Petrofac Regulatory News (PFC)

18 Sep 2006 07:01

Petrofac Limited18 September 2006 PETROFAC LIMITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 Petrofac Limited (Petrofac, the group or the Company), a leading internationalprovider of facilities solutions to the oil & gas production and processingindustry, today announces its interim results for the six months ended 30 June2006. FINANCIAL HIGHLIGHTS* • Revenue up 34% to US$927 million (2005: US$692 million) • EBITDA(1) up 63% to US$88.8 million (2005: US$54.3 million) • Net profit(2) up 67% to US$52.6 million (2005: US$31.5 million) • First half order intake(3) of $1 billion with backlog(4) of US$3.3 billion at 30 June 2006 (31 December 2005: US$3.2 billion) • Earnings per share (diluted) up 60% to 15.23 cents (2005: 9.50 cents) • Interim dividend of 2.40 cents per ordinary share * continuing operations Commenting on the results, Ayman Asfari, Petrofac's Group Chief Executive, said: "I am delighted to be able to report that Petrofac has continued to perform wellin the first half 2006 with strong growth in revenue and profits. With theprevailing positive market conditions, we believe the group is well positionedto benefit from the continuing strong demand for oil & gas services." For further information, contact: Petrofac Limited +44 (0) 20 7811 4900Ayman Asfari, Group Chief ExecutiveKeith Roberts, Chief Financial OfficerRobin Caiger, Head of Investor Relations Bell Pottinger Corporate & Financial +44 (0) 20 7861 3232Ann-marie WilkinsonGeoff Callow Notes (1) EBITDA means earnings before interest, tax, depreciation and amortisationand is calculated as profit from continuing operations before tax and netfinance costs adjusted to add back charges for depreciation, amortisation andimpairment. (2) Net profit for the period attributable to Petrofac Limited shareholders. (3) Order intake comprises new contracts awarded, growth in scope of existingcontracts and the rolling increment attributable to contracts which extendbeyond five years. Order intake is not an audited measure. (4) Backlog consists of the estimated revenue attributable to the uncompletedportion of lump-sum engineering, procurement and construction contracts andvariation orders plus, with regard to engineering services and facilitiesmanagement contracts, the estimated revenue attributable to the lesser of theremaining term of the contract and, in the case of life-of-field facilitiesmanagement contracts, five years. The group uses this key performance indicatoras a measure of the visibility of future earnings. Backlog is not an auditedmeasure. THE FOLLOWING IS AN EXTRACT FROM THE GROUP'S INTERIM CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 BUSINESS REVIEW Results We are pleased to report that the group has continued to perform well in thefirst half of 2006 with strong growth in revenue and profit. In the six months ended 30 June 2006, revenue increased by 34% to US$926.9million compared to the corresponding period in 2005 (2005: US$692.4 million).EBITDA increased by 63% to US$88.8 million (2005: US$54.3 million) and netprofit increased by 67% to US$52.6 million (2005: US$31.5 million). Thisprimarily reflects revenue growth in the Engineering & Construction andOperations Services divisions and margin enhancement in the Engineering &Construction division. The tax charge for the six months ended 30 June 2006 of US$21.9 million (2005 asrestated, see note 5: US$6.2 million) is based on the anticipated divisionaleffective tax rates for the year ending 31 December 2006 and results in aneffective tax rate for the period of 29.4% (2005: 16.5%). The principal reasonfor the increase in the effective tax rate was the recognition in the 2005forecast full year effective tax rate of a tax credit of US$7.6 million for taxlosses in the holding company of the group's Malaysian upstream investment,following approval of the field development plan. Net interest payable for the period decreased to US$0.7 million (2005: US$3.4million) due to higher average cash balances and reduced interest-bearing loansand borrowings. The net operating cash flow in the period was US$186.6 million (2005: US$12.1million), representing 210.0% of EBITDA (2005: 22.4%). The group's net cashincreased to US$261.4 million at 30 June 2006 (31 December 2005: US$102.0million) as a result of profits generated and a decrease in net working capitalutilised during the period. The net contract related working capital balances at30 June 2006 were significantly higher than at 31 December 2005 as a result ofthe increased levels of business activity in the first half of the year. Thefavourable net working capital movement arose principally from advance paymentsmade by customers on long term engineering and construction contracts.Interest-bearing loans and borrowings increased marginally during the period toUS$118.0 million (31 December 2005: US$106.9 million). Diluted earnings per share attributable to continuing operations for the sixmonths ended 30 June 2006 increased to 15.23 cents per share (2005: 9.50 centsper share) reflecting the group's improved profitability. During the first six months of 2006, order intake(1) across the group amountedto, in aggregate, approximately US$1.0 billion. At 30 June 2006, the group'scombined backlog for the Engineering & Construction and Operations Servicesdivisions was approximately US$3.3 billion (31 December 2005: US$3.2 billion). Dividend The Board has declared an interim dividend of 2.40 cents per share (2005 interim(pre-listing) dividend: 3.01 cents) which will be paid on 27 October 2006 toeligible shareholders on the register at 29 September 2006. (1) Order intake comprises new contracts awarded, growth in scope of existing contracts and the rolling increment attributable to contracts which extend beyond five years. Order intake is not an audited measure. Segmental review US$'000 Revenue Operating Net profit EBITDA For the 6 months profitended 30 June 2006 2005 2006 2005 2006 2005 2006 2005 Engineering & Construction 578,958 398,987 55,694 22,867 44,320 21,669 60,671 28,055Operations Services 325,337 279,668 12,296 12,391 7,203 7,544 14,007 13,296Resources 23,113 22,572 7,550 8,769 3,898 8,109 14,745 15,730Consolidation & elimination (469) (8,817) (373) (2,946) (2,859) (5,866) (579) (2,735) ------------------------------------------------------------------ Group 926,939 692,410 75,167 41,081 52,562 31,456 88,844 54,346 Growth / margin analysis Revenue growth Operating Net margin EBITDA margin For the 6 months marginended 30 June 2006 2005 2006 2005 2006 2005 2006 2005 Engineering & Construction 45.1% 111.9% 9.6% 5.7% 7.7% 5.4% 10.5% 7.0%Operations Services 16.3% 41.8% 3.8% 4.4% 2.2% 2.7% 4.3% 4.8%Resources 2.4% 4.7% 32.7% 38.8% 16.9% 35.9% 63.8% 69.7%Group 33.9% 71.8% 8.1% 5.9% 5.7% 4.5% 9.6% 7.8% Engineering & Construction Given the significant value of contracts awarded towards the end of 2005, thefocus of the Engineering & Construction division has been on the mobilisation ofthese projects and on the execution of other projects in hand. In the Middle East, contracts for Qatar Petroleum and Kuwait Oil Company(northern oil export system) are substantially complete and we are making goodprogress with our more recent award with KOC (facilities upgrade project) andwith the Kauther and Harweel projects in Oman. We continue to see a high levelof activity in the Former Soviet Union, particularly in Russia and Kazakhstan.In Russia, we are progressing well with the Kovykta project management contractsand, building on our recently established engineering presence in Moscow,various engineering services projects with other clients. In Kazakhstan, theKashagan engineering and procurement contract is approaching completion withwork underway on the recently awarded related construction management contractwhilst work continues on the front-end engineering and design study for theKarachaganak fourth train. Completion of the BTC/SCP project continues toprogress in line with expectations and on a fully reimbursable basis. Our strong operational performance has increased divisional revenue by 45% toUS$579.0 million (2005: US$399.0 million) and net profit by 104% to US$44.3million (2005: US$21.7 million), representing a net margin of 7.7% (2005: 5.4%).The increase in margin reflects the timing of profit recognition and increasedprofitability of lump-sum EPC contracts. The division's backlog at 30 June 2006was US$1.6 billion (31 December 2005: US$2.1 billion). While the division continues to focus on the successful execution of projects inhand, we are pursuing opportunities for new business on a selective basis in ourcore regional markets with various contracts currently scheduled to be awardedduring the remainder of 2006 and into next year. Operations Services Our facilities management and training businesses continue to trade well in thebuoyant UK oil & gas market. During the first half of the year, we signedoperations support contracts with CNR International and Marathon and secured afurther twelve month renewal of our contract with Maersk Oil. We were alsoawarded a small life-of-field service operator contract by Helix Energy Servicesfor a normally unmanned installation in the Camelot field. Petrofac Brownfield,which provides maintenance and modifications engineering services, has continuedits significant growth and now employs over 500 staff, three times that of ayear ago, and has projects underway for a variety of clients including LundinPetroleum, Marathon and Talisman Energy. Our international facilities managementbusiness continued to perform in line with our expectations during the periodwith contracts in hand in Kuwait, Iran, Sudan and Papua New Guinea and also nowin Equatorial Guinea as part of the Marathon contract referred to earlier. The training business continues to perform well in the UK and the servicesoffered were further strengthened during the period with the opening of RubiconResponse's integrated Emergency Response Service Centre (ERSC) in Aberdeen. Wecontinue to make steady progress internationally with recent awards in the Gulfof Mexico and the acquisition of a small Sakhalin-based training business. Divisional revenue for the period increased by 16% to US$325.3 million (2005:US$279.7 million) reflecting new business and increased pass-through revenue,while net profit, at US$7.2 million (2005: US$7.5 million), was marginally lowerthan the corresponding period last year, due principally to leasing costsassociated with new offices as the division invests for further growth. Thelower margin reflects both these additional costs and the increase inpass-through revenue. The division's backlog increased to a record US$1.7billion at 30 June 2006 (31 December 2005: US$1.1 billion). In August 2006, we announced that our international facilities managementbusiness had signed a service operator contract with Dubai PetroleumEstablishment (DPE), wholly-owned by the Government of Dubai, for the provisionof well and facilities management services to Dubai's offshore oil & gas assets.The transition process has commenced and we will take full responsibility forthese operations from April 2007. The award of this major contract was as aresult of significant investment over a number of years in our internationalbusiness development activities and represents a material increase in scale forthe international Operations Services business. Resources The Resources division's operational assets, Ohanet and the KPC refinery,performed well during the period and in line with our expectations. Divisionalrevenue increased marginally to US$23.1 million (2005: US$22.6 million) on asimilar portfolio of assets. Net profit for the period was US$3.9 million (2005:US$8.1 million). Net profit reported for the first half of 2005 reflected aforecast full year effective tax rate which included recognition of an incometax credit of US$7.6 million, of which US$3.5 million was recognised in thefirst half of 2005, from tax losses in the holding company of our Malaysianinvestment. We continue to make good progress with the development of the Cendor field inBlock PM304, Malaysia, proceeding on schedule and within budget. The mobileoffshore production and drilling units are on station and, with drillingunderway, commercial production is due to commence during the second half of theyear. With regard to our UKCS interests, work is progressing well on the fielddevelopment plan for blocks 211/18a and 211/18c in the West Don field, which wasacquired earlier in the year, and we increased our interest in Block 9/28a partB (containing the Crawford Field) from 5.58% to 29%, assuming operatorship ofthe field. Outlook Market conditions continue to be strong and we believe are likely to remain soas the relative under-investment in the oil & gas industry in recent years isaddressed through long-term programmes of capital expenditure by our clients. With a continuing focus on project execution, our Engineering & Constructiondivision is well positioned to maintain its strong financial performance andgenerate an improving net margin, in particular as existing lump-sum contractsnear completion during the remainder of 2006. We continue to see