- Good operational performance and order intake in our core businesses
- Business performance net profit down 4% to US$158 million(1)
- Group net profit (excluding IES) of US$177 million
- IES net loss of US$19 million
- Reported net profit includes post-tax impairments and exceptionals of US$88 million
- New order intake of US$2.7 billion year to date; backlog of US$12.5 billion at 30 June 2017
- Net debt of US$1.0 billion, in line with expectations
- Taking range of measures to strengthen balance sheet and reduce net debt
- Interim dividend rebased to 12.70 cents per share (2016: 22.00 cents)
Six months ended 30 June 2017
Six months ended 30 June 2016 (restated)(2)
Exceptional items and certain re-measurements
Exceptional items and certain re-measurements
Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“Petrofac has made a positive start to the year, delivering solid first half results that reflect good project execution and lower revenues.
“The Group has secured US$2.7 billion of new orders in the year to date, evidence of our continued competitiveness in challenging markets. Tendering activity remains high, we are well placed on a number of bids and have a healthy order backlog. This positions us well for the second half of 2017.
“We also remain committed to our strategy of focusing on our core business, delivering organic growth and reducing capital intensity. We are taking a range of measures to deliver a sustainable reduction in net debt to strengthen the balance sheet and a sustainable dividend policy for our shareholders. These include reducing costs, reducing capital investment, divesting non-core assets and rebasing our dividend.”
Engineering & Construction (E&C)
Good results reflecting strong project execution and cost control:
- New order intake of US$2.4 billion in the year to date, including the GC 32 & Duqm projects
- Good progress across our portfolio of lump-sum projects, including:
- Delivered and installed all modules to the Upper Zakum Islands in Abu Dhabi
- Hydrocarbons introduced to the Khazzan central processing facility in Oman
- Started up the process units on the Sohar Refinery Improvement project in Oman
- Revenue of US$2.4 billion, down 20% reflecting project scheduling
- Net profit down 1% to US$161 million
- Net margin of 6.7%, reflecting project mix and phasing
Engineering & Production Services (EPS)
Solid operational performance in a challenging market environment:
- US$0.3 billion of new contracts and extensions predominantly in the UK, Iraq and Kuwait
- Long-term framework agreement signed with Petroleum Development Oman
- Revenue of US$0.7 billion, down 17% year-on-year reflecting lower activity, utilisation and order intake, as well as the depreciation of sterling
- Net profit up 2% to US$51 million
- Net margin of 7.8%, largely reflecting business mix and the depreciation of sterling
Integrated Energy Services (IES)
Continue to reposition IES and divest non-core assets:
- Mixed operational performance across our upstream portfolio
- PM304 operating in line with expectations
- Chergui performing well following recommencement of production in late May
- Commissioning completed at the Greater Stella Area development
- Revenue of US$97 million, down 37% year-on-year (down 14% excluding asset sales)
- Production down 45% to 4 mmboe (net) largely reflecting exit from Ticleni and Berantai contracts
- Lower cost recovery in Mexico, reflecting lower capital investment
- Delayed entry onto the Greater Stella Area development licence
- Decline in average realised oil price to US$52/bbl (2016: US$53/bbl)
- EBITDA of US$37 million, broadly unchanged year-on-year excluding asset sales
- Net loss of US$19 million, with lower revenue offset by a reduction in costs
- Sale of Pánuco completed in August 2017
EXCEPTIONALS AND CERTAIN RE-MEASUREMENTS
Reported net profit of US$70 million was impacted by exceptional items and certain re-measurements of US$88 million, of which US$81 million were non-cash items:
- US$90 million of non-cash impairments of IES assets, principally a fair value impairment of the Greater Stella Area development receivable reflecting a re-assessment of production profiles and the decline in oil and gas forward prices
- Other exceptional net gains of US$2 million
Group backlog was US$12.5 billion as at 30 June 2017 (31 December 2016: US$14.3 billion). Reported backlog excludes the framework agreement signed with Petroleum Development Oman in June, which will add to backlog as projects are sanctioned, and excludes the US$1.0 billion Duqm refinery project award in August 2017.
Net debt was US$1.0 billion as at 30 June 2017 (31 December 2016: US$0.6 billion) principally reflecting working capital movements. The Group retained good liquidity of US$1.3 billion as at 30 June 2017. In May 2017, Petrofac and its lenders agreed to extend US$1.0 billion of its US$1.2 billion revolving credit facility by one year to June 2021. In addition, the Company has recently refinanced US$300 million of term loans maturing in August 2017, extending their maturity by up to two years.
IES’ net book value was US$1.1 billion as at 30 June 2017 post impairments (31 December 2016: US$1.2 billion).
The Company announced on 9 August that it had appointed Edward Sparrow as senior external specialist to oversee the Company’s management of, and response to, the investigation by the UK Serious Fraud Office announced in May. The Company continues to engage with the SFO and respond to its investigation.
The decline in – and weaker outlook for - commodity prices has had a significant impact on capital investment in the industry, impacting our cash flow. At the same time, we are committed to maintaining a strong balance sheet and credit rating to ensure that the Group remains competitive in current markets. As a result, the Board is declaring an interim dividend of 12.70 cents per share for the six months ended 30 June 2017 (2016: 22.00 cents), a reduction of 42%. This rebasing of the dividend is part of a range of measures being taken to deliver a sustainable reduction in net debt.
The Board recognises the importance of a sustainable dividend to our shareholders. Consequently, the Board intends to target a dividend cover of between 2.0x and 3.0x business performance earnings as we transition back towards a low capital intensity business model. It is further proposed that the interim payment each year will be approximately 33% of the prior year total dividend.
The Group has secured US$2.7 billion of new orders in the year to date, evidence of our continued competitiveness in markets that remain challenging. Tendering activity remains high, but competitive. We are well positioned on a number of bids and have a healthy order backlog that provides good revenue visibility for the medium-term.
Group net profit for the full year 2017 is expected to be weighted to the second half of the year. We expect IES to deliver EBITDA for the full year 2017 of US$80 million to US$100 million(3), reflecting an anticipated improvement in operating performance following the start-up of production at Chergui and our expected entry onto the Greater Stella Area development licence in the third quarter of the year.
We are taking a range of measures to deliver a sustainable reduction in net debt and strengthen our balance sheet. These include a relentless focus on operational excellence, reducing capital investment, rebasing our dividend and divesting non-core assets. Group capital expenditure is expected to be in the range US$200 million to US$250 million in 2017, below previous guidance. Net debt is expected to reduce during the second half of the year.
Thomas Thune Andersen, who joined the Board in 2010, has signalled his intention to step down from the Board by the end of the year and is therefore stepping down as Senior Independent Director.
The Board has consequently decided to appoint René Médori as Senior Independent Director with effect from 1 September. René joined the Board in 2012 and therefore provides appropriate continuity of oversight.
As part of its normal succession planning process, the Board is also conducting a search for a new Non-executive Director.
Further changes to Board committees as a result of Mr Thune Andersen’s departure will be announced in due course.
View the Group's financial statements for the six months ended 30 June 2017.
Our half year results presentation for analysts and investors will be held at 9.30am today, which will be webcast live via: