Good morning, and welcome to Petrofac's Half Year Results Presentation. Our call today is being hosted by James Boothroyd, Head of Investor Relations, Tareq Kawash, Group Chief Executive, and Afonso Reis e Sousa, Chief Financial Officer. I will now hand over to James to begin the presentation. Please go ahead.
Thank you, and good morning, everybody. Thank you for joining us today. I'm James Boothroyd, Head of Investor Relations. Our call today is being hosted by Tareq Kawash, as you just heard, and Afonso Reis e Sousa, and includes a Q&A session. In a moment, I'll hand over to Tareq, but first, I would like to point out that we have uploaded materials to the results section of our website, including the interim financial statements and a presentation deck, which you can read through alongside this call. However, we will not be walking through the slides in sequential order. I would also like to remind everyone that today's briefing and some of the questions to your answers may contain forward-looking statements. These statements reflect management's current views and involve risks and uncertainties. Please refer to slide two of the presentation for more information and the disclaimer.
I would now like to hand you over to Tareq Kawash. Tareq, over to you.
Thank you, James. Good morning, everyone. I'm Tareq Kawash, Petrofac's Group Chief Executive. I'm joined by Afonso Reis e Sousa, our Chief Financial Officer. Before I hand over to Afonso to take you through our interim 2024 financial results, I will make some opening remarks on our performance in the first half of 2024, and later, we'll then have time for some Q&A. As you all know, the first half of 2024 was set against the backdrop of a restructuring process to strengthen Petrofac's financial position and enable us to deliver on our strategy. You will have seen that on Friday evening, we announced that we have reached an in principle agreement with certain of our key stakeholders on the framework for a comprehensive financial restructure.
The financial restructure will strengthen our balance sheet and provide a capital structure and improvement in liquidity, which will support the group in executing our order backlog, our order book, and capturing future growth opportunities. It will also ensure performance security requirements are met for all Petrofac's existing backlog and provide a runway for subsequent gradual improvements in access to guarantees for new EPC contracts on normal commercial terms. We have more work to do to finalize the arrangements, but this in principle agreement is an important step forward. I'm grateful to all of our stakeholders for the support that they have shown to the business during this period. As you all appreciate, at this stage, there is not, there's not much, too much detail. Sorry.
At this stage, there is not too much more that we can say on the restructuring beyond the details given in the announcement. We are working hard to announce a lock-up agreement with final terms in the coming weeks. The court process is then expected to take approximately two months from the lock-up agreement. Now, let's move on to the results. The financial results for the first half of 2024 reflect the constraints within which the business has been operating. However, we have also made some important progress in closing out legacy contracts at E&C and securing significant new award intake and Asset Solutions. The challenges have been felt most keenly in our E&C division, reflecting the ongoing difficulties in securing guarantees and efforts closing out commercial settlements.
However, after a record year of backlog in 2023, the initial phases of those contracts are progressing well, including those for which guarantees are not yet secured. With respect to the Thai Oil Clean Fuel Project, progress continues to be made on the construction phases of the project. In Asset Solutions, we have delivered strong order intake of $0.9 billion in the first half of the year and over $1 billion for the year to date. These included an operations contract from TurkmenGaz in Turkmenistan, technical services contract for GEPetrol in Equatorial Guinea, a two-year brownfield EPC extension with ONE Gas in the U.K. North Sea, and also an important maintenance and engineering contract extension with BP in the Gulf of Mexico. Well done to the Asset Solutions team for maintaining good momentum and new awards after a strong year in 2023.
IES continued to perform well, with production lower than the first half of 2023, but in line with expectations. I will now hand over to Afonso to provide more details on the group's financial performance. Afonso?
Thank you, Tareq, and good morning, everyone. While, much of the focus from our stakeholders is on the progress of the financial restructuring, I will give you a brief rundown on the first half performance. There is also some more detailed financial information, as James mentioned, in the presentation that's available on our website, as well as in the financial statements themselves, of course. The financial performance in the first half reflected the portfolio rotation in both the E&C and the Asset Solutions divisions, with certain material contracts coming to completion and the new contracts awarded in 2023 and in the early part of 2024, starting to ramp up. Group revenue of $1.2 billion in the first half was broadly in line with the same period last year.