strong demandfor our services which has allowed us to be more selective in our biddingactivity, targeting contracts due for award in the second half of this year. Our Operations Services division has achieved significant growth in recent yearsand, following the investment made in the first half of this year, is wellplaced to deliver full year performance in line with our expectations. Lookingfurther ahead, the recent award of the service operator contract by DPE shouldmake an important contribution to the division's growth from April 2007. The principal focus of our Resources division has been to bring the Cendordevelopment to production and to progress our other investments which arecurrently under development. We continue to appraise a range of newopportunities, both in upstream assets and energy infrastructure, which willleverage our capabilities in facilities engineering and operational management,and are confident of expanding our investment portfolio in the coming months. The importance of having the right people in support of contract executioncannot be overstated and is key to generating a strong and sustainable financialreturn. We now have approaching 8,000 employees, compared to less than 5,000only a year ago, and are well placed to continue to capitalise on opportunitiesfor further growth through our established presence, in particular in the MiddleEast and India, and our commitment to employee share ownership. We believe the group is well positioned to benefit from our clients' increaseddemand for services and to deliver another year of strong growth. Rodney Chase Ayman AsfariChairman Group Chief Executive INTERIM CONDENSED CONSOLIDATED INCOME STATEMENTFor the six months ended 30 June 2006 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited Notes US$'000 US$'000 US$'000 Continuing operations Revenue 3 926,939 692,410 1,485,472 Cost of sales 4 (809,660) (618,197) (1,324,673) -------------------------------------- Gross profit 117,279 74,213 160,799 Selling, general and administration expenses (42,438) (34,073) (74,928)Other income 829 2,819 5,223Other expenses (503) (1,878) (2,491) -------------------------------------- Profit from continuing operationsbefore taxand net finance costs 75,167 41,081 88,603 Finance costs (3,552) (4,786) (8,448)Finance income 2,870 1,389 3,193 -------------------------------------- Profit before tax 74,485 37,684 83,348 Income tax (expense)/income - UK (4,329) 525 (7,106) - Overseas (17,546) (6,753) (845) -------------------------------------- 5 (21,875) (6,228) (7,951) -------------------------------------- Profit for the period from continuing operations 52,610 31,456 75,397 Discontinued operations Loss for the period from discontinued operations (49) (202) (815) -------------------------------------- Profit for the period 52,561 31,254 74,582 ====================================== Attributable to:Petrofac Limited shareholders 52,513 31,254 74,582Minority interests 48 - - -------------------------------------- 52,561 31,254 74,582 ====================================== Earnings per share (US cents) 6 From continuing and discontinuedoperations:- Basic 15.25 10.90 24.52- Diluted 15.21 9.44 22.17 From continuing operations:- Basic 15.26 10.97 24.79- Diluted 15.23 9.50 22.41 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETAt 30 June 2006 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited Notes US$'000 US$'000 US$'000ASSETSNon-current assetsProperty, plant and equipment 9 125,294 123,806 120,431Goodwill 10 53,361 49,631 49,183Intangible assets 11 12,532 372 2,982Available-for-sale financial assets 4,379 2,273 2,413Other financial assets 906 4,533 680Deferred income tax assets 5,885 2,094 5,576 ------------------------------------- 202,357 182,709 181,265 ------------------------------------- Current assetsInventories 1,109 1,635 1,156Work in progress 354,389 153,609 235,047Trade and other receivables 278,802 222,186 325,716Due from related parties 16 20,177 31,490 28,402Other financial assets 12 14,497 10,105 4,501Cash and short-term deposits 379,338 141,427 208,896 ------------------------------------- 1,048,312 560,452 803,718 -------------------------------------Assets of discontinued operation classified as held for sale 1,667 1,914 1,667 ------------------------------------- TOTAL ASSETS 1,252,336 745,075 986,650 ===================================== EQUITY AND LIABILITIESEquity attributable to Petrofac LimitedshareholdersShare capital 8,629 7,184 8,629Share premium 66,210 29,219 66,210Capital redemption reserve 10,881 10,881 10,881Treasury shares 14 (8,144) - (17)Other reserves 16,476 (5,516) (12,426)Retained earnings 167,938 87,179 121,850 ------------------------------------ 261,990 128,947 195,127Minority interests 257 - - ------------------------------------ TOTAL EQUITY 262,247 128,947 195,127 ------------------------------------ Non-current liabilitiesInterest-bearing loans and borrowings 74,212 85,717 76,187Provisions 9,723 6,934 8,284Other financial liabilities 10,577 6,381 1,222Deferred income tax liabilities 2,659 2,922 3,121 ------------------------------------ 97,171 101,954 88,814 ------------------------------------ Current liabilitiesTrade and other payables 226,082 146,242 219,425Due to related parties 16 110 1,526 1,335Interest-bearing loans and borrowings 43,739 69,308 30,683Other financial liabilities 12 5,494 5,920 15,810Income tax payable 19,724 4,937 2,210Billings in excess of cost and estimated earnings 130,370 15,922 69,776Accrued contract expenses 467,399 270,319 363,470 ------------------------------------- 892,918 514,174 702,709 ------------------------------------- TOTAL LIABILITIES 990,089 616,128 791,523 ------------------------------------- TOTAL EQUITY AND LIABILITIES 1,252,336 745,075 986,650 ===================================== INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2006 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 OPERATING ACTIVITIESNet profit/(loss) before income taxes andminority interest:Continuing operations 74,485 37,684 83,348Discontinued operations (49) (202) (815) ------------------------------------- 74,436 37,482 82,533Adjustments for:Depreciation, amortisation and impairment 13,677 13,265 27,281Share-based payments 315 - 897Difference between end-of-servicebenefits paidand amounts recognised in the income statement 1,439 1,022 2,372Finance costs, net 682 3,350 5,195Gain on disposal of investments - (1,819) (2,390)Gain on disposal of property, plant and equipment (6,605) (119) (271)Other non-cash items, net 816 (454) (1,755) -------------------------------------- Operating