26 May 2022
Petrofac Limited is holding its Annual General Meeting today. Alongside this event, the Company provides the following update on current trading and reiterates the Company’s medium-term prospects.
In an update to shareholders, Group Chief Executive Sami Iskander will comment:
“I am pleased with the strategic progress we made in 2021 to establish a strong platform and I want to thank our shareholders, clients, and other stakeholders for their continued support as we position the business to capitalise on the multi-year upcycle ahead of us, underpinned by structural tailwinds from high energy prices.
“We are experiencing some near-term headwinds as we complete a number of EPC projects in our relatively small, mature portfolio, which will impact E&C’s 2022 performance. However, the outlook for order intake in E&C remains robust with a diverse and active bidding pipeline, giving us confidence that we will achieve our medium-term performance ambition. This includes achieving Group revenue of US$4-5 billion, including c.US$1 billion from new energies, with a sector leading 6-8% EBIT margin and a return to a net cash position. Delivery of these medium-term objectives will create significant value for all Petrofac stakeholders.”
“In current trading, Asset Solutions and IES continue to perform well, benefitting from the strong macro environment and our differentiated service offering across core and new markets.
Update on business unit trading
The outlook for new awards in E&C is robust, supported by high energy prices and increased focus on energy security. Bidding activity is high, and we expect that the second half of 2022 will mark an inflexion point for a sustained period of growth in the E&C backlog.
On the current portfolio, the lingering impact of the pandemic continues to impact progress, increasing costs and deferring revenue and profit recognition to later periods.
E&C has limited exposure to the current inflationary environment given that procurement is substantially complete on much of the portfolio and construction is mainly based on fixed unit-rate contracts already in place. Nevertheless, as mature projects advance towards completion, we are experiencing cost overruns and some relatively unfavourable commercial settlements with clients.
These dynamics will largely play out within the year, with a number of projects scheduled for completion over the course of the year and early 2023. As a consequence, we now expect a small EBIT loss in E&C in 2022.
Notwithstanding these short-term headwinds, we are confident that with high current bidding activity and strict bidding discipline, E&C will rebuild its backlog and grow its margins over the medium term.
Asset Solutions has performed well in the year to date and full year EBIT margins are expected to be in line with the 5% to 6% guidance range. Order intake has been strong, with significant awards in the Wells & Decommissioning service line in Australia, the Gulf of Mexico and Mauritania as well awards for Asset Operations and Asset Developments in the UK and India. In New Energy Services, the strong momentum in 2021 has continued to increase in 2022 with a series of early-stage awards and we are making material progress with developing further strategic alliances with technology providers.
IES is performing well, with the high oil price having a positive impact on earnings. Assuming an average US$100 brent price for unhedged production for the remainder of 2022, this business unit is expected to deliver EBITDA of between US$80 million and US$90 million.
Overall, principally as a result of the E&C performance, the Group is now expected to have a modest free cash outflow for the year.
Our pre-close trading statement on our first half trading will be published on 28 June 2022.