Revenues were higher in the E&C division, reflecting the initial impact from new contracts that were awarded in 2023. However, the portfolio rotation in Asset Solutions resulted in lower revenues than the first half of the previous year, due to the contract mix across the service lines and the timing of the start of the new contracts. IES revenues reflected the lower net production compared to the previous year, as had been anticipated, and it was also affected by a lower oil price. We reported a first half EBIT loss of $106 million, reflecting the contract portfolio transition I've just talked about, due to the lower levels of activity in the early stages of the new contracts awarded in 2023.
Reflecting also the impact of further unrecovered costs in certain of the E&C legacy portfolio, as well as the amortization's operating leverage. Turning now to the balance sheet and liquidity. In the first six months of the year, free cash outflow was $36 million, which includes $17 million of interest payments. As you know, we have since stopped making interest payments with the standstill agreement of our creditors, pending the implementation of the financial restructure. As you also know, we have been managing our operational cash flows carefully in order to maintain liquidity throughout the period. We've been matching our collections and payments, with a special focus on collecting some of the historical working capital that had built up during COVID.
As a result of this cash flow management, net debt at the half year was only marginally higher than at year-end, at $632 million. We continue to manage our group's payment obligations under our borrowing facilities, as well as other contractual obligations, with the support of our creditors. Backlog remained broadly flat since the year-end, albeit Asset Solutions secured new order intake of $4.9 billion, a book-to-bill ratio of 1.4x in the first half, and as Tareq has pointed out, we announced that we've reached an in principle agreement with certain of our key stakeholders for the framework for a comprehensive financial restructure. As you'll be aware, and as we have communicated before, this is a hugely complex process, with interconditional agreements required from multiple stakeholders, as well as shareholder approvals and a court process to implement.
Not without risks, and we've been transparent about those in our announcements and disclosures. Nevertheless, Friday's announcement represents a significant step forward, and the board and management are absolutely focused on progressing and concluding the financial restructure, and with that, I will now hand you back to Tareq.
Yeah. Thank you, Afonso. As we have made clear, the outlook for the business is predicated on successful completion of the financial restructuring, which is a key focus over the coming weeks and months. The group's backlog at 3Q in 2024 was $8 billion, and our pipeline of opportunities is large, at $53 billion of contracts due for award over the coming 18 months. With a supportive client base and strong position in our core markets following completion of the financial restructure, I remain confident that we can rebuild backlog and take advantage of the robust fundamentals of the markets we operate in. I would like to thank all our people around the world for their ongoing and relentless focus on delivering safely and effectively to our customers at this important time.
I would also like to note again our gratitude for the continued support from all our stakeholders as we work to deliver a more positive future for Petrofac. With that, we'll open for Q&A.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad, and please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press star two. Again, it is star one to ask a question. I will take our first question from Christian Hinderaker from Goldman Sachs. Please go ahead.
Yes, good morning, everyone, and thanks for the opportunity to ask a question. I'd like to start maybe with the pipeline that you mentioned, I think $44 billion in E&C. Just curious, given the, well, sort of financial challenges in terms of securing funding, have you had, any shift that you've noticed in terms of customer discussions around that pipeline, market share, loss, you know, how customers are perceiving, the group given the, financial dynamics? Thanks.
Yeah. Thank you, Christian, for your question. I mean, the markets we operate in remain robust. As I said, we operate essentially in three markets: the OpEx market, which is the Asset Solutions business, the Energy Transition business, which is primarily offshore wind, and an E&C market, which is currently mainly dominated by Middle East and North Africa. As we announced earlier, as part of the restructuring process, we've engaged with our key clients, and I've spent a lot of time with our key clients over the last few months. Those clients have a significant number of opportunities that they're bringing to market.
They have a large CapEx spend, and as I said, we are very well positioned to rebuild the backlog with those key clients once the restructuring process is complete. We are, you know, have been able to be quite differentiated in the markets that we or the type of projects we go after, and we've been quite selective, and I feel quite confident that the projects that we have or we're pursuing are projects that we can deliver on. So as I said, I still remain confident that we can rebuild our backlog once the restructure is complete.
And in the interim, we are getting support from those key clients on our existing backlog, going forward.
Understood. Thank you.
The last thing I would add, I mean, is really on Asset Solutions. It's a business that doesn't require guarantees, and as I said earlier in the prepared remarks, we've booked over $1 billion to date, and we're in a good position to reach our target bookings for Asset Solutions by the end of this year.
