Technip’s Fourth Quarter and Full Year 2014 Results
Feb 18, 2015
OTC Disclosure & News Service
-
Regulatory News:
Technip (Paris:TEC) (ISIN:FR0000131708) (ADR:TKPPY):
On February 17, 2015, Technip’s Board of Directors approved the full year 2014 consolidated financial statements.
Note: In 2014, Technip applied for the first time inter alia IFRS 11 – Joint Arrangements. In its full year financial statements, Technip has incorporated the most recent interpretation of the guidelines concerning this standard issued by IFRIC in which all single project joint arrangements structured through incorporated entities can be only accounted as joint ventures. Technip will continue to report and provide forward looking information on an adjusted basis corresponding to its previous framework in order to ensure consistency and comparability between periods and projects, and to share with all market participants the financial reporting framework used for management purposes.
The full year adjusted financial statements (those generally referred to in this press release) can be found in Annex I to III. The IFRS consolidated financial statements and a reconciliation to the adjusted basis can be found in annex V.
€ million (except Dividend)
4Q 13
4Q 14
Change
FY 13
FY 14
Change
Adjusted Revenue
2,476.3
2,815.9
13.7%
9,285.1
10,724.5
15.5%
Adjusted EBITDA4
264.6
319.2
20.6%
1,052.3
1,107.9
5.3%
Adjusted EBITDA Margin
10.7%
11.3%
65bp
11.3%
10.3%
(100)bp
Adjusted OIFRA2
203.7
223.2
9.6%
834.5
824.6
(1.2)%
Adjusted Operating Margin5
8.2%
7.9%
(30)bp
9.0%
7.7%
(130)bp
Adjusted Underlying Net Income3
134.5
172.1
28.0%
563.1
564.4
0.2%
Adjusted Non-Current Items
-
(92.0)
nm
-
(127.8)
nm
Adjusted Net Income of the Parent Company
134.5
80.1
(40.4)%
563.1
436.6
(22.5)%
Net Income of the Parent Company
134.5
80.1
(40.4)%
563.1
436.6
(22.5)%
Dividend proposed per Share1 (€)
1.85
2.00
8%
Order Intake
3,226
3,227
11,124
15,296
Backlog
15,475
20,936
15,475
20,936
1 Recommendation of Technip’s Board of Directors to be approved during the Annual General Shareholders’ Meeting (AGM) on April 23, 2015.
2 Adjusted operating income from recurring activities after Income/(Loss) of Equity Affiliates.
3 Adjusted Net Income of the Parent Company before Non-Current Items.
4 Adjusted operating income from recurring activities after Income/(Loss) of Equity Affiliates before depreciation and amortization.
5 Adjusted operating income from recurring activities after Income/(Loss) of Equity Affiliates, divided by adjusted revenue.
Thierry Pilenko, Chairman and CEO, commented: “Technip starts 2015 in a strong position. During 2014, Technip won a record amount of new work with order intake of €15.3 billion resulting in a €21 billion backlog of high quality and diversified projects. Our adjusted revenue grew 16% and adjusted operating profit reached €825 million with particularly strong performance in the technology, services and equipment parts of our business. All our employees focused hard on our quality and our safety programs in 2014, with clear improvements in both areas.
Subsea delivered ahead of expectations. Operational performance was strong across all regions and we showed flexibility to adapt to client demands. With an adjusted operating margin of 15.3% in the fourth quarter we delivered 13% for the full year 2014, well ahead of the 12% floor set over a year ago. Onshore/Offshore delivered adjusted revenue higher than expected – up 12% year-on-year. Operationally, as we indicated it would be in July, conditions were challenging in a number of respects, reflected in a fall in full year adjusted OIFRA to €276 million.
In our market commentary in July 2014 we identified significant headwinds in the oil and gas services business – client capex discipline and increasing aggressiveness in negotiating value changes and claims on projects as well as irrational bidding behaviour from some competitors. Since then the oil price fall has added to these concerns and our clients are putting increasing pressure on their supply chains. This implies a prolonged, harsh slowdown in many parts of our industry.
Our reaction has been strong and rapid on the elements under our control. We brought down our SG&A expenses by €69 million in 2014, including €27 million in the fourth quarter. Our total headcount has fallen from close to 40,000 at its peak in the second quarter 2014 to 38,200 at year end. We have exited four non-core activities over the year. Our fleet has been substantially reduced to a total of 27 high-performance vessels, setting a strong basis to improve utilization and operational performance. Our cost reduction and efficiency plans are in place to sustain our performance in 2015.
