Petrofac expecting 'subdued' year as losses remain stable

Petrofac reported “significant progress” on its strategic objectives in its 2021 results on Wednesday, as its net loss came in broadly the same as 2020 at just under $200m and it described a ‘subdued’ year ahead.

The London-listed company said its business performance net profit for the year was $35m, down from $50m, while its reported net loss widened slightly to $195m from $192m.

It recorded a group order intake of $2.2bn for the 12 months ended 31 December, and also achieved its targeted cost savings of $250m.

Net debt at period end totalled $144m, and the firm reported liquidity of $705m and a backlog of $4bn, of which Russia accounted for 0.6%.

Looking ahead, Petrofac said it was “well-positioned”, with a group pipeline of $37bn for award in 2022, of which $7bn was in ‘new energies’.

“Significant strategic progress made in 2021 under our plan to rebalance, reshape and rebuild Petrofac saw us resolve the Serious Fraud Office investigation and establish a long-term capital structure for the group,” said chief executive officer Sami Iskander.

“Furthermore, we recently achieved a significant milestone through our reinstatement to ADNOC's bidding list, which is a major step forward as we look towards rebuilding the backlog.

“We are now in a stronger position, having created the right environment to pursue future growth.”

Iskander said that looking forward, Petrofac was focussed on securing the backlog that would deliver profitable growth while retaining a “strict approach” to bidding discipline.

“While clients continue to prioritise cash preservation over new investments, we expect the increasingly supportive energy price environment to improve the outlook for awards as the year progresses.

“Market fundamentals are strong in our traditional markets, particularly in the MENA region where Petrofac has a leading position, and in New Energies, underpinning the medium-term performance objectives that we are confident will drive significant shareholder value over the coming years.”

Laura Hoy, equity analyst at Hargreaves Lansdown, said Petrofac was finally getting over the impact of the SFO investigation, although it looked like the bounce-back was relatively muted.

“Tentative spending among engineering and production services clients held back performance as capital discipline takes top billing,” Hoy commented.

“But a recovery could be in the works - the group’s interests in Russia have taken 0.6% of potential projects off the table, but the conclusion of the SFO investigation means it’s no longer barred from trading in some of the most lucrative markets in the world.”

Petrofac can bid on $37bn worth of projects being awarded by the end of 2022, Hoy noted, and with an “impressive” win rate so far, she said there couldn be a “marked increase” in next year’s order book.

“However, the market was understandably disappointed by management’s forecast for subdued margins and tepid revenue growth.

“The group’s recovery appears to be pushed back another year and given the ongoing volatility sooner would have been better.”