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Petrofac warns of ‘material’ impact from coronavirus

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Petrofac, the energy services company, has warned that the coronavirus pandemic and the oil price plunge have “materially impacted” trading, pushing its shares down sharply on Wednesday.

The group signalled weaker-than-expected margins at its main engineering and construction business, which works on projects from large oil refineries in the Middle East to offshore wind farms in the North Sea.

Net margins at the division would likely be 2 per cent to 2.25 per cent for the first half, versus 6.5 per cent for the first six months of 2019. Analysts at Jefferies had been expecting first-half margins of 4 per cent.

Petrofac shares dropped as much as 12 per cent.

The division has been hit by higher costs associated with the pandemic, such as not being able to easily move workers on and off projects due to travel restrictions in various geographies, the company said.

Contracts to work on Saudi Aramco’s Jazan refinery and terminal project in the Middle East, which were originally awarded to the division in 2012, also ended up being lossmaking when they were recently settled at the conclusion of the project.

The company said revenues at the engineering and construction division were likely to come in at $1.6bn for the first half, down 30 per cent year on year, as projects have also been delayed by the pandemic.

Across the whole of its business, Petrofac said it had taken $1bn of new orders in the year to date, 40 per cent lower than the same point in 2019.

The global pandemic has set back Petrofac’s efforts to rebuild after a corruption probe launched by the UK’s Serious Fraud Office in 2017 affected its ability to win contracts last year. The investigation is continuing and Petrofac provided no update on Wednesday.

The group had already taken action in April to tackle the adverse effects of the pandemic, which was compounded by the dramatic fall in oil prices earlier this year.

Petrofac suspended its dividend and said it would reduce its global workforce of 11,500 by about a fifth as it seeks to save $125m this year and up to $200m in 2021.

Ayman Asfari, chief executive, warned on Wednesday that it was “unclear how long market conditions will continue to disrupt business activity and delay [contract] awards”.

Stuart Joyner, analyst at the equity research house Redburn, called the update “disappointing” and said it would lead to further downgrades to analysts’ consensus numbers.

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