Petrofac (LON: PFC) has warned of losses from “onerous” contracts in its Engineering and Construction division (E&C) in its upcoming half-year results.
The London-listed firm has built its order book significantly in the last six months, increasing group backlog to $5.6bn ($3.4bn as of Dec 31, 2022).
Its powerful E&C division’s backlog is now $3.5bn – more than doubling its $1.6bn level from December.
However, short-term issues continue to dent the earnings.
First half revenues from E&C are expected to be around $500m “reflecting lower levels of activity due to lower opening backlog compared with the prior year”.
The division is expected to report “a first half EBIT loss of approximately 10%” said Petrofac, comprising an operating loss and one-off write-downs of more than $50m.
These reflect the continued impact of “onerous contracts with no margin recognition and adverse operating leverage due to low levels of activity,” said the energy services firm, adding it is focused on closing out legacy contracts.
Five of the remaining eight are expected to be completed during the second half of the year or early in 2024.
It comes after Petrofac’s 2022 results were $310m net loss for the year – worse off than 2021’s $245m deficit – on a dip in revenues of $2.59bn, compared to the prior period’s $3.03bn.
E&C challenges were blamed for the performance.
Other divisions
Elsewhere, the firm said its asset solutions business will see order intake of around $1bn, its New Energies arm has “continued to secure further early-stage awards”, while Integrated Energy Services is to be aligned with guidance from April.
Net debt is expected to increase in Q2 as it targets a reduction in working capital, with debt to reduce by year end.
CEO Tareq Kawash said: “In the first six months of the year we have announced over three and a half billion dollars in new work across E&C and Asset Solutions, in both the traditional and new energy sectors, and continue to pursue a strong pipeline of future opportunities in core geographies.
“By further progressing our plans to strengthen the financial position of the Group by unlocking the working capital built up through the pandemic, and building on the momentum of the significant awards won in the first half, we are focused on delivering Petrofac’s potential.
“We have an exceptional EPC and Operations capability that is well positioned to deliver and support critical energy infrastructure for the world’s leading resource holders.”
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