Our record level of backlog enabled us to reinforce our bidding discipline, focusing on projects where our particular value-added for our clients enables us to earn an appropriate return at acceptable risk: despite the difficult markets, we see continued order intake opportunities in many of our businesses.
We invested and recruited in 2014 selectively. In technology, we acquired the Zimmer polymer business at year-end. In equipment, we launched an upgrade of FlexiFrance manufacturing plant following the completion of investments in umbilicals in the UK and flexibles at Açu in Brazil whose performance was excellent in the second half of the year. We will continue our capex discipline: our net capex was €314 million in 2014, and is expected to fall in 2015 and 2016. Regarding our talent, we continued to develop them and add specific skills in our engineering teams and to view the current market as an opportunity to hire additional exceptional people into Technip.
Regardless of the oil price level, our clients have stressed their need to improve the design and running costs of their facilities. Technip has the conceptual engineering skills and innovative technology which can enable them to improve substantially the returns on their projects, including in deep offshore or frontier areas. Where we have had early engagement with our clients, they have seen our ability to deliver substantial optimization. We will continue to add expertise to broaden our position as a valued partner for our client base, in particular by working more closely with partners in adjacent areas of Subsea.
For 2015, based on our record €21 billion backlog, we are able to give clear guidance for revenue and profit growth and our main focus will again be on delivering our projects in line with our clients’ expectations. We are not only managing our own costs but our clients increasingly see our range of technologies, services, products and project experience as compelling in managing their project costs too. With all of this in mind, combined with Technip’s robust balance sheet, we maintain our progressive dividend policy and propose an 8% increase with a scrip alternative, reflecting our confidence in our ability to create value in the coming years for all our stakeholders.”
I. ORDER INTAKE AND BACKLOG
1. Fourth Quarter 2014 Order Intake
During fourth quarter 2014, Technip’s order intake was €3.2 billion. The breakdown by business segment was as follows:
Order Intake (€ million)
4Q 2013
4Q 2014
Subsea
1,639
1,271
Onshore/Offshore
1,587
1,956
Total
3,226
3,227
Subsea order intake comprised a contract for pre-salt developments in Brazil to supply flexible pipes totaling 114 kilometers for the Iracema North field to be produced in our Vitoria and Açu manufacturing plants.
In the US Gulf of Mexico, a contract was awarded for the K2 field that includes the design, fabrication and installation of subsea equipment and flowlines using the Deep Blue.
In the North Sea, Technip was awarded an important contract for the Gullfaks Rimfaksdalen (GRD) project that comprises the fabrication and installation of subsea equipments such as approximately 9.5 kilometers of pipe-in-pipe flowline, to be welded at our spoolbase in Orkanger, Norway, and installed by the Apache II. Technip also signed a substantial contract for the development of the Glenlivet field covering the fabrication and installation of production pipeline and steel tube umbilicals, to be fabricated respectively at our umbilicals facility in Newcastle, UK, and at our spoolbase in Evanton, UK.
Onshore/Offshore order intake included in particular a contract to provide engineering, procurement, and construction management (EP&Cm) for a world-scale ethane cracker and derivative complex near Lake Charles, Louisiana, in the USA. This award follows Technip’s selection to provide engineering and procurement for eight proprietary Ultra Selective Conversion (USC ®) furnaces.
In Slovakia, a substantial contract was awarded to develop the engineering, procurement and construction of a new ammonia production unit in an existing fertilizer complex in Sal’a.
In India, a contract was awarded to build a 6 million standard cubic meters-per-day (MMSCMD) onshore oil and gas terminal, which will be a critical component of the existing facilities of the Integrated Development of Vashishta (VA) & S1 fields.
Technip was awarded two contracts for its Stone & Webster Process Technology activities: one in China, to provide the Badger technology, engineering, and selected critical equipment and technical services for an ethylbenzene styrene monomer plant in Qingdao; and a second one in Louisiana, to provide detailed engineering and procurement services to expand the recovery section of an ethylene plant.
In Abu Dhabi, Technip also won a contract for Project Management Consultancy (PMC) services for the Nasr Phase II Full Field Development project.
Listed in annex IV (b) are the main contracts announced since October 2014 and their approximate value if publicly disclosed.
