An oil & gas services company providing design and build for oil and gas infrastructures; operates, maintains and manages assets and trains personnel. I have a holding in my growth portfolio (epic code: PFC)
Petrofac announced their interim results today with Sales down 12.3% to $2,794m, with the Onshore Engineering and Construction division causing the decline with revenue down by 31%.
Operating margins showed a decline in all areas, with the Group losing 213bps resulting in operating profit and diluted EPS falling by 27.5% and 25.4% to $285m and 71.24p respectively.
The order book revealed a positive trend increasing by $2.5bn from the December year-end to $14.3bn, with the majority of this increase arriving in the month of June. At the same time as the interim announcement the company also revealed a contract award totalling $95m over 3 years, from Gazprom Neft Badra B.V. on the Badra Oil Field, situated 160km southeast of Baghdad City in Iraq.
The interim dividend has been increased by 4.8% to 22c and management believe they have the ability to deliver a strong second half performance and achieve their guidance of modest growth in net profit for 2013.
They reiterated that they remain on track to achieve their 2015 earnings target, which was to double their 2010 earnings by then, i.e. to $862m. That will equate to a 10.9% CAGR over the next 3 years.
My major concern that I have expressed before, is the weak Free Cash Flow (FCF) performance. They reduced their net cash position in 2012 by £1.2bn and in these interim results turned the net cash position at the end of last year of $233m to a net debt position of $370m, due to a negative FCF of -$469m for the six month period. Short periods of FCF performance can be misleading, especially for a company in PFC's industry, but the company seem to have two weak years in any 3 year period, with the weak years becoming weaker. The company need to demonstrate a return to strong FCF this year to break this trend; over the past 18 months Petrofac have generated $0.9bn of earnings, but have consumed $1.9bn of cash.
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