On July 22, 2014, Technip’s Board of Directors approved the second quarter and first half 2014 consolidated financial statements.
Thierry Pilenko, Chairman and CEO, commented: “Technip’s second quarter was characterized by a substantial improvement in Subsea profitability, exceptionally strong order intake, and the start-up of the Yamal LNG project in Onshore/Offshore.
“These elements enable us to improve the 2014 outlook for Subsea and give details on the expected level of operating profit in Onshore/Offshore for this year. Above all, our performance this year to date confirms the long-term visibility we have in critical parts of our business.”
Second quarter performance
Subsea delivered revenue growth of 12.4%, with an operating margin at 15.3%, the top end of the indicated range. As expected, the business confirmed a sharp recovery after the low first quarter. Project activity was good across the regions, in line with normal seasonality. The Deep Blue finished offshore operations on the seven projects in the Gulf of Mexico and she and the G1200 have now commenced campaigns on newer projects there as planned. The Deep Energy started a summer installation campaign in the North Sea. The Deep Pioneer made good progress on Block 15/06 installation in Angola and Technip continued the start-up of the Acu flexible pipe plant in Brazil and the Newcastle steel tube umbilicals plant in the UK.
Onshore/Offshore delivered revenue growth of 5.4% and €73 million of operating profit, but had a more challenging second quarter. As previously indicated, rapid mobilization on Yamal LNG reduced the amount of general engineering work. In addition, whilst Technip was able to close out older projects successfully, clients have also been demonstrably slower to clear changes on other projects, reducing project progress.
As undertaken in the first quarter press release, and taking into account the first half performance, Technip updates its guidance for its two segments, as follows:
Subsea revenue expectations for 2014 are increased to between €4.6 and €4.9 billion, reflecting the positive performance of the segment in the first half. The Company makes no change to their guidance for an operating margin of at least 12%. It also makes no change to the 2015 guidance, which includes the Kaombo project, namely revenue well above €5 billion and an operating margin of 15% to 17%. Technip has an estimated €3.9 billion of business in the Subsea backlog for execution in 2015, representing around 75% revenue coverage – an unprecedentedly high level. The focus in this segment continues to be the execution of a high quality backlog to deliver improved results and therefore return on capital over 2014/2015 as previously indicated.
Onshore/Offshore revenue expectations for 2014 are increased to between €5.55 and €5.80 billion. Technip’s base case outlook implies a 5% to 6% margin for the full year 2014. There are three factors impacting the margin outlook – the continued impact of the mobilization on Yamal LNG, the expected impacts of the behavior of the customers referred to above and the risks to the business of interruptions caused by geopolitics including sanctions. If Technop’s assumptions on these issues were to prove insufficiently cautious, they estimate their margin to be about a percentage point less this year. Concerning 2015, the Company sees segment revenue slightly higher than expected at around €6 billion with stable margin versus 2014.
Outlook and strategy
Looking ahead, Technip markets continue to evolve. As before, most National Oil Companies continue to have a balanced approach between upstream and downstream investments. In addition, large international operators continue to push ahead with their higher return, production-related projects. This situation offers many opportunities to Technip given its broad geographic presence and technology strength. International operators have however been vocal that they will be more selective in their investments and are cancelling or delaying marginal projects.
As a result, they are putting pressure on their supply chain. Although some operators are working collaboratively with their supply chain, including Technip, to positive effect on cost and schedule optimization, others have yet to adopt this approach. At the same time, some contractors are entering this more uncertain period with contrasting backlogs. This could well drive some irrational behavior in bidding as Technip saw in the period 2009-2010 both upstream and downstream. Given this backdrop, and with the level and quality of backlog in mind, the Company expects to be even more selective in the bidding over the next year.
“Technip enters this period with a long duration backlog of €19.9 billion. Our flagship contracts and market positions – such as Process Technologies, PLSVs charters, pre-salt flexible pipes, large West Africa Subsea developments and Yamal LNG amongst others – give us visibility on revenue, not fully recognized in our backlog, out several years. We see opportunities to capitalize on our market presence and our technology to take new projects of various types and sizes, as evidenced by recent wins, such as the RAPID PMC project in Malaysia in June and the Edradour project in the North Sea in July. We will also pursue investments in technology and in the product supply part of our business, in order to diversify our service portfolio even further, taking advantage of the market dynamics noted above to strengthen our business.
“To conclude: long-term visibility from our backlog in both segments, improving cash flow from Subsea and capital and cost discipline over 2014/2015 will enable us to pursue our strategy of providing sustainable and predictable dividends for our shareholders, whilst broadening our industry leadership in oil & gas services to serve our clients better,” said Pilenko.
Press Release, July 24, 2014