profit before working capital changes 84,760 52,727 113,862 Trade and other receivables 48,349 (3,264) (106,794)Work in progress (119,342) (44,572) (126,010)Due from related parties 8,225 (10,601) (7,513)Inventories 47 67 546Current financial assets 348 9,457 15,121Trade and other payables 9,355 (12,173) 61,010Billings in excess of cost and estimated earnings 60,594 (56,233) (2,379)Accrued contract expenses 103,929 91,311 184,462Due to related parties (1,225) 73 (118)Current financial liabilities (193) (266) 4,261 -------------------------------------- 194,847 26,526 136,448Other non-current items, net 69 (1,645) (4,022) -------------------------------------- Cash generated from operations 194,916 24,881 132,426 Interest paid (3,331) (5,296) (9,097)Income taxes paid, net (5,542) (7,548) (15,085) -------------------------------------- Net cash flows from operating activities 186,043 12,037 108,244 -------------------------------------- Of which discontinued operations (537) (112) (619) 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited Notes US$'000 US$'000 US$'000 INVESTING ACTIVITIESPurchase of property, plant and equipment (27,566) (6,257) (17,556)Acquisition of subsidiary, net of cash acquired 8 (568) (4,073) (4,073)Purchase of minority interest - - (1,644)Purchase of intangible oil & gas assets (1,137) (372) (3,079)Purchase of available-for-sale financial assets (501) (691) (691)Proceeds from disposal of property,plant andequipment 16,575 1,955 647Proceeds from disposal of assets ofdiscontinuedoperation classified as held for sale - - 1,832Proceeds from disposal ofavailable-for-sale financialassets - 3,247 4,545Net foreign exchange differences 2,480 474 (135)Interest received 2,054 2,060 3,442 ----------------------------------- Net cash flows used in investing activities (8,663) (3,657) (16,712) ----------------------------------- Of which discontinued operations 2 1,895 1,892 FINANCING ACTIVITIESProceeds from interest-bearing loans and borrowings 767 20,347 28,339 Repayment of interest-bearing loans and borrowings (9,400) (31,176) (32,026)Purchase of derivative financial instruments - - (689)Shareholders loan note transactions, net 148 2,983 4,968Transactions with employee share plan, net - 655 537Treasury shares purchased 14 (8,127) - -Exercise of option to acquire group shares - (2,400) (2,400)Equity dividends paid (6,820) (6,586) (15,243) ----------------------------------- Net cash flows used in financing activities (23,432) (16,177) (16,514) ----------------------------------- Of which discontinued operations - - - NET INCREASE/(DECREASE) IN CASH ANDCASH EQUIVALENTS 153,948 (7,797) 75,018 Cash and cash equivalents at 1 January 202,841 127,823 127,823 ----------------------------------- CASH AND CASH EQUIVALENTS AT PERIODEND 13 356,789 120,026 202,841 =================================== INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2006 Attributable to shareholders of Petrofac Limited Issued Capital share Share redemption Treasury Other Retained Minority Total capital premium reserve shares reserves earnings Total interests equity US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$' 000 US$' 000 US$' 000 For the six monthsended 30 June 2006 Balance at 1 January 2006 8,629 66,210 10,881 (17) (12,426) 121,850 195,127 - 195,127 -------------------------------------------------------------------------------- Foreign currency translation - - - - 3,736 - 3,736 - 3,736 Net loss onmaturity of cashflow hedgesrecognised in income statement - - - - 5,064 - 5,064 - 5,064 Net changes in fair value ofderivatives - - - - 18,322 - 18,322 - 18,322 Changes in thefair value ofavailable-for-sale financial assets - - - - 1,465 - 1,465 - 1,465 Share-based payments charge - - - - 315 - 315 - 315 -------------------------------------------------------------------------------- Total income andexpenses for theperiodrecognised in equity - - - - 28,902 - 28,902 - 28,902 Net profit for the period - - - - - 52,513 52,513 48 52,561 -------------------------------------------------------------------------------- Total income and expenses for theperiod - - - - 28,902 52,513 81,415 48 81,463 Treasury shares (note 14) - - - (8,127) - - (8,127) - (8,127) Dividends (note 7) - - - - - (6,425) (6,425) - (6,425) Minority interests acquired (note 8) - - - - - - - 209 209 -------------------------------------------------------------------------------- Balance at 30 June 2006 (unaudited) 8,629 66,210 10,881 (8,144) 16,476 167,938 261,990 257 262,247 ================================================================================ For the six monthsended 30 June 2005 Balance at 1 January 2005 7,166 28,553 10,881 - 27,047 64,911 138,558 - 138,558 --------------------------------------------------------------------------------- Foreign currency translation - - - - (2,497) - (2,497) - (2,497) Net gain onmaturity of cashflow hedgesrecognised in income statement - - - - (9,148) - (9,148) - (9,148) Net changes in fair value ofderivatives - - - - (19,824) - (19,824) - (19,824) Changes in the -fair value ofavailable-for-sale financial assets - - - - (1,094) - (1,094) (1,094) -------------------------------------------------------------------------------- Total income andexpenses for theperiodrecognised in equity - - - - (32,563) - (32,563) - (32,563) Net profit for the period - - - - - 31,254 31,254 - 31,254 -------------------------------------------------------------------------------- Total income and expenses for theperiod - - - - (32,563) 31,254 (1,309) - (1,309) Petrofac ESOP transactions, net 18 666 - - - - 684 - 684 Exercise option to acquire groupshares - - - - - (2,400) (2,400) - (2,400) Dividends (note 7) - - - - - (6,586) (6,586) - (6,586) -------------------------------------------------------------------------------- Balance at 30 June 2005 (unaudited) 7,184 29,219 10,881 - (5,516) 87,179 128,947 - 128,947 ================================================================================ Attributable to shareholders of Petrofac Limited Issued Capital share Share redemption Treasury Other Retained capital premium reserve shares reserves earnings Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$' 000 For the year ended 31December 2005 Balance at 1 January 2005 7,166 28,553 10,881 - 27,047 64,911 138,558 -------------------------------------------------------------- Foreign currency translation - - - - (4,248) - (4,248) Net gain on maturity ofcash flow hedgesrecognised in income statement - - - - (5,628) - (5,628) Net changes in fair value of derivatives - - - - (28,549) - (28,549) Changes in the fairvalue ofavailable-for-salefinancial assets - - - - (1,048) - (1,048) -------------------------------------------------------------- Total income andexpenses for the yearrecognised in equity - - - - (39,473) - (39,473) Net profit for the year - - - - - 74,582 74,582 -------------------------------------------------------------- Total income and expenses for the year - - - - (39,473) 74,582 35,109 Petrofac ESOP transactions, net 65 1,398 - (17) - - 1,446 Conversion of debt instruments 1,398 36,259 - - - - 37,657 Exercise option to acquire group shares - - - - - (2,400) (2,400) Dividends (note 7) - - - - - (15,243) (15,243) -------------------------------------------------------------- Balance at 31 December 2005 (audited) 8,629 66,210 10,881 (17) (12,426) 121,850 195,127 ============================================================== The attached notes 1 to 16 form part of these consolidated financial statements. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFor the six months ended 30 June 2006 1 CORPORATE INFORMATION Petrofac Limited is a limited liability company registered in Jersey under theCompanies (Jersey) Law 1991 and is the holding company for the internationalgroup of Petrofac subsidiaries (together "the group"). The group's principalactivity is the provision of facilities solutions to the oil & gas productionand processing industry. The interim condensed consolidated financial statementsof the group for the six months ended 30 June 2006 were authorised for issue inaccordance with a resolution of the Board of Directors on 15 September 2006. 2 BASIS OF PREPARATION AND ACCOUNTING POLICIES Basis of preparation The condensed consolidated financial statements have been prepared on ahistorical cost basis, except for derivative financial instruments andavailable-for-sale financial assets that have been measured at fair value. Thefunctional currency of the consolidated financial statements is United Statesdollars (US$), as a significant proportion of the group's assets, liabilities,income and expenses are US$ denominated. The consolidated financial statementsare presented in US$ and all values are rounded to the nearest thousand(US$'000) except where otherwise stated. Statement of compliance The interim condensed consolidated financial statements of Petrofac Limited andall its subsidiaries have been prepared in accordance with accounting principlesgenerally accepted in the island of Jersey and, in accordance with InternationalFinancial Reporting Standard (IFRS) IAS 34 'Interim Financial Statements' and incompliance with the applicable requirements of Jersey law. They do not includeall of the information required in the full annual financial statements, andshould be read in conjunction with the consolidated financial statements of thegroup as at and for the year ended 31 December 2005. Accounting policies The accounting policies and methods of computation adopted in the preparation ofthese consolidated financial statements are consistent with those followed inthe preparation of the group's financial statements for the year ended 31December 2005, except as referred to below. The group has adopted new and revised Standards and Interpretations issued bythe International Accounting Standards Board (IASB) and the InternationalFinancial Reporting Interpretations Committee (IFRIC) of the IASB that arerelevant to its operations and effective for accounting periods beginning on orafter 1 January 2006. The principal effects of the adoption of these new andamended standards are discussed below: IFRS 6 'Exploration for and evaluation of mineral resources' The group has adopted IFRS 6 'Exploration for and evaluation of mineralresources' with effect from 1 January 2006. IFRS 6 prescribes guidelinesrelating to the measurement and recognition of exploration and evaluationexpenditures. The adoption of IFRS 6 did not affect the group's operating results or financialposition as its policy for capitalisation of acquisition and appraisalexpenditures was consistent with IFRS 6. Amendment to IAS 21 'The effects of changes in foreign exchange rates - netinvestments in foreign operations' The group adopted Amendment to IAS 21 'Net investment in foreign operations'with effect from 1 January 2005. The amendment to IAS 21 requires all exchangedifferences arising from the group's net investment in subsidiaries to be takendirectly to equity, irrespective of which group entity provides the investment. The adoption of this amendment to IAS 21 did not affect the group's operatingresults or financial position for the period ended 30 June 2005. 3 SEGMENT INFORMATION The group's primary continuing operations are organised on a worldwide basisinto three business segments: Engineering & Construction, Operations Servicesand Resources. The following tables present revenue and profit informationrelating to the group's primary business segments for the six months ended 30June 2006, six months ended 30 June 2005 and the year ended 31 December 2005.Included within the consolidation and eliminations columns are certain balances,which due to their nature, are not allocated to segments. Continuing operations Engineering Operations Consolidation Discontinued Total & & Construction Services Resources eliminations Total operations Eliminations operations Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Six months ended 30 June2006 RevenueExternal sales 578,832 324,994 23,113 - 926,939 33 - 926,972 Inter-segment sales 126 343 - (469) - - - - -------------------------------------------------------------------------------------------- Total revenue 578,958 325,337 23,113 (469) 926,939 33 - 926,972 ============================================================================================ ResultsSegmentoperatingresults 55,694 12,296 7,550 342 75,882 (51) - 75,831 Unallocatedcorporatecosts, net - - - (715) (715) - - (715) -------------------------------------------------------------------------------------------- Profit /(loss) beforetax and netfinance costs 55,694 12,296 7,550 (373) 75,167 (51) - 75,116 Finance costs (147) (1,312) (128) (1,965) (3,552) - - (3,552) Finance income 3,313 83 56 (582) 2,870 2 - 2,872 -------------------------------------------------------------------------------------------- Profit /(loss) beforeincome tax 58,860 11,067 7,478 (2,920) 74,485 (49) - 74,436 Income tax(expense)/ income (14,540) (3,816) (3,580) 61 (21,875) - - (21,875) Minority interests - (48) - - (48) - - (48) -------------------------------------------------------------------------------------------- Net profit / (loss) 44,320 7,203 3,898 (2,859) 