Petrofac earnings slip 10% but backlog strengthens

Petrofac's first-half earnings slipped despite strong revenues, leaving City analysts divided on whether the oil engineer's results were a hit or a miss.

Despite the havoc in the oil sector, the FTSE 250 company, which provides engineering services across the upstream and downstream oil and gas industry, lifted revenue 25% to $3.2bn.

But with profits significantly weighted to the second half, due to contracts completion dates, underlying earnings before interest, tax, depreciation and amortisation fell 10% to $305m and underlying net profit slipped 4% lower to $130m.

On the upside, margins were stable, the interim dividend was maintained at 22 cents per share and revenue visibility was strong as the contract backlog remained strong increasing to $20.9bn at the 30 June period end, up 10.6% in the last six months, while the backlog in engineering, construction, operations and maintenance (ECOM) was 14% higher at $17.8bn.

In snap readings of the results, Merrill Lynch dismissed the results as "weak", while Credit Suisse said the numbers were "better then market expectations" and noted there was a big short interest hanging over the shares.

In April, the company's shares were sold off heavily after it confessed that losses had spiralled on its major Laggan-Tormore gas plant contract in the Shetland Islands for client Total.

Petrofac said the commissioning on the plant was now "well underway, with major systems handed over to the client" and first gas expected in the fourth quarter with additional costs recognised of around $43m in relation to final completion, pre-commissioning and commissioning activities.

As a result, full year net profit before exceptional items and certain re-measurements is expected to be around $200m, after now recognising losses on the Laggan-Tormore project of $263m, up from the $220m announced up to 23 June plus the recent $43m of further costs.

"Against the backdrop of a challenging environment for the industry, we are in a strong position," said chief executive Ayman Asfari.

"We have record levels of backlog in ECOM, which brings excellent revenue visibility for the rest of this year and beyond. Our clients are continuing to invest in large strategic projects in our core markets, where we have an unrivalled track record and a very cost-competitive delivery capability."

Net debt crept higher to $1.0bn due to the investment in its 20% owned Greater Stella Area project and our offshore installation vessel, payment of the 2014 final dividend and the Laggan-Tormore costs.

Management stressed that they had continued to work with clients "to address cost pressures and generate value for them whilst protecting our margins" and expected incremental savings of $80m for the full year.

Shares in Petrofac were up 3.7% to 758p by 0825 BST on Tuesday.