for the sale of our remaining 51% interest in our Mexican operations
in November 2020 being lower than expected. We have commenced legal proceedings to recover disputed consideration
of USUSD80 million; and, - A non-cash impairment charge of USUSD64 million (post-tax) following a review of the carrying amount of the
investment in Block PM304 in Malaysia.
NET DEBT AND LIQUIDITY
Net debt was USUSD116 million at 31 December 2020 (31 December 2019: USUSD15 million net cash), largely reflecting an anticipated working capital outflow in the year. A free cash outflow of USUSD73 million (31 December 2019: USUSD138 million inflow) principally reflected the impact of lower EBITDA and lower cash conversion, partly offset by lower tax and interest. Cost saving initiatives, the suspension of dividend payments and a reduction in capital investment conserved approximately USUSD275 million of cash flow in the year. These actions, together with USUSD140 million in gross cash proceeds from the sale of non-core assets in 2020, have protected the balance sheet and reduced capital intensity.
Liquidity was approximately USUSD1.1 billion as at 31 December 2020 (8) (31 December 2019: USUSD1.5 billion), following repayment of USUSD100 million of term loans, the retirement of USUSD200 million of undrawn facilities and the addition and extension of USUSD250 million of new liquidity secured during the year. Our leverage ratio was 1.2x at the end of the period.
On 1 February 2021 and after the period end, the Group increased its short-term liquidity position by issuing GBP300 million in commercial paper with a maturity of 12 months under the UK Government's Covid Corporate Financing Facility. Furthermore, on 7 April 2021, the Group amended its revolving credit facility, extending USD610 million of the committed facility to June 2022, with a six-month extension option to December 2022, subject to lender's agreement. The Group also agreed to amend the ADCB term loan, extending USD90 million of this committed facility to April 2022.
In April 2020, the Board suspended the payment of the final dividend in response to the COVID-19 pandemic and the fall in oil prices. The Board recognises the importance of dividends to shareholders, but in light of current market conditions has decided that dividend payments will remain suspended and therefore no dividend will be paid in respect of 2020 (2019: 12.7 US cents per share).
The Group's backlog decreased 32% to USUSD5.0 billion at 31 December 2020 (2019: USUSD7.4 billion), reflecting low new order intake in E&C as clients deferred awards in response to the COVID-19 pandemic and fall in oil prices, as well as the termination of the USUSD1.5 billion Dalma contracts in the UAE.
31 December 2020 31 December 2019 USUSD billion USUSD billion Engineering & Construction 3.3 5.7 Engineering & Production Services 1.7 1.7 Group backlog 5.0 7.4
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Overall, Group order intake for the year was USUSD1.6 billion, representing a book-to-bill of 0.4x. The most significant new award in E&C was the Seagreen offshore wind project in Scotland with SSE for the EPC of the HVAC onshore and offshore substations. In EPS order backlog remained stable in 2020 at USUSD1.7 billion with a book-to-bill of 1.0x, reflecting robust order intake in challenging market conditions.
Market conditions remain challenging despite a recovery in the oil price, an improvement in the near-term economic outlook and an increase in tendering activity in the first quarter of 2021. Clients are continuing to adopt tough commercial positions and delays in awards remain a risk. In this environment, and with the UAE market currently unavailable to us, our priorities are clear.
Firstly, we are focused on rebuilding our order book, which provides near-term revenue visibility. The Group has USUSD3.0 billion scheduled for execution in 2021, comprising USUSD2.2 billion in E&C and USUSD0.8 billion in EPS. We expect late 2021 to mark the start of a sustained recovery period for the industry, with a return to pre-2020 capex spend levels by 2023. We will seek to capitalise on this recovery in our core addressable markets, whilst also targeting growth in selective new geographies and accelerating our transition to new energies. To support this ambition, the Group has a diverse tendering pipeline of around USUSD20 billion of opportunities scheduled for award by the end of 2021 and USUSD34 billion of opportunities due for award in 2022. Notwithstanding this, we are prudently assuming that capital discipline by clients will continue to delay awards in the near term, with new orders likely to remain depressed in E&C in the current year.
Secondly, we are committed to exercising capital discipline, cutting costs and conserving cash. We are taking additional measures to reshape the business, which will reduce overhead and project support costs, whilst preserving core capability.
Finally, we are focused on delivering operational excellence, supported by investment in digitalisation, automation and process efficiency. This unrelenting focus on improving productivity and capability will help mitigate the impact of the challenging market conditions we continue to face, with both E&C and EPS net margins currently forecast to grow modestly in 2021.
Sami Iskander, Petrofac's Group Chief Executive, commented:
"Clients choose Petrofac due to our differentiated capabilities, strong local content and excellent track record of execution. However, more recently we have faced a number of headwinds. Some of these were self-inflicted as a result of poor execution. Others, such as the ongoing SFO investigation (9), continue to have very real and material impact on the business. Finally, the market has created its own challenges. However, as the new CEO I am focused on rebuilding our reputation, reshaping the business, returning to growth and accelerating our pivot to new energies. We aim to reinforce our clients' confidence in us by demonstrating the highest levels of governance and delivering exceptional project execution. As we do this, we will be able to take advantage of growth in our addressable markets, including new growth areas associated with the energy transition."
