Petrofac Limited ( PFC)
Petrofac Limited: RESULTS FOR THE YEARED 31 DECEMBER 2020
20-Apr-2021 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
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PETROFAC LIMITED
RESULTS FOR THE YEARED 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."
DIVISIONAL HIGHLIGHTS
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.
DIVID
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).
ORDER BACKLOG
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
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.
OUTLOOK
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.
STRATEGY UPDATE
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.
Best-in-class delivery
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).
Superior returns
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.
PRESENTATION
Our full year results presentation will be held at 9.30am today
and will be webcast live via:
https://broadcaster-audience.mediaplatform.com/#/event/606d52f6c0aea403816edf92
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.S
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) 207 811 4900
Jonathan Yarr, Head of Investor Relations
jonathan.yarr@petrofac.com
Alison Flynn, Group Head of Communications
alison.flynn@petrofac.com
+44 (0) 207 811 4913
Tulchan Communications Group
+44 (0) 207 353 4200
petrofac@tulchangroup.com
Martin Robinson
LEI 2138004624W8CKCSJ177
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 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
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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
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