52,562 (49) - 52,513 ============================================================================================ Other segment informationDepreciation 4,977 1,613 7,195 (206) 13,579 - - 13,579Other amortisation - 98 - - 98 - - 98 Continuing operations Engineering Operations Consolidation Discontinued Total & & Construction Services Resources eliminations Total operations Eliminations operations Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Six months ended 30 June2005 RevenueExternal sales 390,216 279,622 22,572 - 692,410 115 - 692,525 Inter-segment sales 8,771 46 - (8,817) - 115 (115) - ------------------------------------------------------------------------------------------- Total revenue 398,987 279,668 22,572 (8,817) 692,410 230 (115) 692,525 =========================================================================================== ResultsSegmentoperatingresults 22,867 12,391 8,769 392 44,419 (249) - 44,170 Unallocatedcorporatecosts, net - - - (3,338) (3,338) - - (3,338) ------------------------------------------------------------------------------------------- Profit /(loss) beforetax and netfinance costs 22,867 12,391 8,769 (2,946) 41,081 (249) - 40,832 Finance costs (126) (1,086) (708) (2,866) (4,786) - - (4,786) Finance income 1,637 41 62 (351) 1,389 47 - 1,436 ------------------------------------------------------------------------------------------- Profit /(loss) beforeincome tax 24,378 11,346 8,123 (6,163) 37,684 (202) - 37,482 Income tax(expense)/ income (2,709) (3,802) (14) 297 (6,228) - - (6,228) ------------------------------------------------------------------------------------------- Net profit / (loss) 21,669 7,544 8,109 (5,866) 31,456 (202) - 31,254 =========================================================================================== Other segment informationDepreciation 5,188 905 6,961 (316) 12,738 - - 12,738Other amortisation - - - 527 527 - - 527 Year ended 31 December2005 (audited) RevenueExternal sales 833,648 605,493 46,331 - 1,485,472 204 - 1,485,676 Inter-segment sales 24,558 (162) - (24,396) - - - - -------------------------------------------------------------------------- Total revenue 858,206 605,331 46,331 (24,396) 1,485,472 204 - 1,485,676 ========================================================================== ResultsSegmentoperatingresults 52,592 25,250 18,495 740 97,077 (875) - 96,202 Unallocatedcorporatecosts, net - - - (8,474) (8,474) - - (8,474) ------------------------------------------------------------------------- Profit /(loss) beforetax and netfinance costs 52,592 25,250 18,495 (7,734) 88,603 (875) - 87,728 Finance costs (166) (2,043) (986) (5,253) (8,448) - - (8,448) Finance income 4,023 82 129 (1,041) 3,193 60 - 3,253 -------------------------------------------------------------------------- Profit /(loss) beforeincome tax 56,449 23,289 17,638 (14,028) 83,348 (815) - 82,533 Income tax(expense)/ income (1,386) (7,711) 683 463 (7,951) - - (7,951) -------------------------------------------------------------------------- Net profit / (loss) 55,063 15,578 18,321 (13,565) 75,397 (815) - 74,582 ========================================================================== Other segment informationDepreciation 10,948 2,216 14,099 (672) 26,591 - - 26,591Other amortisation - - - 440 440 - - 440Impairment losses - - - - - 250 - 250 4 COST OF SALES Included in cost of sales for the six months ended 30 June 2006 is a US$6.5million profit on disposal of fixed assets used to undertake an engineering andconstruction contract. 5 INCOME TAX The taxation charge for the six months ended 30 June 2006 of US$21,875,000represents 29.4% of the profits before tax (June 2005: 16.5% as restated). Thecharge for the six months ended 30 June 2006 has been arrived at by applying theanticipated full year ending 31 December 2006 divisional effective tax rates(which equate to a full year group composite rate of 31.1%) to the results forthe six months ended 30 June 2006. The 30 June 2005 income tax figures have beenrestated based on the best estimate of the group's effective tax rate at thatdate rather than on the actual tax charge calculated for the discrete period ofsix months to 30 June 2005, in order to present a more comparable tax charge toa reader of the financial statements. This restatement has increased the incometax charge in the income statement by US$4,936,000, reduced the deferred incometax asset in the balance sheet by US$3,937,000 and increased the income taxliability in the balance sheet by US$999,000 . The significant increase in the interim effective tax rate is due primarily tothe impact of an income tax credit of US$7,600,000 relating to previouslyunrecognised tax losses on the Cendor project in Malaysia which were reflectedin the forecast full year effective tax rate applied to the six months ended 30June 2005. The major components of the income tax expense are as follows: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Current income taxCurrent income tax charge 22,008 10,494 13,495Adjustments in respect of current income tax of previous years 308 (292) (590) Deferred income taxRelating to origination and reversal of temporary differences (459) (3,974) (4,929)Adjustment in respect of deferred income tax of previous year 18 - (25) ------------------------------------- 21,875 6,228 7,951 ===================================== 6 EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing the net profit forthe period attributable to ordinary shareholders by the weighted average numberof ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary shareholders, after adding interest relating toconvertible share warrants, by the weighted average number of ordinary sharesoutstanding during the period, adjusted for the effects of dilutive warrants andoptions on ordinary shares. The weighted average number of ordinary shares used for calculating both basicand diluted earnings per share for the six months ended 30 June 2005 have beenrestated to reflect the Company's 40:1 share split in October 2005. The following reflects the income and share data used in calculating basic anddiluted earnings per share: 6 months 6 months Year ended ended ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Continuing and discontinued operations Net profit attributable to ordinaryshareholders for basicearnings per share 52,513 31,254 74,582 Income statement charge on variable rateunsecured loanNotes - 1,317 1,873 ------------------------------------- Net profit attributable to ordinaryshareholders for dilutedearnings per share 52,513 32,571 76,455 Continuing operations Add net loss for the period from 49 202 815 -------------------------------------discontinued operations Net profit attributable to ordinary shareholders for dilutedearnings per share 52,562 32,773 77,270 ===================================== 6 months 6 months Year ended ended ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited '000 '000 '000Weighted average number of ordinary sharesfor basicearnings per share 344,390 286,680 304,141Convertible share warrants - 55,920 39,361Ordinary share option - 2,280 1,134Unvested portion of LTIP shares - 240 166Treasury shares 770 - - -------------------------------------- Adjusted weighted average number of ordinary shares fordiluted earnings per share 345,160 345,120 344,802 ====================================== 7 DIVIDENDS All dividend per ordinary share figures below reflect the Company's 40:1 sharesplit in October 2005. 