Petrofac Ltd shares dropped on Thursday after it said that it expects to make a small loss in its Engineering & Construction business, due to cost overruns.

The Jersey-based services provider to the energy industry said that the ‘lingering impact of the pandemic’ continue to hurt the progress of its current portfolio.

Petrofac explained that these negative effects are increasing costs and deferring revenue and profit recognition to later periods.

Shares were down 4.1% at 148.20 pence each on Thursday midday in London.

The FTSE 250 company noted that its E&C business, specifically, has limited exposure to the current inflationary environment, considering that procurement is ‘substantially complete on much of the portfolio and construction is mainly based on fixed unit-rate contracts already in place.’

However, the unit is experiencing cost overruns as mature projects move towards completion, as well as some ‘unfavourable’ commercial settlements with clients.

Petrofac expects this to play out throughout 2022, with a number of projects scheduled for completion over the year and early 2023.

As a result, the company expects to make a small loss before interest and tax in its E&C business in 2022.

Overall, it also anticipates having a modest free cash outflow for the year, largely as a consequence of E&C’s performance.

‘Notwithstanding these short-term headwinds, we are confident that with high current bidding activity and strict bidding discipline, E&C will rebuild its backlog and grow its margins over the medium term,’ Petrofac said.

The company reported that its Asset Solutions and IES units have performed well in the year to date.

It also backed its medium-term outlook. This includes revenue of $4 billon to $5 billion, including roughly $1 billion from new energies, with a 6% to 8% Ebit margin and a return to a net cash position.

In 2021, the company recorded revenue of $3.06 billion.

‘We are experiencing some near-term headwinds as we complete a number of engineering, procurement and construction projects in our relatively small, mature portfolio, which will impact E&C‘s 2022 performance,’ Chief Executive Sami Iskander said.

‘However, the outlook for order intake in E&C remains robust with a diverse and active bidding pipeline, giving us confidence that we will achieve our medium-term performance ambition.’

Copyright 2022 Alliance News Limited. All Rights Reserved.