Petrofac warns revenues will shrink after SFO probe hinders new work
Oilfield services giant Petrofac shares fell 1.97 per cent this morning as it warned revenues would dry up next year after an investigation by the Serious Fraud Office caused it to lose out on contracts.
In a glum first half financial report, the FTSE 250 company said the decline reflects a “low order intake in recent years” and that profits would fall in the second half of the year amid shrinking margins and a drop in oil prices.
Based in Jersey, Petrofac employs 11,500 people and operates from cities including Aberdeen, Delhi, Abu Dhabi and Saudi Arabia.
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The figures
Core profit fell to $305m (£248.4m) for the first six months of the year, an 8.7 per cent drop. When factoring in exceptional items, Petrofac’s net profit was $139m, up from a $17m loss at the same point last year.
Revenue rose 1.3 per cent to $2.8bn, while it had a net cash position of $69m. The interim dividend has been set at 12.7 cents per share.
Why it’s interesting
The firm said in June that it had not won any of the $10bn-worth of work it had competed for in Saudi Arabia and Iraq at the start of the year, after the markets were included in the SFO’s corruption probe. It would normally have expected to win around $2bn to $3bn of this.
Petrofac said it had won $2bn in new contracts over the first half, compared to $5bn in 2018 as a whole.
Nicholas Hyett, Equity Analyst at Hargreaves Lansdown: “So far Petrofac’s been making the most of a tough situation. Revenues have held up despite the ever shrinking order book, and good cost management has kept margins relatively healthy.
“Unfortunately less business coming down the pipeline is starting to constrict management’s room for manoeuvre, and that’s made for a pretty gloomy outlook statement. Unless the group can start reeling in new business, it could be the first of several.”
Clients have been concerned since the SFO announced in February that Petrofac former head of sales David Lufkin had pleaded guilty to 11 counts of bribery after making “corrupt offers” to influence contract awarding in Saudi Arabia and Iraq.
Petrofac said: “No charges have been brought against Petrofac, or any officers or current employees.
“Petrofac continues to engage with the SFO and will respond to any further developments as appropriate. We are focused on bringing this matter to closure as quickly as possible and believe this is in the best interests of all stakeholders.”
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What Petrofac said
Chief executive Ayman Asfari said: “New order intake year to date has been impacted by recent challenges in Saudi Arabia and Iraq.
“We remain committed to our strategy of delivering best-in-class execution for our clients and enhancing returns for our shareholders by reducing costs, driving digitalisation, increasing local content, improving cash conversion and divesting non-core assets.
“These ongoing initiatives will improve our competitiveness in core and growth markets, as well as best position the business for a return to growth in the medium-term.”