TECHNIP ENERGIES FIRST QUARTER 2023
FINANCIAL RESULTS – TRANSCRIPT
Technip Energies N.V. Corporate Participants :
Arnaud Pieton Technip Energies N.V. – Chief Executive Officer & Non-Independent Executive Director
Bruno Vibert Technip Energies N.V. – Chief Financial Officer
■ Phillip Lindsay Technip Energies N.V. – Vice President of Investor Relations
Paris, Thursday, May 4, 2023, 13:00pm CET.
Operator’s Introduction
Operator
Good afternoon. This is the conference operator. Welcome, and thank you for joining the Technip Energy’s first quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions (Operator Instructions). At this time, I would like to turn the conference over to Philip Lindsey, Head of Investor Relations. Please go ahead, sir.
Welcome and Disclaimer
Phillip Lindsay
Thank you, Judith.
Hello to everyone, and welcome to Technip Energies’ first qarter, 2023, financial results.
On the call today, our CEO – Arnaud Pieton – and our CFO – Bruno Vibert – will present our Business and Financial highlights; as well as the Outlook.
This will be followed by Q&A.
Before we start, I would urge you to take note of the forward-looking statements on slide 2.
I will now pass the call over to Arnaud.
Business Highlights
Arnaud Pieton
Q1 2023 – Key Highlights
Thank you, Phil,
Welcome to our financial results presentation for the first quarter, where we have delivered solid operational progress that puts us firmly on track to deliver our full year objectives.
Revenues of €1.4 billion are in line with our expectations and reflect continued strong momentum in TPS, and lower Project Delivery activity resulting from the maturity of the portfolio and our ongoing exit from Russia.
Our execution remained strong, and we delivered 100 basis points of margin improvement year-over-year.
We also benefited from sustained commercial strength in Tchnology, Products & Services with awards in ethylene, renewable fuels, and carbon capture. This builds on the strong momentum established in 2022. In addition, we are executing our strategy to prepare our future core and I am delighted to announce the creation of Rely – a new company to drive green hydrogen industrialization through standardised and integrated solutions. I will return to this later in my presentation.
Finally, orders of €713 million were broadly in line with our expectations for the quarter, leaving period end backlog at €12.0 billion, equivalent to approximately two times our expected revenue for 2023.
Q1 2023 key operational highlights
Turning to our execution,
I am pleased to report that we continue to make strong progress delivering important milestones, de -risking execution, and completing projects.
Margins remain at robust levels, demonstrating the strength of our delivery and a favourable mix, including the growing contribution from TPS.
Overall, a very olid start to 2023, and I want to express my gratitude to our teams that continue to drive our leading performance.
Q1 awards, front-end positioning and partnerships
Now let’s look at recent awards, market trends and partnerships.
As previously communicated, momentum in ethylene markets has continued into 2023 and we have secured a significant contract to supply proprietary cracking furnaces for a mega plant in Qatar, as well as an important technology award for a low carbon plant in China.
Also in China, we secured a reference award for low-carbon LNG with an engineering design and key equipment supply contract for a liquefaction unit to be fully electrically driven….This highlights the market trend towards modularized and electrified mid-
scale LNG.
Our carbon capture presence in the US continues to expand with an important FEED for Calpine at their Baytown Energy Centre. The unit will be designed to capture 2Mtpa of CO2, equivalent to 95% ofthe plant’s emissions; and this awar is further evidence of the strength of our solutions for carbon capture, which we continue to invest in.
In clean fuels, we were awarded several front-end studies, including the latest with Lanzatech, for what would be the U.K’s largest sustainable aviation fuel production facility. The plant will utilize our proprietary Hummingbird technology, a vital technology brick in the production of SAF. Hummingbird is also the focus of R&D investment and I look forward to talking with you in the future about a product launch based on this technology.
Finally, for blue hydrogen, we have announced an important partnership with Casale to jointly licence ATR technology, as well as providing front-end services, proprietary equipment, and entire plants. With a potential carbon capture rate of up to 99%, this technology complements T.EN’s proprietary SMR-based solutions to give us the most comprehensive suite of blue hydrogen solutions in the market today. And as I’ll discuss later in my outlook, tis will be complemented by a leading green H2 offering.
I’ll now pass over to Bruno to discuss financial highlights.
Financial Highlights
Bruno Vibert
Solid Q1 Performance
Thanks Arnaud, good afternoon everyone.
Turning to the highlights of our financial performance for the first quarter:
Adjusted revenues were down 13% year-over-year to €1.4 billion – impacted by the maturity of the Project Delivery portfolio and the ongoing exit from the Arctic LNG 2 contract, partially offset by very strong TPS growth of more than 35%.
Adjusted recurring EBIT was exactly flat year-over-year, despite the lower revenues, owing to strength in margins, which increased by 100 basis points year-over-year to 7.6%, and benefiting from strong project execution and growth in TPS.