6 months 6 months Year ended ended ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000Declared and paid during the period Equity dividends on ordinary shares: Final dividend for 2004: 2.30 cents - 6,586 6,5862005 interim (pre-listing) dividend: 3.01 cents - - 8,657Final dividend for 2005:1.87 cents 6,425 - - -------------------------------------- 6,425 6,586 15,243 ====================================== The Company proposes an interim dividend of 2.40 cents per share which wasapproved by the Board on 15 September 2006 for payment on 27 October 2006. 8 ACQUISITION OF SUBSIDIARY On 28 April 2006, the group acquired a 100% interest in the share capital of PPSProcess Control and Instrumentation Services Limited (subsequently renamed, andhereafter referred to as, Petrofac (Cyprus) Limited), a company incorporated inCyprus which is also the holding company of the subsidiaries listed below. ThePetrofac (Cyprus) Limited subsidiaries provide operations and maintenancetraining on Sakhalin Island, Russia, and process control and instrumentationservices in Singapore, Malaysia and Indonesia. The total consideration for theacquisition inclusive of transaction costs of US$211,000 and earn-out provisionof US$189,000 was US$2,000,000. The consideration of US$1,600,000 (excludingtransaction costs and earn-out provision) was settled by a cash payment ofUS$527,000 and the extinguishment of receivables due from the vendor ofUS$1,073,000. The fair values of the identifiable assets and liabilities of Petrofac (Cyprus)Limited and its subsidiaries at the date of acquisition are analysed below andthese values are provisional pending final agreement with the vendor. Recognised on Carrying acquisition Value Unaudited Unaudited US$'000 US$'000 Property, plant and equipment 43 43Intangible assets (note 11) 1,561 -Trade and other receivables 619 619Income tax receivable 56 56Cash and short-term deposits 170 170 ------------------------ Total assets 2,449 888 ------------------------ Less:Trade and other payables (748) (748)Minority interest (209) 6 ------------------------ Total liabilities (957) (742) ------------------------ Fair value of net assets acquired 1,492 146 ====== Goodwill arising on acquisition (note 10) 508 -------- Consideration 2,000 ======== Cash outflow on acquisition:Cash acquired with subsidiary 170Cash paid on acquisition (527)Legal expenses paid on acquisition (211) -------- Net cash outflow on the acquisition of subsidiary (568) ======== The subsidiaries of Petrofac (Cyprus) Limited acquired by the group during theperiod were as follows: Name of Company Country of % shareholding incorporationPKT Technical Services Ltd Russia 50%PKT Training Services Ltd Russia 100%Pt PCI Indonesia Indonesia 80%Process Control and Instrumentation Services Pte Ltd Singapore 100%Process Control and Instrumentation Sendirian Berhad Malaysia 100%Sakhalin Technical Training Centre Russia 80% Intangible assets recognised on acquisition comprise customer contracts whichare being amortised over the remaining years of the contracts. From the date of acquisition, Petrofac (Cyprus) Limited has contributedUS$19,000 to the net profit for the group. If the combination had taken place atthe beginning of the year, net profit for the group for the six months ended 30June 2006 would have been US$52,591,000 and revenue from continuing operationswould have been US$928,146,000. Included in the goodwill recognised above are certain intangible assets thatcannot be individually separated and reliably measured due to their nature. 9 PROPERTY, PLANT AND EQUIPMENT During the period, the group acquired freehold land at a cost of US$5,454,000and incurred further capital expenditure of US$4,726,000 on the construction ofa new office building. 10 GOODWILL The increase in the goodwill balance in the current period represents exchangedifferences of US$3,670,000 and additional goodwill on acquisition of Petrofac(Cyprus) Limited and its subsidiaries of US$508,000 (note 8). 11 INTANGIBLE ASSETS 6 months 6 months Year ended ended ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000Intangible oil & gas assets At 1 January 2,982 6,721 6,721Additions 7,876 2,118 4,825Transferred to tangible oil & gas assets - (8,467) (8,467)Exchange difference 211 - (97) --------------------------------------- At period end 11,069 372 2,982 --------------------------------------- Other intangible assets At 1 January - - -Additions (note 8) 1,561 - -Amortisation (98) - - --------------------------------------- At period end 1,463 - - --------------------------------------- Total intangible assets 12,532 372 2,982 ======================================= Intangible oil & gas assets at 30 June 2006 relate to the group's interest inthree UK offshore oil & gas licences. On 9 February 2006, the group increased its interest in the Crawford field from5.58% to 60.88% for a consideration of US$18,580,000, consisting of cashconsideration of US$2,400,000 and a deferred consideration of up toUS$16,180,000. The group simultaneously sold 31.88% of its interest to theexisting partners in the field on the same commercial terms and conditionsassociated with the purchase of the field. The group has treated the purchaseand sale transaction as a single investment transaction based on its substanceand this forms part of the additions to intangible oil & gas assets shown above.The net consideration consists of an initial net cash payment of US$1,000,000and a net deferred contingent payment of up to US$6,743,000 for a further 23.42%interest in the field. Other intangible assets comprise the fair values of customer contracts arisingon acquisition (note 8). Customer contracts are being amortised over theremaining years of the contracts. 