2. Backlog by Geographic Area
At the end of fourth quarter 2014, Technip’s backlog was €20.9 billion, compared with €19.3 billion at the end of third quarter 2014 and €15.5 billion at the end of fourth quarter 2013. The increase reflects the strong order intake as well as currency movements.
The geographic split of the backlog is set out in the table below:
Backlog1 (€ million)
September 30, 2014
December 31, 2014
Change
Europe, Russia, Central Asia
7,708
8,724
13.2%
Africa
4,529
4,415
(2.5)%
Middle East
1,060
1,259
18.8%
Asia Pacific
2,522
2,612
3.6%
Americas
3,487
3,926
12.6%
Total
19,306
20,936
8.4%
1 Backlog and order intake include all projects whose revenues are consolidated in our adjusted financial statements.
3. Backlog Scheduling
An estimated 50% of the backlog is scheduled for execution in 2015.
Estimated Scheduling
as of December 31, 2014 (€ million)
Subsea
Onshore/Offshore
Group
2015
4,888
5,327
10,215
2016
2,857
3,612
6,469
2017 and beyond
1,983
2,269
4,252
Total
9,728
11,208
20,936
II. FOURTH QUARTER 2014 OPERATIONAL & FINANCIAL HIGHLIGHTS – ADJUSTED BASIS
1. Subsea
Subsea had a substantial improvement year-on-year in activity, leading to sharply higher adjusted revenue and profit. Main operations for the quarter were as follows:
In the Americas:
In the US Gulf of Mexico, the Deep Blue was mobilized on the Delta House project for its third and fourth installation trips. Welding activities on the Stones and Julia projects moved forward at our Mobile spoolbase, while engineering and procurement activities ramped up on Kodiak.
In Brazil, production continued for the flexible pipes dedicated to the Iracema Sul, Sapinhoá & Lula Nordeste and Sapinhoá Norte pre-salt fields at our manufacturing plants at Vitoria and Açu.
In the North Sea, the Deep Energy completed its installation of production flowlines on Quad 204 in Scotland, before being mobilized for the Alder pipelay campaign, while the North Sea Giant successfully completed its installation of the last eight rigid spools on the Åsgard Subsea Compression project in Norway. The Skandi Arctic was mobilized on Bøyla in Norway.
In West Africa, the Deep Pioneer finished the installation of flexible pipes for the Block 15/06 development in Angola and was then mobilized on GirRi Phase 2. Engineering and procurement phases moved forward on other large projects, including Moho Nord in Congo, T.E.N. in Ghana, and Kaombo in Angola.
In Asia Pacific, engineering and procurement activities moved forward for the subsea scopes of the Malikai and Prelude projects, in Malaysia and Australia respectively. Manufacturing of flexible pipes at our Asiaflex plant included work for the Jangkrik and Bangka projects in Indonesia.
In the Middle East, the Jalilah B project progressed towards completion in the United Arab Emirates.
Overall, the Group vessel utilization rate for the fourth quarter of 2014 was 74%, compared with 69% for the fourth quarter 2013, and 86% for the third quarter of 2014.
Subsea financial performance is set out in the following table:
€ million
4Q 2013
4Q 2014
Change
Subsea
Adjusted Revenue
962.7
1,290.3
34.0%
Adjusted EBITDA
176.9
285.7
61.5%
Adjusted EBITDA Margin
18.4%
22.1%
377bp
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
126.9
197.9
55.9%
Adjusted Operating Margin
13.2%
15.3%
216bp
2. Onshore/Offshore
Onshore/Offshore performance was impacted by a number of operational factors, including client behaviour and lower activity on later-stage projects compared to higher activity on early stage projects. The sales were flat and profit down year-on-year. Main operations for the quarter were as follows:
In the Middle East, construction continued on the Halobutyl elastomer facility in Saudi Arabia. In Abu Dhabi, engineering and procurement phases progressed on the Umm Lulu complex. Fabrication of the FMB platform for Qatar continued.
In Asia Pacific, construction of the Petronas FLNG 1 and Prelude FLNG continued in Korea, while construction of the SK316 platforms progressed in Malaysia. Engineering and procurement activities moved forward on the Maharaja Lela & Jamalulalam South gas development in Brunei, and on the Mangalore purified terephthalic acid (PTA) plant in India.