Adjusted diluted EPS grew by 10% year-over-year, benefiting from the strong operational performance and higher interest income.
Adjusted order intake was €713 million, slightly higher year-over-year thanks to sustained mometum in TPS orders.
Net cash at period-end was €2.8 billion.
In summary – thanks to the performance of our teams in Q1, we are on track to meet full year guidance.
Project Delivery – Sustained excellence in execution in our long cycle segment
Turning to our segment reporting, starting with Project Delivery,
Revenues are materially down year-over-year reflecting the absence of Yamal LNG and the ongoing exit from the Arctic LNG 2 contract. As a reminder, the Arctic LNG2 project contributed a significant proportion of revenue in the first quarter of 2022 .
Execution remains strong and projects experienced notable strength in margins at 8.1%, up 110 basis points year-over-year. The absence of major new awards, which are dilutive in their early phases due to conservative recognition, was a benefit to margi ns in the period. As new awards materialize in the coming quarters, the portfolio maturity will become a more balanced blend of early and later stage projects, bringing margins to a ore normalized level.
Turning to orders, the strong commercial outlook we see ahead of us should drive a considerable improvement in book-to-bill trends in the coming quarters, driving backlog higher.
TPS – Substantial backlog increase reinforces revenue growth trajectory
Turning to Technology, Products & Services, where our investment and commercial strategy to grow this segment is yielding very positive results.
Financials are robust with revenue growth of 37% year-over-year, boosted by the strong order momentum we achieved through 2022, and notable improvement in several areas including: Consultancy and engineering services; Licensing and proprietary equipment, notably for ethylene; and growth in renewable fuels work.
These higher volumes, combined with an improving mix of higher technology and product revenues, enabled EBIT margins to reach the double-digit threshold at 10.2%, up 100 basis points year-over-year. As a result, EBIT has improved more than 50% versus the prior yea period.
Commercially, we have sustained a positive trend in orders as demonstrated by the trailing 12-monthbook-to-bill edging up to 1.6, which has driven a substantial 84% expansion in segment backlog versus Q1 last year.
In summary, TPS is building strong momentum and we continue to invest and explore growth opportunities to fuel this remarkable trajectory.
Other key metrics and balance sheet
Turning to other key performance items across our financial statements, beginning with the income statement.
Corporate costs of €16.0 million represent an increase compared to the underlying run rate for 2022 reflecting costs of strategic projects and pre-development initiatives, which will likely continue in the coming periods.
When contemplating the full year-outlook for Corporate, these incremental investment costs as well as the recently announced ESOP 2023 program should be taken into consideration. This program is an employee share offering with the objective of sharing long-term vaue creation with employees.
These two factors will likely drive corporate costs for 2023 towards a range of €60 – 65 million. In subsequent years, we’d expect these costs to normalize at a lower rate closer to €50m.
For net financial income, the Central Bank decisions and increase in global interest rates through 2022 are now positively impacting this line and the €20 million net benefit clearly boosted our earnings per share in the period.
To conclude on the P&L, we incurred a non-recuring cost of €11.5 million – this represents a technical accounting and non-cash charge associated with our orderly exit from Russia and the sale of our main Russian operating entity.
Turning to balance sheet where our structure remains solid – net cash and net contract liability trended slightly down year-on- year reflecting portfolio maturity and the absence of awards.
Strong underlying cash flows
Before passing back to Arnaud, let’s take a closer look at cash flows, where there has been a contination of many of the trends seen in 2022.
Free cash flow on an underlying basis or excluding working capital was €122 million and consistently strong as we executed across our portfolio.
Cash conversion from EBIT on this basis is very high at more than 100%, and above what we would consider a normalize d conversion owing to the positive impact of interest income.
As we had indicated with our full year results presentation, working capital was an outflow in the period, reflecting portfolio maturity, the absence of large awards in recent quarters, as well as our orderly exit of Russia, but we anticipate this trend will reverse as the order momentum improves across the balance of the year, notably in the second half.
We end the period with more than €3.5 billion of cash and cash equivalents.
I’ll now turn the call back to Arnaud for the outlook.
Outlook
Arnaud Pieton
T.EN & John Cockerill to create Rely
Thanks Bruno.
Achieving the world’s net zero targets requires significant inestment to develop and scale decarbonization solutions. Emerging stimulus packages from global policy makers will serve to break initial cost barriers, and, although full alignment across the ecosystem is taking time, global ambitions demand that affordable solutions and sustainable products for industries and consumers alike must be developed.
Technip Energies is committed to meeting this challenge. At our FY results in March, we discussed how we would prepare our future core through positioning for leadership in fast-growth markets, which are fully aligned with our net zero goals.
Creating Rely is one key component of our strategy – and today, I am delighted to present to you a new company which will accelerate industrialization in the emerging market for green hydrogen and its derivatives such as green ammonia and e -fuels.
