| Petrofac Limited ( PFC)
PETROFAC LIMITEDRESULTS FOR THE YEAR ENDED 31 DECEMBER 2023 Petrofac today issues its financial results for the year ended 31 December 2023 and an update on progress with respect to its review of strategic and financial options. The Company is in discussions with the Financial Conduct Authority to seek a reinstatement of trading in its shares.
OPERATIONAL AND FINANCIAL PERFORMANCE:
Tareq Kawash, Petrofac’s Group Chief Executive, commented:
“2023 was a challenging year for Petrofac. Our financial results reflect additional losses on the legacy contract portfolio, in particular the Thai Oil Clean Fuels contract where we are in negotiations to seek reimbursement of a proportion of the additional costs. In addition, the challenges in obtaining guarantees for our new EPC contracts, and the impact on liquidity, resulted in the business seeking to deliver a critical financial restructure, which is ongoing and has the full focus of the Board.
“However, 2023 was also one of the strongest years in the Group’s recent history with respect to new contract awards, demonstrating Petrofac’s capability, strong customer relationships, differentiated delivery model, and competitiveness.
“We are focused on the restructuring with the aim of materially strengthening the Group’s financial position and enabling Petrofac to deliver on its future opportunities. I am grateful to our employees and our stakeholders for their continued support as we work to deliver a positive future for Petrofac.”
FINANCIAL AND STRATEGIC UPDATEThe Group is seeking to implement a comprehensive financial restructure to materially strengthen its balance sheet, improve liquidity and secure bank guarantees to support current and future EPC contracts.
As announced on 29 April 2024, an ad hoc group of senior secured noteholders, holding approximately 41% of the outstanding notes, made a non-binding proposal to provide up to US$200 million of new funds and US$100 million of credit support to help secure performance guarantees. The proposal is dependent upon, amongst other things, the Company securing certain performance guarantees and is expected to include the conversion of a significant proportion of the Group’s existing debt into equity.
The Company is in discussions with a range of credit providers to obtain the performance guarantees required under the proposal from the ad hoc group, which would release over US$200 million of collateral and retentions and unlock progress payments on contracts in backlog. It is also in discussions with the ad hoc group and lending banks in relation to the proposed terms of the restructure. The successful implementation of the restructure would require approvals of shareholders and creditors and would need to be sanctioned by the Court.
The Company did not make the payment of the bond coupon due on 15 May 2024 (for which the ad hoc group provided forbearance until 30 June 2024) and continues to rely on deferrals of contractual amortisation payments from its lending banks. Managing these and other payment and contractual obligations is of critical importance to the Company’s ability to maintain sufficient liquidity in the short-term while it is working to implement the financial restructure.
The success and timing of the implementation of the financial restructure depends on reaching agreements with, and obtaining approvals from, third parties. Details of the judgements and assumptions made by the Directors in respect of the risks associated with the Group’s ability to maintain liquidity and implement the restructure can be found in the going concern statement in note 2.5 to the consolidated financial statements. As a consequence of these uncertainties, the Group’s auditors have disclaimed their audit opinion for the financial statements for the year ended 31 December 2023.
The Group continues to pursue non-core asset sales and the disposal process for the Group’s share in the PM304 Production Sharing Contract in Malaysia is progressing, with non-binding offers received. This process could be completed in Q3 2024.
GROUP TRADINGDuring 2023, the Group continued to deliver well for its clients and secured significant new awards which drove strong growth in backlog. However, the Group’s financial performance in 2023 reflected the ongoing challenges in closing commercial settlements on legacy Engineering and Construction (E&C) contracts and accessing guarantees for new E&C contracts, as well as one-off write downs to protect cashflows.
Group revenue reduced marginally to US$2.5 billion (2022: US$2.6 billion), with reduced activity in E&C being largely offset by growth in Asset Solutions. Full year business performance EBIT loss was US$393 million (2022 restated(4): US$229 million), largely due to losses in E&C, partly offset by profitability in the rest of the business.
DIVISIONAL HIGHLIGHTSEngineering & Construction (E&C)2023 was the strongest year for new awards in E&C in five years, with backlog more than tripling to US$6.1 billion (2022: US$1.6 billion). We secured US$5.5 billion of new order intake, split between hydrocarbon and renewable energy markets. Of the US$6.1 billion backlog at 31 December 2023, approximately half relates to energy transition contracts, including the first two offshore wind contracts under the TenneT Framework Agreement and the ADNOC carbon capture, utilisation and storage (CCUS) contract.
Operationally, we made further progress on the completion of legacy contracts and are expecting all but two of the legacy contracts to be completed(5) in 2024. The two contracts that will continue in execution beyond 2024 are the Thai Oil Clean Fuels project and the Orlen Refinery Upgrade project in Lithuania. Of the US$6.1 billion backlog, approximately 90% relates to new contracts secured in 2023.
With respect to the Thai Oil Clean Fuels project, good progress continues to be made on the construction stages. While the estimated costs to complete increased during the year, as outlined in the Group's April trading update, discussions with the client and our partners are ongoing in relation to the reimbursement of a portion of these additional costs. In the absence of a resolution to these discussions, an incremental loss in the year of approximately US$190 million is included in the E&C EBIT loss.
Revenue during the year was US$0.9 billion (2022 restated(4): US$1.3 billion), reflecting the low opening backlog and the maturity of E&C’s legacy contract portfolio. E&C had a business performance EBIT loss of US$422 million (2022 restated(4): US$323 million) reflecting losses on the Thai Oil Clean Fuels project, one-off write-downs to protect cash flows of US$90 million and adverse operating leverage, due to the lower levels of activity.
Asset SolutionsAsset Solutions had another successful year for backlog growth, delivering a strong order intake of US$1.6 billion, with a closing backlog of US$2.0 billion at 31 December 2023 (2022: US$1.8 billion), none of which have performance guarantee requirements pending.
Revenue during 2023 grew 25% compared with the previous year at US$1.4 billion (2022: US$1.2 billion), primarily driven by growth in Asset Operations. Full year business performance EBIT was US$2 million (2022: US$60 million), reflecting the previously guided loss on an Engineering, Procurement, Construction and Commissioning contract of approximately US$18 million and a one-off bad debt provision of approximately US$11 million for a client going into administration.
Integrated Energy Services (IES)Net production during 2023 was maintained at 1,260 thousand barrels of oil equivalent (kboe) (2022: 1,261 kboe). IES achieved an emissions reduction of 15% and an emissions intensity reduction of 14% during 2023. Revenue for the year was US$121 million (2022: US$137 million), reflecting the lower realised oil price net of hedging. Business performance EBITDA was US$90 million (2022: US$109 million) with business performance EBIT of US$34 million (2022: US$58 million), principally reflecting the lower revenue.
CASH FLOW, NET DEBT AND LIQUIDITYFree cash outflow for the year of US$223 million (2022: US$188 million) primarily reflected the operating outflows and higher interest payments in the year attributable to the increase in the Group’s average net debt levels. The liquidity conservation measures taken by management and unwinding of historic working capital of approximately US$180 million, offset by collateral requirements for guarantees, resulted in broadly neutral free cash flow in the second half.
Net debt, excluding net finance leases, was US$583 million at 31 December 2023 (2022: US$349 million), reflecting the free cash outflow in the year. The Group had US$201 million of gross liquidity(7) available at 31 December 2023 (2022: US$506 million).
Net debt, excluding net finance leases, was approximately US$570 million at 30 April 2024, with gross liquidity(8) of approximately US$215 million at the same date.
ORDER BACKLOGThe Group's backlog(6) more than doubled to US$8.1 billion at 31 December 2023 (2022: US$3.4 billion), reflecting the exceptional order intake in both E&C and Asset Solutions. Overall, Group order intake for the year was US$7.1 billion (2022: US$1.9 billion), representing a book-to-bill of 2.8x.
OUTLOOKThe outlook for the business is predicated on the Group maintaining sufficient liquidity and successfully implementing a financial restructuring which strengthens the Group’s balance sheet, improves liquidity and provides access to guarantees on normal commercial terms. Further details, including with respect to the significant risks associated with achieving this, can be found in the going concern assessment in note 2.5 to the financial statements.
Notwithstanding these challenges, we entered 2024 with an order backlog of US$8.1 billion, 90% won in 2023 and largely comprising contracts in our core markets, and a Group pipeline of US$60 billion scheduled for award in the next 18-months. Within this, E&C’s addressable pipeline is US$48 billion, of which 58% is in our core MENA markets and 18% in energy transition sectors. Asset Solutions’ addressable pipeline is US$12 billion, of which 70% is in target geographies outside the UK & Europe.
Operating activity in E&C in 2024 is expected to be higher than in 2023, but still sub-scale, as the portfolio transitions from legacy to new contracts. With continued backlog growth expected, supported by the strong pipeline of opportunities and further contracts under the TenneT Framework Agreement, the cumulative impact of these new contracts is expected to provide continued revenue growth in the medium-term. Margin in the E&C business is expected to improve as new contracts reach margin recognition thresholds and onerous contracts are completed, with the impact of growing revenues improving the business operating leverage.
In Asset Solutions, the business is expected to maintain or grow its activity levels in the medium term, driven by its focus on Asset Operations and Wells & Decommissioning service lines, including further expansion into new geographies. Margin expansion is expected to be underpinned by the higher margin prospects in these new geographies. These ambitions are supported by the brought forward backlog of US$2.0 billion and approximately US$0.5 billion of contracts awarded in 2024 to date.
In IES, the production sharing contract (PSC) for Block PM304 in Malaysia expires in September 2026, and we are no longer pursuing an extension. As disclosed on 29 April 2024, non-binding offers have been received for the Group’s share in the PSC, and the disposal could be completed in Q3 2024. Offers are broadly in line with the value of anticipated cashflows (subject to oil price and oil premium assumptions) over the remaining term of the PSC.
TRADING OF THE COMPANY’S SHARESAs a consequence of having published its results, the Company is in discussions with the Financial Conduct Authority to seek a reinstatement of trading in its shares and will provide an update on timing shortly.
PRESENTATIONOur full year results presentation will be held at 8:30 am today and will be webcast live via: https://stream.brrmedia.co.uk/broadcast/665740a19259bd888e9a67f9
SEGMENTAL PERFORMANCE AND FINANCIAL REVIEWClick on, or paste the following link into your web browser, to view our Segmental performance and Financial review for the year ended 31 December 2023
GROUP FINANCIAL STATEMENTSClick 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 2023
https://www.petrofac.com/media/zn5er2nz/petrofac-fy-2023-financial-statements.pdf
The linked documents are extracts from the Group’s Annual Report and Accounts for the year ended 31 December 2023. Page number references refer to the full Annual Report when available.
NOTES
ENDS
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
James Boothroyd, Head of Investor Relations
Sophie Reid, Group Director of Communications
Teneo (for Petrofac) +44 (0) 207 353 4200 petrofac@teneo.com
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 8,600 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 Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ISIN: | GB00B0H2K534 |
| Category Code: | FR |
| TIDM: | PFC |
| LEI Code: | 2138004624W8CKCSJ177 |
| OAM Categories: | 1.1. Annual financial and audit reports |
| Sequence No.: | 324962 |
| EQS News ID: | 1914935 |
| End of Announcement | EQS News Service |
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UK Regulatory announcement transmitted by EQS Group AG. The issuer is solely responsible for the content of this announcement.