Technip Energies Nv

Hello to everyone, and welcome to Technif Energy's first quarter 2022 financial results presentation. On the call today, our CEO, Arnaud Piertan, and our CFO, Bruno Weber, will present our business and financial highlights, as well as the outlook. And this will be followed by Q&A. Before we start, I would urge you to take note of the disclaimer and forward-looking statements on slide two. I'll now pass the call over to Arnaud. Thank you, Phil.

Welcome to our financial results presentation for the first quarter. Before addressing the situation in Russia, I will first cover the highlights. Revenues of $1.6 billion included around $440 million related to Article NG2. Operationally, we delivered in line with our plan, with significant year-over-year growth in activity outside of Russia as well as improving margins and good cash flows. In the quarter, we've reconfigured the organization structure around four business lines focused on Technip Energy's market and supported by a global delivery structure dedicated to delivering projects and solutions. This will better align our operating model and commercial focus with the rapidly changing energy transition market. In addition, we have invested in and strengthened our energy transition business, notably in the domains of hydrogen, floating offshore wind, and biochemicals. I will return to this later in my presentation. Finally, orders of $550 million were broadly in line with our expectations for the quarter, leaving backlog at period end of $15.6 billion. This includes the Arctic Energy 2 project, which was not subject to sanctions as of the end of Q1. Excluding this project, the period end backlog stood at $12.2 billion, which represents 2.8 times 2021 revenues on an equivalent basis. Turning to Russia, we have done what we said we would do. taken care of our people, and ceased to work on new business opportunities in Russia. We've carried out our activities in compliance with all applicable laws, and we continue to provide a transparent view of our situation. Our priorities aren't changed, and we are working to safeguard the interests of all our stakeholders. Notwithstanding the escalation in sanctions, Arctic LNG2, our only active project in Russia, continued to progress in Q1, albeit under increasingly challenging circumstances, notably for logistics. The April 8 European Union sanctions, however, now target goods and technology related to LNG. These will naturally have a more direct impact on the future execution of the project. In anticipation of the escalation of these sanctions, we have been working with clients, partners, and suppliers within the relevant contractual frameworks to take the appropriate measures in connection with Arctic Energy 2. We expect that the balance sheet position of the project and the relevant contractual protections will be sufficient to fulfill our various contractual obligations in compliance with applicable sanctions. Turning to our execution, I will not go into detail on the slide, but confirm that we continue to make strong progress delivering project milestones, closing out projects, and de-risking ongoing work. While the situation in Europe has improved for now with respect to the pandemic, it remains a source of continuing restrictions in many parts of the world in which we operate. Our teams continue to adapt and find solutions and our activity for Q1 is in line with our plan and financial framework. So despite a difficult external environment, we are delivering good progress in both projects delivery and TPS activities. Now let's take a look at recent awards, where I will focus mostly on front-end positioning in energy transition markets within TPS. In floating offshore wind, We made good progress in qualifying our in-house in-ocean floating technology in the quarter, and we are delighted to recently announce that Equinor has chosen Technip Energies and our Inno15 technology for a feed related to their 800-megawatt floating wind farm offshore South Korea. In the market for renewable diesel, we were awarded a feed study for Future Energy Australia's first biorefinery project. which plans to convert sustainably sourced biomass into renewable diesel. Our participation in the carbon capture market continues to gather pace. In the quarter, alongside our partner NPCC, we were awarded a feed contract for the Kasawari CCS project in Malaysia with Petronas, a project which is expected to process around 3.5 million tons per annum of CO2, making it one of the world's largest CCS projects. Separately, our subsidiary Genesis secured the offshore feed for the Northern Endurance Partnership in support of the East Coast cluster development in the UK. Turning to project delivery, where the decarbonization theme continues to influence the more traditional industries, we were awarded an EPCC for a melamine plant in Malaysia and a wall which follows our execution of the feed study. The 60,000 tonne per annum plant utilizes an alliance partner technology we know very well, and will recycle the CO2 generated in the melamine production process, serving to minimize the CO2 footprint of this new asset. I will now hand the call to Bruno.

