- Solid operational performance in all our businesses
- Business performance net profit (1)(2) down 2% to US$353 million
- Reported net profit (2) of US$64 million post impairments and exceptional items
- New order intake (3) of US$5.0 billion; backlog (4) of US$9.6 billion at 31 December 2018
- Net debt eliminated; net cash of US$90 million
- Full year dividend of 38.0 cents per share
Year ended 31 December 2018
Year ended 31 December 2017*
Exceptional items and certain re-measurements
Exceptional items and certain re-measurements
Net profit/(loss) (2)
* Re-presented due to the reclassification of an item from exceptional items and certain re-measurements to business performance as set out in note 6 to the consolidated financial statements.
Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“Petrofac has reported good results that reflect solid execution and excellent progress delivering our strategy.
“Healthy new order intake reflects our strong competitive position. Furthermore, operational excellence has protected margins and maintained good progress delivering our project portfolio. Our results have also benefitted from the sale of non-core assets as we transition back to a capital light business. Together, these have returned Petrofac to a net cash position well ahead of schedule.
“Looking forward, we are well-positioned for 2019 with good revenue visibility. Whilst we have a busy tendering pipeline and are well-placed on a number of bids, there is a higher degree of uncertainty in the level of awards in the near-term. We are nevertheless targeting a book to build of greater than one. Our management and people remain resolutely focused on best-in-class delivery for clients, positioning the business for growth and enhancing returns.”
Petrofac Chairman René Médori said: “The Board commends Ayman and his management team for delivering another excellent set of results in challenging circumstances. This reflects their clear, unwavering focus on delivering for our clients and maintaining operational excellence, whilst continuing to engage with the SFO.”
Engineering & Construction (E&C)
Solid results reflecting project phasing and mix
- High level of activity with 213 million manhours worked, down 2% year-on-year
- US$3.8 billion of new order intake, including US$1.9 billion of awards in growth markets
- Many projects commissioned or nearing completion
- Alrar and Reggane projects in Algeria commissioned
- Lower Fars Heavy Oil, Manifold Group Trunkline and KNPC Clean Fuels projects in Kuwait in pre-commissioning or phased hand-over
- Achieved major milestone on Upper Zakum with the oil facility ready for start up
- Jazan tank farms, Fadhili sulphur recovery plant and RAPID projects nearing completion
- Topside platform successfully installed in North Sea on Borwin 3 offshore wind project
- Revenue of US$4.1 billion, down 15% primarily due to project phasing
- Net margin down 0.5 ppts to 7.0%, largely reflecting project mix and cost overruns
- Net profit down 21% to US$285 million
- Completed disposal of JSD6000 installation vessel (90%)
Engineering & Production Services (EPS)
Good results largely driven by EPCm growth
- US$1.2 billion of new order intake, predominantly in the UK, Oman, Turkey and Iraq
- Revenue of US$1.5 billion, up 6%
- Lower brownfield project activity
- Operations broadly flat year-on-year
- Strong growth in EPCm projects reflecting new awards and project phasing
- Net margin unchanged at 6.5% with lower overheads offset by higher tax and minority interests
- Net profit up 7% to US$96 million
Integrated Energy Services (IES)
Return to profit driven by production mix and higher oil prices
- Revenue of US$282 million, up 24% (up 33% excluding asset sales)
- Equity production up 47% to 3.7 mmboe (net)
- Higher average realised price (5) of US$59/boe (2017: US$52/boe)
- Lower revenue from PECs post Santuario migration
- EBITDA up 65% to US$160 million (up 66% excluding asset sales)
- Strong growth in contribution from equity production
- Higher net cost recovery from Magallanes & Arenque PECs
- Net profit increased to US$39 million (2017: US$21 million net loss)
- Completed sales of Chergui (100%), Mexican operations (49%) and Greater Stella Area (100%), with further contingent and deferred payments expected over the next few years
Exceptionals and certain re-measurements
The reported net profit of US$64 million was impacted by exceptional items and certain re-measurements of US$289 million (US$207 million was recognised in the first half of the year), of which approximately US$265 million were non-cash items:
- Asset sales during 2018 triggered US$196 million (post-tax) of non-cash exceptional items in relation to the JSD6000 installation vessel, a 49% interest in our Mexican operations, the Chergui concession and the Greater Stella Area development;
- A downward fair value adjustment of US$43 million (post-tax) due to uncertainty concerning the timing and outcome of migration of the Pánuco PEC to a PSC and consequently whether the contingent consideration pay out conditions will be achieved; and,
- Other exceptional net items of US$50 million (post-tax), including onerous leasehold property provisions of US$18 million.
As a result of the asset sales during the year, the carrying value of the IES portfolio (6) at 31 December 2018 decreased to US$0.5 billion (2017: US$1.0 billion).
