DJ Petrofac Limited: Trading Update
Petrofac Limited ( PFC) Petrofac Limited: Trading Update 20-Dec-2022 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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TRADING UPDATE
-- Continued strong performance in Asset Solutions and IES offset by challenges in E&C
-- Expect a full year EBIT loss in E&C of approximately USUSD190 million for 2022, yielding a total Group EBITloss of approximately USUSD100 million? Reflecting adverse commercial settlements, further unrecovered cost overruns in the legacy portfolioand cost increases on the Thai Oil Clean Fuel joint venture contract - We will seek, working closely with our Thai Oil joint venture partners, to mitigate those increasesover the remainder of that contract in addition to seeking to realise other portfolio upsides
-- Six legacy E&C lump-sum contracts were completed or substantially completed (1) in the second half
-- Asset Solutions on track to deliver full year EBIT margin of 5-6%
-- Robust IES performance driven by high production, operational performance and oil prices
-- Positive outlook for the recovery in E&C and continued growth in Asset Solutions, with a healthy totalGroup pipeline of USUSD68 billion scheduled for award in the next 18 months
-- Pipeline includes bids submitted of USUSD5.5 billion, and a further USUSD1.5 billion where we are atpreferred bidder stage
-- Net debt was USUSD396 million (2) at 15 December 2022, with cash management partly offsetting the delays inE&C contract awards and the unrecovered cost overruns in the E&C legacy portfolio during the second half
Sami Iskander, Petrofac's Group Chief Executive, commented: "We have maintained strong momentum in Asset Solutions and IES, however Group performance for 2022 has been impacted by further cost recovery challenges in E&C. Good progress has been made in the second half where we have completed or substantially completed (1) six lump-sum contracts, with five of the remaining eight active lump-sum contracts scheduled to complete in 2023. This will largely close-out the mature E&C portfolio that was heavily impacted by pandemic delays. On the Thai Oil Clean Fuel contract, we are working closely with our joint venutre partners to pursue the recovery of costs over the remaining course of the contract.
"Looking forward, whilst E&C awards were slower than expected in 2022, the market outlook remains positive and we are well positioned on a number of near-term prospects, with USUSD1.5 billion of E&C opportunities where we are at preferred bidder stage, and a further USUSD3.5 billion of bids submitted in E&C. We expect these opportunities to provide backlog growth in 2023 and lay the foundations for a return to profitability, positive free cash flow and continued recovery thereafter.
"In 2023, we will continue to close out the legacy E&C portfolio and associated commercial settlements. We retain our focus on cost discipline, unwinding working capital and ensuring Petrofac has sufficient liquidity to support our growth ambitions." GROUP TRADING
The Group's performance in 2022 will reflect continued strong performance in Asset Solutions and IES, offset by the challenges in the E&C portfolio. Management expects to report Group revenue of approximately USUSD2.5 billion and a full-year business performance EBIT loss of approximately USUSD100 million for 2022. DIVISIONAL HIGHLIGHTS Engineering & Construction (E&C)
Second half performance in E&C was further adversely impacted by the mature, Covid-affected legacy contracts. The additional costs incurred on these contracts due to extended schedules have not been fully recovered from our customers, resulting in net cost overruns. Six of the active lump-sum contracts were completed or substantially completed (1) in the second half and five of the remaining eight are scheduled to complete in 2023.
In addition, we have recognised cost increases on the Thai Oil Clean Fuel contract - where the partners are jointly liable for the performance of the contract - driven by a reassessment, with the partners, of the forecast costs to complete this highly complex project. This is a loss-making contract and the expected full-life loss has therefore been recognised immediately. There is no cash outflow associated with these cost increases in 2022, as the cash impact will be spread over the remaining life of the contract. Petrofac will continue to work closely with its partners to pursue the recovery of costs over the course of the contract and, in addition, seek to realise other portfolio upsides.
Full year revenues in 2022 are expected to be around USUSD1.3 billion reflecting the lower levels of activity compared with the prior year. The combined impact of the cost overruns described above mean that E&C is expected to report a full year EBIT loss of approximately USUSD190 million.
Year to date, E&C has secured new order intake (3) of USUSD0.5 billion and signed a collaboration with Hitachi to provide joint grid integration and associated infrastructure to support the rapidly growing offshore wind market. The addressable pipeline for E&C remains healthy, although clients have been slower to award contracts in the second half than expected. These awards are now expected to be made in 2023, and this is reflected in the healthy E&C pipeline of USUSD54 billion scheduled for award in the next 18 months. This includes bids submitted of approximately USUSD3.5 billion and a further USUSD1.5 billion where we are at preferred bidder stage. As a result, the business remains well placed to deliver a sustained period of growth in backlog in the near and medium term. Asset Solutions (AS)
Asset Solutions has continued to deliver robust performance, with strong order intake in the year to date and a healthy margin.
Full year revenue is expected to be approximately USUSD1.1 billion, and EBIT margins are expected to be between 5% and 6%, in line with guidance. This includes the impact of lower margins in the second half due to the roll-off of certain historic high-margin contracts, as noted at the half-year.
Year to date order intake (3), comprising new contract awards and extensions, is USUSD1.4 billion, including material awards in Well Engineering and Decommissioning in Australia and the Gulf of Mexico. Asset Operations and Asset Developments secured awards across the UK, MENA and India.
In New Energy Services, the momentum gained over the last two years continues. The market remains active and we have secured a series of early-stage awards and strategic alliances with technology providers. This leaves us well positioned over the medium-term to secure EPC and other execution phase project work, as projects reach final investment decision. Integrated Energy Services (IES)
IES' financial performance during the year has been robust, with a significant increase in production and the benefit of high oil prices. Net production is expected to be between 3.0-3.5 kbbl/d for the year, reflecting a full year's production from the East Cendor development, which commenced in June 2021, and the reinstatement of the main Cendor field production.
