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Petrofac - Dividend held as profits and order-book slip

Nicholas Hyett | 28 February 2019 | A A A
Petrofac - Dividend held as profits and order-book slip

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Petrofac Ord USD0.02

Sell: 117.80 | Buy: 119.00 | Change -0.20 (-0.17%)
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Full Year revenues fell 8.9% in 2018 to $5.8bn, with underlying profits down 2% at $353m.

The final dividend remains unchanged at 25.3 cents per share.

The Serious Fraud Office (SFO) investigation into Petrofac remains ongoing, and no charges have been brought against the company or any current employees.

The shares fell 1.5% in early trading.

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Our view

At the start of February Petrofac's former Global Head of Sales admitted to 11 counts of bribery dating between 2012 and 2015. If allegations of complicity on Petrofac's part prove correct, then the company will face a significant cash fine. That would raise serious questions about the sustainability of the dividend.

However, a more serious problem is what might happen to the group's reputation.

Petrofac is a people business, and thrives or dives on the quality of its staff. The danger is that this announcement sparks a mass exodus. And it's unlikely to do the group any favours winning new business either.

The fact the allegations cover multiple geographies and almost half a decade only makes things worse. It suggests this could be more than one or two rogue employees.

The news will be all the more painful for investors because things had been looking up lately. A recovering oil price and strengthening of balance sheets among oil producers has seen investment in the sector creep up, and business start to flow again.

That's all up in the air now though.

Petrofac hasn't been charged with any offences, and the scale of the company's involvement, if any, is unknown. But until the situation is resolved almost everything else will have to take a back seat.

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Full Year Results

The Engineering & Construction division saw revenues fall 15%, to $4.1bn, as several projects completed during the period, with net margin falling to 7% after some cost overruns. Net profits from the division fell 21% to $285m. The group completed the sale of the JSD6000 oil rig installation vessel during the year.

Engineering & Production Services posted revenue of $1.5bn, up 6% year-on-year. Net margin remained unchanged at 6.5%, as higher taxes offset lower costs. Net profits from the division rose 7% to $96m.

Integrated Energy Services, which includes Petrofac's own managed oil fields, reported revenues of $282m, up 24% year-on-year on increased production and higher oil prices. Net profits improved significantly to $39m. The division completed three major sales during the year.

Petrofac won $5bn of new contracts during the year, and the order-book now stands at $9.6bn (2017: $10.2bn). The group believes "there is a higher degree of uncertainty in the level of awards in the near term".

The group finished the year with net cash of $90m (2017: $612m net debt) after completing $506m of disposals, improving working capital and cutting capital expenditure.

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