Thank you, Tareq. Can I ask maybe just follow up on the operations? I mean, in terms of the cost dynamics, I guess particularly labor content, how trends are in that side of the business, and then also on the cost side, and whether there's been any sort of operational overruns as a function of the sort of restructuring efforts in terms of projects. I know you mentioned the Thai fuel contract, but whether there's been any other further inflationary-led cost ramps on projects, be great to know. Thanks.
Yeah, no, thanks for the question. So as Afonso said, we have, you know, we have kind of legacy contracts, which we're working hard to close out, and those are really pending contractual and commercial settlements, and are not really impacted by any inflationary type events. So those are, you know, we're working hard to close out and make progress on those, and we continue to do that. On the new backlog, those, the new backlog is performing well.
And, I would say that, you know, we don't see any big movements in inflation or any cost of labor that has impact on those, on the new backlog. So, the new backlog is performing well, going forward. With regards to the cost of the restructuring, maybe Afonso, you could cover that one.
Yeah. Look, clearly there is a significant amount of costs that we are incurring as part of the restructure, and we will disclose those in full at the end of it. But that's being funded from the center. It's not affecting contracts specifically. And then on operations, I think it's fair to say that the longer this goes and you know, our funding position and liquidity position, it does mean that some contracts are dragging for a bit longer than we would have liked, and hopefully now we can move to conclude them as quickly as possible.
Understood. Thank you.
Yep.
Thank you. As a reminder, to ask a question, please press star one. The next question comes from Mark Wilson, from Jefferies. Please go ahead.
Hi, good morning, gentlemen. My first question is just to understand the cash calls on the business. As I understood it, it looks like there's just over $200 million of maturing bonds or debt by the end of October, and you speak to $400 million of performance guarantees that you were looking to cover, but you highlight $100 million specifically within that. So I just wonder what is the overall amount of financing you would be looking to cover in this process. That's my first question.
Yes, I think, thank you for the opportunity to also clarify, perhaps, if it wasn't completely clear. The $400 million referred to was a figure we mentioned before, back in May when we published our full year accounts. What we have done, and it's described in some detail in the announcement on Friday, is that we have worked with our clients, to find alternative ways of securing the performance, of those contracts without requiring that level of guarantees. And so part of that revised restructuring plan, we're looking only for approximately $100 million to cover the restructuring.
In terms of liquidity of hard funding, not guarantees, but hard funding, I think what we said is we're expecting the funding to be in line with what was previously disclosed. If you recall, there was up to $200 million of funding and $100 million of credit support. So that, there's a sort of level of amounts that you should be expecting.
Okay. Thank you, and then could I move on to the TenneT offshore wind contracts? These are probably the largest, most visible of the awards you won last year. Could you give us first off on the ground what is happening with the first of those, the Alpha, and then whether the second is moving forward and specifically, and then if there is any change to the overall expectation of the client within a framework of six, because there has been a lot of changes to the overall offshore wind market in the time since they were announced, so that'd be interesting to know. Thank you.
Thanks for your question. You're right, the TenneT framework agreement is a key part of our backlog. I mean, just to remind everyone, the announcement we made regarding TenneT was a framework of six platforms in partnership with Hitachi. Two of those platforms are currently in backlog and they're in execution. These are design one, build many, so they called off the first one over a year ago, and then the second one. We continue to progress well on those contracts. We are obviously very much engaged with TenneT and our partner, Hitachi, on the execution of those contracts.
There are four more platforms to be called off as part of the framework agreement, and we expect those to be called off in the next couple of years in line with the range of the framework agreement. There is, you know, in terms of timing, as part of the framework, there is some flexibility on timing of when TenneT calls off those platforms, but currently, we don't foresee any changes to the principles of the framework. That's what we signed up to last year.
Very good. And if I may just ask a final one, just is there any expectation of sales of non-core assets within the restructuring still planned? And as a last point, I'm just wondering, any progress on the Saudi bidder status, and has there been any move on that? And those are my questions. Thank you.
I'll address the Saudi one, then I'll ask Afonso to address the non-core assets. On the Saudi business, I mean, currently the business plan and the figures that we've quoted as a pipeline of opportunities exclude Saudi Arabia, and we continue to work to try to get reinstated in Saudi Arabia, and I don't want to commit to a timeline today, but it's a part of my focus, and I've spent a lot of my career working in Saudi, and so I'll continue to focus to get us reinstated, but currently, the business plan that we have and the numbers we've shared are excluding Saudi Arabia.