12 OTHER CURRENT FINANCIAL ASSETS AND LIABILITIES The movement in other current financial assets and liabilities in the period isprimarily due to changes in the fair value of derivative financial instrumentsthat the group uses to hedge its risk against foreign currency exposure onsales, purchases and borrowings that are entered into in a currency other thanUS dollars. 13 CASH AND CASH EQUIVALENTS For the purposes of the interim condensed consolidated cash flow statement, cashand cash equivalents comprise the following: 6 months 6 months Year ended ended ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Cash at bank and in hand 83,252 54,612 91,339Short term deposits 296,086 86,815 117,557Bank overdraft (22,549) (21,401) (6,055) --------------------------------------- 356,789 120,026 202,841 ======================================= 14 SHARE-BASED PAYMENTS Employee share schemes On 13 September 2005, conditional upon listing on the London Stock Exchange, theCompany approved the establishment of three new employee share schemes, aPerformance Share Plan, a Deferred Bonus Share Plan and an approved ShareIncentive Plan, further details of which can be found in the 31 December 2005Directors' Remuneration Report. During the period, the Company acquired 1,460,135 of its own shares at a cost of$8,127,000 in relation to the above share schemes. On 24 April 2006, 431,194 US$0.025 ordinary shares of the Company were awardedto participants in the Performance Share Plan and 547,980 US$0.025 matchingordinary shares were granted to members of the Deferred Bonus Share Plan. The group has recognised an expense in the income statement for the period to 30June 2006 relating to these employee share-based incentives of US$315,000. The fair value of the equity-settled awards granted during the six months ended30 June 2006 in respect of the Deferred Bonus Share Plan were estimated based onthe quoted closing market price of 353p per Company share at the date of grantwith an assumed vesting rate of 97% per annum over the three year vesting periodof the plan. The fair value of the non-performance related equity-settled awards grantedduring the six months ended 30 June 2006 representing 50% of the totalPerformance Share Plan award were estimated based on the quoted closing marketprice of 353p per Company share at the date of grant with an assumed vestingrate of 97% per annum over the three year vesting period of the plan. Theremaining 50% of these awards which are market performance based were fairvalued at 234p per share using a Monte Carlo simulation model taking intoaccount the terms and conditions of the plan rules and using the followingassumptions at the date of grant: Share price volatility 28.0%Share price correlation with comparator group 10.0%Risk-free interest rate 4.6%Expected life of share award 3 years 15 CAPITAL COMMITMENTS At 30 June 2006 the group had capital commitments of US$33,628,000 (for the yearended 31 December 2005: US$3,410,000; six months ended 30 June 2005:US$129,000). 16 RELATED PARTY TRANSACTIONS The following table provides the total amount of transactions which have beenentered into with related parties: Sales Purchases Amounts Amounts to from owed owed related related by to related related parties parties parties parties US$'000 US$'000 US$'000 US$'000 Joint ventures Six months ended 30 June 2006 (unaudited) 775 174 20,177 110 Six months ended 30 June 2005 (unaudited) 3,520 160 29,731 1,497 Year ended 31 December 2005 (audited) 8,194 2,674 28,402 1,333 Directors' Six months ended 30 June 2006 loans (unaudited) - - - - Six months ended 30 June 2005 (unaudited) - - 1,420 - Year ended 31 December 2005 (audited) - - - - Other Six months ended 30 June 2006 directors' (unaudited) - - - -interests Six months ended 30 June 2005 (unaudited) - 30 339 29 Year ended 31 December 2005 (audited) - 30 - 2 All sales to and purchases from joint ventures are made at normal market pricesand the pricing policies and terms of these transactions are approved by thegroup's management. Directors' loans comprise loans advanced to directors of the Company for thepurchase of participatory interests in ordinary shares in the Company throughthe Petrofac Executive Share Scheme which carry interest at rates between 3.4%and 3.8%, dependent on the year of grant. The loans were repaid in full duringthe second half of 2005. Other directors' interests comprise payments made to a related party forservices provided to the group by a director of the Company. Compensation of key management personnel 6 months 6 months Year ended ended ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Short-term employee benefits 1,098 970 4,249End-of-service benefits 20 22 51Share-based payments 68 55 169Fees paid to non-executive directors 198 74 266 -------------------------------------- 1,384 1,121 4,735 ====================================== INDEPENDENT REVIEW REPORT TO PETROFAC LIMITED Introduction We have been instructed by the Company to review the Interim CondensedConsolidated Financial Statements for the six months ended 30 June 2006 as setout on pages 6 to 20 and we have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data and based thereon, assessing whether theaccounting policies have been applied. A review excludes audit procedures suchas tests of controls and verification of assets, liabilities and transactions.It is substantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Ernst & Young LLPLondon15 September 2006 SHAREHOLDER INFORMATION Petrofac shares are traded on the London Stock Exchange using code 'PFC.L'. Registrar Company Secretary and registered office Capita Registrars Ogier Secretaries (Jersey) LimitedThe Registry Whiteley Chambers34 Beckenham Road Don StreetBeckenham St HelierKent BR3 4TU Jersey JE4 9WG Legal advisers to the Company As to English Law As to Jersey LawNorton Rose OgierKempson House Whiteley ChambersCamomile Street Don StreetLondon EC3A 7AN St Helier Jersey JE4 9WG Joint brokers Credit Suisse Lehman Brothers1 Cabot Square 25 Bank StreetLondon E14 4QJ London E14 5LE Auditors Corporate and financial PR Ernst & Young LLP Bell Pottinger Corporate & Financial1 More London Place 6th FloorLondon SE1 2AF Holborn Gate 330 High Holborn London WC1V 7QD Financial calendar Date Activity 29 September 2006 Interim dividend record date27 October 2006 Interim dividend payment31 December 2006 2006 financial year end5 March 2007 2006 full year results announcement The group's investor relations website can be found through www.petrofac.com. This information is provided by RNS The company news service from the London Stock Exchange