The average realised oil price (net of royalties) (4) for the year to date is expected to be approximately USUSD110/ bbl (2021: USUSD75/bbl), including the impact of hedging, with the full year EBITDA expected to marginally exceed the guided range of USUSD90 million to USUSD100 million. ORDER BACKLOG
The Group's backlog (5) is expected to be approximately USUSD3.3 billion at 31 December 2022 (30 June 2022: USUSD3.7 billion), reflecting industry delays to awards, partially offset by continued new order intake success in AS in the second half.
Expected Backlog 31 December 2022 30 June 2022
USUSD billion USUSD billion
Engineering & Construction 1.4 1.8
Asset Solutions 1.9 1.9
Group backlog 3.3 3.7 CASH FLOW, NET DEBT AND LIQUIDITY
Net debt (2) was USUSD396 million at 15 December 2022 (30 June 2022: USUSD341 million). Liquidity (6) was USUSD451 million on the same date (30 June 2022: USUSD511 million). This reflects a delay in the expected receipt of certain 2022 settlements and milestone collections to early 2023, the delay in new awards and the unrecovered cost overruns in the E &C legacy portfolio, partly mitigated through active cash flow management.
We have engaged with our lenders to extend the revolving credit facility and a bilateral loan - totalling USUSD230 million - which are scheduled to mature in October 2023. OUTLOOK FOR 2023
The outlook for new awards in E&C remains robust, supported by high energy demand and increased focus on energy security and energy transition. E&C is well positioned on a number of near-term prospects, with USUSD1.5 billion of opportunities where we are at preferred bidder stage, and a further USUSD3.5 billion of bids submitted. Bidding activity remains high, with an 18-month pipeline, including bids submitted, of approximately USUSD54 billion, of which USUSD33 billion is scheduled for award in 2023.
E&C has secured revenue of USUSD0.9 billion for 2023, approximately a third of which from contracts with no future margin contribution. Coupled with the adverse operating leverage due to the small portfolio of active contracts, we expect a small EBIT loss in E&C in 2023. Our healthy pipeline and projected order intake in 2023 mean that we remain confident of delivering a return to profitability and positive cash flow in 2024 and significant growth in the E&C business over the medium term.
Asset Solutions has USUSD2 billion of bids submitted as part of a USUSD14 billion 18-month pipeline of opportunities, with USUSD11 billion scheduled for award in 2023.
Asset Solutions has secured revenue of USUSD0.8 billion for 2023. The business is expected to continue to perform well, with revenue growth driven by focused geographic expansion and new order intake in Well Engineering & Decommissioning in 2022. We expect EBIT in 2023 to be lower than 2022 reflecting the roll-off of certain high-margin contracts in the first half of 2022 and a larger portion of pass-through revenue in Well Engineering & Decommissioning contracts.
IES is expected to deliver another robust production performance in 2023, in line with 2022. At USUSD85/bbl oil price, EBITDA is expected to be in the range USUSD70 million to USUSD80 million, taking into account hedging.
At Group level, we expect broadly neutral cash flow in 2023 as a result of new awards and the partial unwinding of working capital balances, offset by capex of USUSD25-35 million, tax payments of USUSD70-80 million (relating to the closure of prior periods' assessments) and interest costs of USUSD80 million. Conference call
Afonso Reis e Sousa, Chief Financial Officer, will host a conference call for analysts and investors at 8.30am today.
Analysts and investors can access the call on: +44(0)330 551 0200. Password: Quote 'Petrofac' when prompted by the operator NOTES 1. Completed and substantially completed contracts: contracts where (i) a Provisional Acceptance Certificate(PAC) has been issued by the client, or (ii) transfer of care and custody (TCC) to the client has taken place, or(iii) PAC or TCC are imminent and no substantive work remains to be performed by Petrofac. 2. Net debt comprises interest-bearing loans and borrowings less cash and short-term deposits (i.e. excludesIFRS 16 lease liabilities). 3. New order intake is defined as new contract awards and extensions, net variation orders and the rollingincrement attributable to Asset Solutions contracts which extend beyond five years. 4. 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. 5. Backlog consists of: the estimated revenue attributable to the uncompleted portion of Engineering &Construction division contracts; and, for the Asset Solutions division, the estimated revenue attributable to thelesser of the remaining term of the contract and five years. 6. Liquidity consists of gross cash and undrawn committed facilities. Gross cash includes balances held incertain countries whose exchange controls significantly restrict or delay the remittance of these amounts toforeign jurisdictions. It also includes balances in joint operation bank accounts which are generally available tomeet the working capital requirements of those joint operations, but which can only be made available to the Groupfor its general corporate use with the agreement of the joint operation partners.
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 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:
Petrofac Limited
+44 (0) 20 7811 4900
James Boothroyd, Head of Investor Relations
James.boothroyd@petrofac.com
Sophie Reid, Group Head of Communications
Sophie.reid@petrofac.com
Tulchan Communications Group
+44 (0) 20 7353 4200
petrofac@tulchangroup.com
Martin Robinson
NOTES TO EDITORS
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 www.petrofac.com
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ISIN: GB00B0H2K534 Category Code: TST TIDM: PFC LEI Code: 2138004624W8CKCSJ177 OAM Categories: 3.1. Additional regulated information required to be disclosed under the laws of a Member State Sequence No.: 209769 EQS News ID: 1517003 End of Announcement EQS News Service =------------------------------------------------------------------------------------
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December 20, 2022 02:00 ET (07:00 GMT)