On non-core assets, the key one, of course, is the PM304 asset in Malaysia. As a reminder, we have an operated interest in that field. We have progressed that sales process. We have received offers, and I think within Q4, we should be in a position to make a determination and a decision as to whether or not we wish to proceed with that sale or retain the asset into its maturity. So, yes, there has been progress, but no final decisions have been taken yet. We also have, as you probably know, a 10% stake in the JSD6000 vessel, which is now operational and has been leased.
Again, that is not something we expect to dispose in the very near future, but it's something that we probably won't keep long term.
Okay, thank you very much. I'll hand it over.
Thank you. Our next question comes from Guillaume Delaby from Bernstein. Please go ahead.
Yes, good morning. Two highly specific questions. So not sure I'm going to get a highly specific answer. The first one is on the Thai Oil project. I'm a little bit confused. First question, where are we in the execution of the contract? Do you know when it will be completed, or can we have a reasonable timeframe about when it can be completed? And I read in the press release that you are trying to get some compensation from the client. This might not be the right term, but can you come back on that? And regarding what you just said, regarding the JSD6000, which I believe is leased to Saipem, can you repeat exactly what you said? So yeah, you do not intend to keep it for. Yeah. Those are my two questions.
Yeah, I'll address the first question on Thai Oil. I mean, the project itself is in the construction phase. So, essentially what that means is engineering procurement activities are essentially complete, and we're in the construction phase, along with our joint venture partners. In the first six months of this year, we were able to achieve the interim milestones that we had agreed with our client. And with regards to a settlement, I mean, we continue to be in discussion with the customer. I mean, these are obviously difficult discussions and negotiations.
It's a complex project, and we continue to be in discussions with, jointly with our joint venture partners and Thai Oil, to reach a settlement.
Maybe a follow-up. As we are in the construction phase, so maybe, of course, you're not going to commit yourself, but should we assume, or is it a reasonable assumption to say that this project might be completed, I don't know, by the end of 2025, for example?
It's not 2025 , but at this point, we're... As part of the settlement discussions with the customer, which includes compensation and schedule, that's a live discussion at this point. So, I won't comment further on that.
And then to the JSD6000, you asked me to repeat. So what I said is that we're not going to, not planning to be long-term holders of that asset. But at the moment, there are no plans to dispose of it in the immediate future.
Very clear. Thank you very much, I turn it over.
Thank you. And it looks like there are currently no further questions in the phone queue. Please, I'd like to hand the call over to James for any back questions. James?
Thank you. I've had a couple of questions that have come in online. So the first one being, what potential risks are there from not funding the joint operations?
I think we-- I'm just pausing to make sure that I don't give away too much information. But look, clearly, this is being done with the full knowledge of our partners in those joint operations. I think our difficult financial position is not a surprise to anyone. We've been transparent with our partners from the beginning of the year about our financials and the absolute requirement of going through the financial restructure. So the consequences are manageable for a period of time because people understand that this is a temporary solution, a temporary issue that will be resolved once we do our restructuring.
Thank you. There's also a question from an ordinary shareholder asking for some assurance that ordinary shareholders will not be sacrificed in the restructure. Are you able to comment on that?
I think we've acknowledged, and for some time, that part of the restructuring will involve an equitization of debt, and also that there will be some raising of new equity, both of which will be dilutive events to our shareholders, which we understand and welcome, but it is a necessary element of our restructuring. Of course, all of our shareholders will be treated equally in terms of the dilution.
Thank you. I think that's all the questions we have online for now.
Great. And that-
But before we dial up, I just want to reiterate that, we hope to take the momentum from Friday's announcement to secure the lock-up agreement in the coming weeks, and I look forward to keeping you informed of progress as we move forward. So thank you, again, for your time today.
Thank you, Serkan. I'd like to thank everyone for joining the call today. As mentioned, a copy of today's presentation and other relevant materials are available on the website. We appreciate that given the state of the financial restructure, and the risks identified, you may want to delve into a little bit more detail. So please refer to the information on our website. If you have further questions, please do not hesitate to reach out to our investor relations team through the contact details on the press release. Thank you once again for joining.