In the Americas, engineering and procurement activities progressed for the CPChem polyethylene plants in Texas, while construction continued on the Ethylene XXI petrochemical complex in Mexico. The Heidelberg Spar hull has been handed over to the client in the US Gulf of Mexico. Meanwhile, engineering and procurement ramped-up on the Juniper project in Trinidad and Tobago.
Elsewhere, engineering and procurement phases continued to ramp up on the Yamal LNG project and construction of the modules began at all of the yards. Preparation and piling resumed at the Sabetta site in Russia.
Onshore/Offshore financial performance is set out in the following table:
€ million
4Q 2013
4Q 2014
Change
Onshore/Offshore
Adjusted Revenue
1,513.6
1,525.6
0.8%
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
101.5
47.9
(52.8)%
Adjusted Operating Margin
6.7%
3.1%
(357)bp
3. Group
The Group’s adjusted Operating Income From Recurring Activities after Income/(Loss) of Equity Affiliates, including Corporate charges of €23 million, is set out in the following table:
€ million
4Q 2013
4Q 2014
Change
Group
Adjusted Revenue
2,476.3
2,815.9
13.7%
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
203.7
223.2
9.6%
Adjusted Operating Margin
8.2%
7.9%
(30)bp
In the fourth quarter of 2014, compared to a year ago, the estimated translation impact from foreign exchange was positive €80 million on adjusted revenue and positive €5 million on adjusted operating income from recurring activities after income/(loss) of equity affiliates.
4. Adjusted Non-Current Items and Group Net Income
Adjusted non-current operating items of €(33.3) million were booked in the quarter, reflecting mainly the closure of Technip Offshore Wind and restructuring costs. Adjusted Operating income including non-current items was €190 million in the fourth quarter 2014, versus €204 million a year ago.
Adjusted financial result in the fourth quarter of 2014 included €17.7 million of interest expense on long-term debt and a €22.1 million positive impact from changes in foreign exchange rates and fair market value of hedging instruments (compared with a €26.1 million negative impact in the fourth quarter of 2013). In addition, a non-current charge of €68.0 million was taken in the quarter against our investment in MHB.
The variation in Diluted Number of Shares is mainly due to performance shares granted to Technip employees, offset by share repurchases.
€ million (except Diluted Earnings per Share and Diluted Number of Shares)
4Q 2013
4Q 2014
Change
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
203.7
223.2
9.6%
Adjusted Non-Current Operating Result
-
(33.3)
nm
Adjusted Financial Result
(34.2)
(67.7)
98.0%
Adjusted Income Tax Expense
(31.3)
(39.2)
25.2%
Adjusted Effective Tax Rate
18.5%
32.1%
nm
Adjusted Non-Controlling Interests
(3.7)
(2.9)
(21.6)%
Adjusted Net Income of the Parent Company
134.5
80.1
(40.4)%
Net Income of the Parent Company
134.5
80.1
(40.4)%
Diluted Number of Shares
125,993,971
124,725,767
(1.0)%
Diluted Earnings per Share1(€)
1.11
0.68
(38.4)%
1As per IFRS, diluted earnings per share are calculated by dividing profit or loss attributable to the Parent Company’s Shareholders, restated for financial interest related to dilutive potential ordinary shares, by the weighted average number of outstanding shares during the period, plus the effect of dilutive potential ordinary shares related to the convertible bonds, dilutive stock options and performance shares calculated according to the “Share Purchase Method” (IFRS 2), less treasury shares. In conformity with this method, anti-dilutive stock options are ignored in calculating EPS. Dilutive options are taken into account if the subscription price of the stock options plus the future IFRS 2 charge (i.e. the sum of annual charge to be recorded until the end of the stock option plan) is lower than the average market share price during the period.
5. Adjusted Cash Flow and Statement of Consolidated Financial Position
As of December 31, 2014 the adjusted net cash position2 was €1,125 million compared with €747 million as of September 30, 2014.
Adjusted Cash3as of September 30, 2014
3,385.0
Adjusted Cash Generated from/(used in) Operating Activities
458.1
Adjusted Cash Generated from/(used in) Investing Activities
(110.2)
Adjusted Cash Generated from/(used in) Financing Activities
(107.8)
Adjusted FX Impacts
112.3
Adjusted Cash3as of December 31, 2014
3,737.4
2 The IFRS consolidated financial statements and a reconciliation to the adjusted basis can be found in Annex V.
3 Cash and cash equivalents, including bank overdrafts.
Adjusted capital expenditures for the fourth quarter 2014 were €113 million, compared to €150 million one year ago.