Thanks, Arnaud, and good afternoon, everyone. Turning to the highlights of our financial performance for the first quarter, adjusted revenues grew by 4% year-on-year to $1.6 billion. This included a full quarter from Article NG2, which, as Arnaud stated, was not under sanction throughout the period and contributed $445 million to revenues. Revenues excluding Article NG2 increased by 18% year-over-year. and TPS momentum continued with high single-digit growth. Adjusted recurring EBIT was 107 million, equating to a margin of 6.6%. That's a 70 basis point improvement versus first quarter 2021. The impact of Article NG2 was slightly dilutive for the quarter, with margins benefiting from solid executions across the rest of the project's portfolio, as well as higher activity levels and improved margins within TPS. Net profit growth is substantial at nearly 65% year-over-year to 72 million, reflecting the solid EBIT performance, as well as a more favorable comparison as the first quarter 2021 incurred the majority of costs relating to the spin-off from Technip FMC. As a side note, prior to the end of the first quarter, Technip FMC's stake in Technip Energies had reduced below 3%, with the overhang now mostly eliminated and the selling pressure on the market largely behind us. Adjusted order intake was 550 million without major product awards and was sharply lower versus the 6.5 billion in the prior year. which, of course, included a very large Qatar NFE award. Book to build on a trailing 12-month basis at 0.6 is also impacted by Qatar falling out of the equation. Net cash at Perionel was 3.3 billion euros. In summary, a solid start to the year, which puts us on track with our full-year financial framework. Turning to our segment reporting and starting with project delivery. Given the ongoing uncertainty surrounding Arctic Energy 2, we are continuing to provide the transparency to enable the street to analyze the performance both with and without this project. Overall revenues grew modestly at 3%, but this masks very different trends within the portfolio with a significant 23% growth in the portfolio excluding Arctic, as key projects awards from the last 18 months continue to ramp up. This more than offset a material decline in Arctic energy too, where the revenue contribution was 120 million lower year over year. The first half of Arctic was expected to represent the peak in activity for the year. At this point, it remains difficult to predict what the contribution in the coming quarters could be given the changing sanctions regime. Adjusted EBIT for the segment was 90 million, equating to a margin of 7%, up almost a full percentage point year over year. Margins benefited from a strong contribution from downstream projects in the later stages of completion, as well as a contribution from Yamal LNG. This was partially offset by earlier stage LNG projects and included a slightly dilutive impact from Article NG2. Trailing 12 months book-to-bill was 0.5, reflecting a steady flow of order intake in the period following the award of Qatar in the first quarter of last year. Backlog has declined 30%, year-over-year to 14.4 billion. As we've stated several times in the past, we continue to exert discipline and commercial selectivity, and we are more than comfortable with periods of backlog decline as we look to preserve backlog quality. FIDs in the current volatile pricing environment have led to some decision push to the right, but we've not seen any cancellation of prospects. On the contrary, we do see good opportunities in the coming quarters to selectively add to our project's backlog. So overall, a solid underlying performance by project delivery. Looking now to technology projects and services, where momentum has continued into 2022, with high single-digit revenue growth and mid-teens growth in habits. Revenues of approximately 330 million, up 8% year-on-year, benefit from growing activity levels in engineering and PMC services, and sustained process technology activity, including licensing and proprietary equipment, notably for ethylene and sustainable chemistry, including PBAT, a biogradable polymer. EBIT margins improved by 70 basis points to 9.2%, consistent with the margins achieved in 2021 as a whole, and benefiting from improving activity levels and mix. Thanks to strong revenue and margins, EBIT, in absolute terms, increased by 15%. Order momentum remains strong, with TPS orders keeping pace with a growth in revenues on a 12-month basis, delivering modest backlog growth year-over-year to 1.2 billion. We see good potential for continuous backlog additions in the coming quarters in the areas of sustainable chemistry and proprietary products relating to the upcycle in the SEL market. Turning to other key performance items across our financial statements, and beginning with the income statement. Corporate costs of 12.8 million are slightly above run rate for 2021, but impacted by two main factors, nearly 5 million of negative FX impact and some reclassifications between corporate and other lines. Overall, the cost base remains a clear point of management attention and global SG&A are slightly down year on year. R&D investment at 11 million is materially higher year over year, and we do anticipate a 30% to 40% decrease in R&D during 2022 on targeted spend relating to our energy transition strategy and consistent with our ambition to grow the technology content of our offering. At around 29%, the effective tax rate is in line with the lower half of our financial framework for the year. Turning to balance sheet, in response to the situation in Ukraine and our exposure to Russia, we conducted a goodwill impairment test in line with accounting practices and based on conservative assumptions, I'm pleased to confirm that our goodwill remained intact with more than ample headroom. Before looking at cash, I would like to acknowledge that on March 11, Technip Energies was downgraded to BBB minus investment grade rating by S&P. The revised rating was really linked to S&P's decision to discount Article NG2 from their model, which has triggered a re-qualification of the company's business risk profile. This does not have any material impact on our operations or costs. Finally, Another strong free cash flow quarter has bolstered our net cash position to $3.3 billion, which remains above the net contract liability of $3.2 billion. Before passing back to Arnaud, let's take a closer look at cash flows, where there has been a continuation of many of the trends seen in 2021, namely free cash flow benefited from the working capital inflow of 86 million, relating to customer advances for recent awards and key milestone achievements on other large projects, as well as project-related working capital variations. Free cash flow on an underlying basis or net of working capital was 99 million and consistently strong as we executed across our portfolio. Cash conversion from EBIT on this basis is very high. As a reminder, we expect to be able to deliver a consistently high free cash conversion from EBIT, net of working capital, in the 70% plus range. Capital expenditures remain low at 9 million, consistent with our asset-like model. And below free cash flow, the key items include repayment of short-term commercial paper and leases of approximately $70 million and $25 million related to share repurchase. As previously announced, this is principally to offset dilution from current and future long-term incentive programs with the timing somewhat opportunistic given the depressed share price during the quarter. We end the period with more than $3.9 billion of cash and cash equivalent. And I will now turn the call back to Arnaud for the outlook. Thank you, Bruno.