Petrofac Limited (Petrofac) is today providing an update on the actions it is taking to respond to the unprecedented market conditions affecting our industry, clients and business. These decisive actions include the following:
- Protecting the health and wellbeing of our people, clients, suppliers and communities
- Reducing overhead and project support costs by at least US$100m in 2020 and by up to US$200 million in 2021
- Conserving cash and liquidity by reducing capex by 40% and suspending the 2019 final dividend
Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“At this unprecedented time, our top priority remains the health and well-being of our people, clients and suppliers, and ensuring that we take decisive action to protect the long-term health of our business. I would like to thank all of our people for their outstanding response to the crisis, allowing Petrofac to continue to operate effectively and provide invaluable support to our clients during this challenging time.
We have a resilient business model, strong competitive position and a differentiated in-country value proposition that is highly valued by our clients. Nevertheless, we are taking swift, decisive action in response to the COVID-19 pandemic and lower oil prices to reduce costs, retain our competitiveness and preserve the strength of our balance sheet. These best position us to protect our business, stakeholders and the communities we serve.”
Protecting people, clients, suppliers and communities
Petrofac remains focused on taking all necessary steps to ensure the health and well-being of its employees, clients, suppliers and communities. Stringent health protocols are in place across all our operations and we have transitioned quickly and effectively to remote working to minimise business disruption. Engineering and construction activity continues at most of our Engineering & Construction (E&C) project sites and offices, although progress is being impacted by supply chain disruptions, travel restrictions and the Government enforced lockdowns in India and Iraq. Operations and maintenance activity in our Engineering & Production Services (EPS) business continues in all regions, albeit travel and social distancing restrictions are having a modest impact on activity levels.
We are also increasing the support we provide our local communities. In Kuwait, we have vacated our 1,000 bed Lower Fars camp to enable the Government to provide healthcare facilities if required. In Algeria and Oman, we are donating funds for local hospital equipment and supplies. In addition, we are supporting employees who are volunteering to join the fight against COVID-19 in the communities where they live and work.
In this period of unprecedented disruption, we are taking decisive actions to improve our cost competitiveness and protect the long-term health of our business. These include:
- Reducing and structurally rebasing salaries and allowances for our Board, senior management and most of our employees by between 10-15%
- Reducing personnel by c.20% and furloughing staff in anticipation of a reduction in activity levels
- Reducing non-staff overhead costs by up to 25%
In aggregate, these measures are expected to reduce overhead and project support costs by at least US$100m in 2020 and by up to US$200 million in 2021.
Conserving cash and liquidity
Petrofac is committed to maintaining a strong balance sheet and liquidity. As at 2 April 2020, the Group had liquidity of US$1.1 billion, following the planned repayment of a US$75 million facility in February 2020. A two-year extension of a US$150 million term loan in March 2020 has reduced debt maturities in the next 12 months to US$275 million. S&P has recently affirmed the Group’s investment grade credit rating.
In this period of extreme economic uncertainty, management believe it is prudent to take steps to preserve cash and liquidity, including cutting capital expenditure by 40% (US$60 million) in 2020 and managing working capital. In addition, the Board is withdrawing its recommendation of a final dividend of 25.3 US cents (US$85 million) announced on 25 February 2020. The Board recognises the importance of dividends to shareholders and will review the resumption and payment of dividends when the full impact of COVID-19 and low oil prices is known.
We have a global, diversified business, with a strong balance sheet and we are taking immediate measures to reduce our costs and protect our financial position. Order intake of US$2.0 billion in the first quarter has also increased our backlog to US$8.2 billion. We believe that these factors, together with a capital light business model and a strong competitive position in the Middle East where the cost of production is low, will protect us against near term headwinds.
However, it is too early to ascertain and quantify the impact of both COVID-19 and low oil prices on financial performance or new order intake and, as a result, we are suspending our previous revenue and margin guidance. We will continue to closely monitor the developing situation and update the market as appropriate.
Annual General Meeting
The health of the Company's shareholders, as well as its officers and employees is of paramount importance. It is expected that the Company's attendance in person at the Annual General Meeting on 15 May 2020 will be limited to satisfy the requirements of a quorum and shareholders will not be allowed to attend the meeting in accordance with UK Government advice. Shareholders are therefore requested to submit their votes electronically or by post in advance of the meeting.