Following the completion of a strategic review led by Petrofac's Group Chief Executive, Sami Iskander, the Group today announces a refreshed strategy, focused on three pillars: best-in-class delivery, returning to growth and superior returns.
For almost 40 years, Petrofac has designed, built and operated some of the world's largest energy projects. A key point of differentiation has been the combination of agile, client-centric local execution with our global capability, which has delivered best-in-class industry margins.
Looking forward, our strategy is focused on improving the consistency of our delivery, ensuring the same high Petrofac standard of operational excellence is guaranteed on all projects. This will be achieved by simplifying our operating model and establishing a single technical services function providing technical excellence and independent assurance centrally for our global projects.
We will build on our differentiated track record of local delivery by allocating resources in existing and new markets where we see sustainable growth opportunities and where we can deepen our understanding of local client requirements, supply chains and regulations, as well as maximising In-Country Value.
Return to growth
The second pillar of our strategy is to return to growth, expanding within and beyond our traditional core markets and accelerating our drive into new energies. The MENA region has the lowest costs of hydrocarbon production in the world and access to billions of barrels of reserves and resources. As the world emerges from the COVID-19 pandemic, spending in these markets is expected to recover first and remain the most resilient over the long term as hydrocarbons remain a significant proportion of global energy demand, even as the world transitions towards a net zero environment.
We are targeting significant growth in new energy markets, leveraging the sophisticated and transferable skillset we have developed in oil and gas, and building on the success we have had to date in new energies markets, such as offshore wind.
Underpinning our strategy are compelling structural growth trends across our addressable markets. By 2025, we expect our total annual addressable markets to increase significantly from around USUSD70 billion today to around USD100 billion, including around USD20 billion in new energies (comprising offshore wind, CCUS, hydrogen and waste-to-energy/fuels).
Sector-leading margins have long been central to Petrofac's investment case. Through best-in-class delivery, an enhanced operating model and a more competitive cost base, we are targeting a return to generating premium margins, consistently over the medium term.
Our transition over the past three years to a capital light business has better insulated us against the impact of current market conditions. It will also improve cash generation and returns on capital as we return to growth. We will maintain financial discipline and continue to target a net cash position in the medium term.
Through embedding ESG at the heart of everything we do and fully integrating it into our strategy, we will create sustainable value for all stakeholders and be a force for good, playing a significant role in driving the energy transition.
As we rebuild the backlog and return to generating significant free cash flow, we expect to be able to reinstate a sustainable dividend as a key element of a disciplined capital allocation framework.
NOTES 1. Business performance before separately disclosed items. This measurement is shown by Petrofac as a means of
measuring underlying business performance. 2. Attributable to Petrofac Limited shareholders. 3. New order intake is defined as new contract awards and extensions, net variation orders and the rolling increment
attributable to EPS contracts which extend beyond five years. 4. 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. 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. Net debt comprises interest-bearing loans and borrowings less cash and short-term deposits (i.e. excludes IFRS 16
lease liabilities). 8. Gross liquidity of USUSD1.1 billion on 31 December 2020 consisted of USUSD0.6 billion of gross cash and USUSD0.5 billion
of undrawn committed facilities. 9. 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.
Our full year results presentation will be held at 9.30am today and will be webcast live via:
SEGMENTAL PERFORMANCE AND FINANCIAL REVIEW
Click on, or paste the following link into your web browser, to view our Segmental performance and Financial review for the year ended 31 December 2020 https://irpages2.eqs.com/download/companies/240395a/Other%20Information/ 2020_Segmental_performance_and_Financial_review.pdf
GROUP FINANCIAL STATEMENTS
Click on, or paste the following link into your web browser, to view the Group financial statements of Petrofac Limited for the year ended 31 December 2020 https://irpages2.eqs.com/download/companies/240395a/Other%20Information/2020_Financial_statements.pdf
The attached documents are extracts from the Group's Annual Report and Accounts for the year ended 31 December 2020. Page number references refer to the full Annual Report when available. ENDS
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DJ Petrofac Limited: RESULTS FOR THE YEAR ENDED 31 -3-
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:
+44 (0) 207 811 4900
Jonathan Yarr, Head of Investor Relations
Alison Flynn, Group Head of Communications
+44 (0) 207 811 4913
Tulchan Communications Group
+44 (0) 207 353 4200
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 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 9,400 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 -----------------------------------------------------------------------------------------------------------------------
ISIN: GB00B0H2K534 Category Code: ACS TIDM: PFC LEI Code: 2138004624W8CKCSJ177 OAM Categories: 1.1. Annual financial and audit reports Sequence No.: 99953 EQS News ID: 1186406 End of Announcement EQS News Service =------------------------------------------------------------------------------------ Image link: https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=show_t_gif&application_id=1186406&application_name=news
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