NET CASH/(DEBT) AND LIQUIDITY
We ended the year with net cash of US$90 million at 31 December 2018 (2017: US$612 million net debt), benefiting from better than expected working capital inflows at the year-end, lower capital expenditure and US$506 million of net divestment proceeds (7). The Group retained strong liquidity of US$1.9 billion at 31 December 2018 (2017: US$1.6 billion).
The Group’s dividend policy targets a dividend cover of between 2.0x and 3.0x business performance net profit. In line with this policy, the Board is proposing a final dividend of 25.3 cents per share (2017: 25.3 cents). The final dividend will be paid on 24 May 2019 to eligible shareholders on the register at 26 April 2019 (the ‘record date’). Shareholders who have not elected to receive dividends in US dollars will receive a sterling equivalent. Shareholders can elect by close of business on the record date to change their dividend currency election. Together with the interim dividend of 12.7 cents per share (2017: 12.7 cents), this gives a total dividend for the year of 38.0 cents per share (2017: 38.0 cents). Dividends paid in 2018 were covered by free cash flow.
The Group is well-positioned with an order backlog of US$9.6 billion at 31 December 2018 (2017: US$10.2 billion) and US$5.3 billion of secured revenue for 2019.
31 December 2018
31 December 2017
Engineering & Construction
Engineering & Production Services
We continue to focus on best-in-class delivery, through operational excellence and improving cost competitiveness. Whilst there is a higher degree of uncertainty in the level of awards in the near-term, we are targeting a book-to-bill greater than 1.0x as we position the business for growth and tendering activity increases.
We are also committed to maintaining a strong balance sheet. Group capital expenditure is expected to be around US$125 million in 2019 (2018: US$98 million) and we are reviewing options for our remaining non-core assets, consistent with our strategy to enhance returns.
From 1 January 2019, the Engineering, Procurement and Construction Management (EPCm) business will be reported in our E&C division (it previously reported through the EPS division), which is expected to dilute net margins in the E&C division. This – together with a forecast increase in the effective tax rate – means E&C net margins are expected to be in the range of 6.5% to 7.5% in 2019. Restated historical results for the period 2016 to 2018 are available on our website at:
Further to the Company’s announcement of 7 February 2019 relating to the SFO investigation, we provide the following update.
We reiterate that no charges have been brought against Petrofac or any other officers or employees. No current Board member of Petrofac Limited is alleged to have been involved in relation to the admission of offences by a former employee on 6 February 2019. In the absence of any charge or credible evidence, Petrofac intends as a matter of policy to stand by its employees.
Whether further charges are brought against former or serving employees, or the Company, remains a question for the SFO. Petrofac will continue to engage with the SFO and will respond to any further developments as appropriate. We are focused on bringing this matter to closure.
The Company has the utmost respect for the robust, highly structured and rigorous processes of its clients. We only expect to be awarded business by submitting the best technical and most competitive commercial offer.
The use of agents in the industry remains common practice, and in some countries a legal requirement. Petrofac has comparatively few agents, having phased the majority out as the business established its own regional and local infrastructures.
The Company today announces that Francesca Di Carlo will be appointed as a Non-executive Director with effect from the Annual General Meeting on 3 May 2019. Francesca is Group Executive Vice President of Human Resources and Organisation at Italian multinational energy company Enel Spa. Previously Francesca held roles in strategy and audit with ENEL Group. She began her professional career in London with SG Warburg Group where she specialised in corporate finance, prior to joining Telecom Italia Group where she held a number of roles across financial planning, corporate development and M&A, including handling the merger of Tele+ and Stream (Telecom Italia’s cable TV station) to create Sky Italia. Francesca brings to the Board expertise across a range of functional areas, with core strengths across a number of disciplines including strategy and transformative organisational change.
- Business performance before exceptional items & certain re-measurements. This measurement is shown by Petrofac as a means of measuring underlying business performance.
- Attributable to Petrofac Limited shareholders.
- New order intake comprises new contract awards and extensions, net variation orders and the rolling increment attributable to EPS contracts which extend beyond five years.
- 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.
- 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.
- Includes balances within oil & gas assets, intangible assets and interests in associates (31 December 2017 balance also includes other financial assets).
- Net disposal proceeds include cash received upon completion less cash disposal costs (net disposal proceeds therefore excludes operating cashflows received from the effective dates of the transactions to the completion dates). Net disposal proceeds of US$506 million comprises the following items from the Consolidated Statement of Cash Flows: US$152 million of “proceeds from disposal of property, plant and equipment”; US$130 million of “proceeds from disposals of subsidiaries”; and, US$224 million of “amounts received from non-controlling interest”.
Our half year results presentation will be held at 9.30am today and will be webcast live via:
SEGMENTAL PERFORMANCE AND FINANCIAL REVIEW
View our Segmental performance and Financial review for the year ended 31 December 2018.
GROUP FINANCIAL STATEMENTS
View the Group financial statements of Petrofac Limited for the year ended 31 December 2018.
The attached documents are extracts from the Group’s Annual Report and Accounts for the year ended 31 December 2018. Page number references refer to the full Annual Report when available.