Project execution delays weigh heavily on Petrofac’s FY15 earnings performance;EBITDA down 66.5% YoY

On 24 February 2016 Petrofac (PFC:L) the mid-weight engineering, procurement and construction (EPC) provider, in its FY15- full year results showed a 9.7% YoY rise in revenue to USD 6.84bn largely supported by the growth in its ‘onshore engineering and construction’, and ‘engineering and consulting services’ segments. Above performance was due to increased number of projects reaching executing phase and positive impact relating to its Rabab Harweel project in Oman. However despite the revenue uptick EBITDA plunged 66.5% YoY to USD 313m largely due to the recognition of USD 480m impact arising from delays relating to its Laggan-Tormore project. Going forward Petrofac does not expect any further losses from the Laggan-Tormore project, due to the completion of the project. Pre-exceptional items Petrofac’s EBITDA would have still declined by 15.1% YoY to USD 794m, due 50.4% YoY and 30.8% YoY dip in EBITDA from the company’s ‘Integrated Energy Services’ and ‘Offshore Projects & Operations’ segments. Following this net leverage was up to 2.19x in FY15 as compared to 0.78x in FY14, this was despite 6.4% YoY decrease in net debt to USD 686m.

segmentDebt

In FY15, OCF increased 3.2% YoY to USD 669m on account of positive working capital movement. In total changes in working capital movement contributed USD 602m in FY15 vs a burn of USD 60m in FY14. This coupled with a 45.1% YoY decrease in Group CAPEX led FCF to increase to USD 215m in FY15 as compared to a negative USD 179m in FY14.

As of 31 December 2015, total liquidity stood at approximately USD 1.8bn, which comprised of USD 1.1bn in cash and short-term deposits and around USD 660m available through syndicated revolving credit facility (RCF). Total liquidity along with above mentioned positive FCF generation should be enough to pay down USD 520m in short-term debt and guided 2016 CAPEX of approximately USD 300m

Covenant summary:

  • Net debt / EBITDA < 3x (Actual FY15: 2.19x; 4.97x )
  • EBITDA / interest cover of > 3 (Actual FY15: 3.40x)

Note: On account of aforementioned negative impact from the Laggan-Tormore project, prior to 31 December 2015, the Term Loan lenders granted a waiver of the leverage covenant for the year ending 31 December 2015 as a result of which Petrofac was in compliance with its financial covenant obligations for that period.

Company Outlook: Petrofac’s end-FY15 order backlog of USD 20.7bn gives good revenue visibility going into 2016. Moreover the company’s engineering, construction, operations & maintenance (ECOM) backlog was predominantly with middle-eastern national oil companies where CAPEX still continues to expand despite low oil prices. In addition to this the company will continue to improve operational and cost efficiencies through a targeted USD 90m in saving in 2016 versus USD 80m delivered in 2015.

backlogIn addition to the above net debt is expected to remain flat, with EBITDA generation in the range of USD 650m to USD 700m in FY16. CAPEX for FY16 is guided at USD 300m, which is expected to decline further in 2017, post the completion of the Greater Stella Area (GSA) project.summary



Categories: Earnings, European Earnings

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