Adjusted shareholders’ equity of the parent company as of December 31, 2014, was €4,363 million, compared with €4,157 million as of December 31, 2013.
III. FULL YEAR 2014 FINANCIAL RESULTS – ADJUSTED BASIS
1. Subsea
Subsea adjusted revenue in 2014 reflected the growth of our backlog, which has a balanced range of contract sizes from small to major projects and a mix of deep and shallow water projects across all regions, in particular in West Africa, Brazil and the North Sea.
Subsea adjusted EBITDA margin was 18.1% in 2014, compared to 18.6% in 2013, and adjusted operating margin was 13.0% in 2014, compared to 14.1% in 2013, reflecting progress on large projects in their early phases and a high fleet utilization rate of 80%.
Subsea financial performance is set out in the following table:
€ million
FY 2013
FY 2014
Change
Subsea
Adjusted Revenue
4,065.0
4,880.4
20.1%
Adjusted EBITDA
755.1
882.4
16.9%
Adjusted EBITDA Margin
18.6%
18.1%
(50)bp
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
575.0
635.1
10.5%
Adjusted Operating Margin
14.1%
13.0%
(113)bp
2. Onshore/Offshore
Onshore/Offshore adjusted revenue in 2014 reflected the growth of our backlog, progress on diversified projects in all the regions, including onshore downstream projects in the USA and offshore production facility projects in the Middle East, in the North Sea and in Asia Pacific a higher amount of revenue from early stage projects including Yamal and in general a challenging market environment.
Onshore/Offshore adjusted operating margin accordingly fell to 4.7% in 2014, compared to 6.7% in 2013.
Onshore/Offshore financial performance is set out in the following table:
€ million
FY 2013
FY 2014
Change
Onshore/Offshore
Adjusted Revenue
5,220.1
5,844.1
12.0%
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
351.4
276.2
(21.4)%
Adjusted Operating Margin
6.7%
4.7%
(201)bp
3. Group
The Group’s adjusted Operating Income From Recurring Activities after Income/(Loss) of Equity Affiliates, including Corporate charges as detailed in annex I (c), is set out in the following table:
€ million
FY 2013
FY 2014
Change
Group
Adjusted Revenue
9,285.1
10,724.5
15.5%
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
834.5
824.6
(1.2)%
Adjusted Operating Margin
9.0%
7.7%
(130)bp
In 2014, the estimated translation impact from foreign exchange was negative €147 million on adjusted revenue and negative €12 million on adjusted operating income from recurring activities after income/(loss) of equity affiliates.
4. Adjusted Non-Current Items and Group Net Income
Adjusted Operating income including non-current items was €751 million in 2014, versus €835 million a year ago. Adjusted non-current items of €(73.6) million reflect the sales of the India diving business and of engineering services for buildings and infrastructures (TPS), the closure of Technip Offshore Wind, and restructuring costs.
Adjusted Financial result in 2014 included €70.5 million of interest expenses on long-term debt and a €24.3 million positive impact from changes in foreign exchange rates and fair market value of hedging instruments (compared with a €33.8 million negative impact in 2013). We also took a non-current charge of €68.0 million against our investment in MHB.
The variation in Diluted Number of Shares is mainly due to performance shares granted to Technip employees, offset by share repurchases.
€ million (except Diluted Earnings per Share and Diluted Number of Shares)
FY 2013
FY 2014
Change
Adjusted OIFRA after Income/(Loss) of Equity Affiliates
834.5
824.6
(1.2)%
Adjusted Non-Current Operating Result
-
(73.6)
nm
Adjusted Financial Result
(78.6)
(128.5)
63.5%
Adjusted Income Tax Expense
(185.9)
(180.1)
(3.1)%
Adjusted Effective Tax Rate
24.6%
28.9%
434bp
Adjusted Non-Controlling Interests
(6.9)
(5.8)
(15.9)%
Adjusted Net Income of the Parent Company
563.1
436.6
(22.5)%
Net Income of the Parent Company
563.1
436.6
(22.5)%
Diluted Number of Shares
124,777,476
125,270,614
0.4%
Diluted Earnings per Share (€)
4.68
3.65
(22.0)%
5. Adjusted Cash Flow and Statement of Consolidated Financial Position
As of December 31, 2014 our adjusted net cash position1 was €1,125 million compared with €832 million at the end of 2013.
Adjusted Cash2as of December 31, 2013
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