Rely is a highly complementary partnership of: Technip Energies – an engineering, project delivery and integration leader for the hydrogen industry; and John ockerill – the leading provider of pressurised alkaline electrolyzer technology and equipment.
Rely will have robust foundations and from day 1 with access to over 200 hydrogen specialists and more than 50 hydrogen technology patents. Headquartered in Belgium, the company will have global reach with entities across four continents – and in countries spearheading green hydrogen market development.
The combination will create a technology and project delivery company providing integrated green hydrogen and power-to-X solutions. Rely will be asset light with preferential rights for electrolyzer stack supply with an offering that spans the full value chain from front-end engagement through to operations and maintenance. And, unlike other commercial partnerships that have been announced in this space, what clearly differentiates Rely is T.EN and John Cockerill’s combined R&D platform that will deliver technology enhancements, develop new products and accelerate improvement in economics fo green hydrogen projects.
Integrated green H2 solutions for decarbonization
Looking at Rely’s scope and market positioning in more detail.
Green H2 and power-to-X are highly promising markets which could ultimately deliver decarbonization across many industries including traditional downstream industries, steel and other hard-to-abate industries, as well as transport and power storage and production.
Leveraging T.EN’s process technology integration and molecule transformation capabilities with John Cockerill’s extensive manufacturing and aftermarket expertise, Rely will provide a highly differentiated offering to the green hydrogen market. This will cover electrolysis, optimisation of balance of plant, molecule transformation, and O&M…. , Digital services and the
intermittency management system will also form an integral part of Rely’s offering. Currently, of course, there are cost hurdles for green hydrogen but in the long-run, this industry – like any – will need to stand on itsown two feet.
Today, the electricity represents about two thirds of the cost of green hydrogen projects. In other words, through optimization of the electrolyzer stack, balance of plant and the opex, Rely has the ability to influence about one third of the costs, but as the market matures to utility scale projects, this picture reverses and the cost components that Rely can impact will form the majority of the economics of a green hydrogen project.
Put simply – Rely’s potential to positively impact projects will increase as this industry scales up.
Rely, Bridging green electrons to molecules
Finally, on Rely – let’s consider the value proposition.
T.EN’s front runner spirit has often seen us delivering many world firsts and finding solutions for the industry’s most complex engineering challenges.
By combining the partners’ technology and engineering resources, Rely will provide: Integrated end-to-end solutions for plants at industrial scale; and an optimized and standardized “offthe-shelf” blueprint offering for the green hydrogen market, and when combined with T.EN’s ability to effectively structure projects through technical and financial advisory, we can accelerate the development of our customers and their projects.
This is why R&D and standardization are critical – Rely’s innovation platform will be instrumental in driving better project economics through lowering the levelized cost of hydrogen and shortening time to first molecule. Through this platform, we expect to develop technologies that we can licence, and proprietary products we can sell. We will develop the technologies of the future – not simply the electrolyzer, but everything around it:
The balance of plant, and the energy & molecule management system; and Technologies around the derivatives required to transport and transform the green hydrogen to molecule. In the long-run this will enable gigawatt scale projects while addressing intermittency and Power-to-X innovation.
We truly believe tht Rely has the necessary ingredients and financial ambitions to be the market leader in green hydrogen: We are targeting a €1 billion-plus revenue company by 2030 that can generate margins at least in line with our TPS trajectory, supported by proprietary technology and product development.
In summary, through Rely, T.EN is bridging green electrons to molecules.
Our path to net zero 2050
Before closing, let’s turn to ESG.
In our Sustainability Report published in March, we strengthened our commitments and re -centred our focus on impact-driven targets to accelerate our sustainability journey.
As part of this, we revealed that we are on track to be net zero by 2030 for Scope 1 and 2 emissions; and we reported – for the first time – our scope 3 “upstream” emissions – in other words the emissions from our footprint as a project delivery company, and in 2023, our scope 3 “downstream” targets – or the emissions from our client’s plant operations – will be refined and published with meas to decarbonize.
We will also report on “avoided emissions”, sometimes referred to as Scope 4 – this is measuring the emission reductions of our clients achieved through our “sustainable by design” solutions. For scope 4, we are targeting to avoid 15 million tonnes of C O2 equivalent by 2025….
As evidenced by Rely – our strategy to offer decarbonized solutions at the heart of our future core is in action – and delivering on our long-term strategy will be critical on our path to net zero by 2050.
Key takeaways
In closing,
With our solid first quarter performance, we are on track to deliver on our full year guidance, we have made a significant move in preparing our future core – Rely is one of the key initiatives that we will be launching this year, and we are focused on securing the right Project Delivery prospects with strong potential for a material improvement in orders in the coming quarters.
With that, let’s open the line for questions.
Attachments
Original Link
Originl Document
Permalink
Disclaimer
Technip Energies NV published this content on 09 May 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 May 2023 08:19:11 UTC
