Technip Energies Nv

Hello to everyone and welcome to Technip Energy's financial results for the first nine months of 2022. On the call today, our CEO, Arnaud Piaton, 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 forward-looking statement on slide two. I will now pass the call over to Arnaud. Thank you, Phil.

and welcome everyone to our financial results presentation for the first time of 2022. Before I discuss the highlights, let me begin with a few words on the very positive market outlook for Technip Energies. The world requires an energy system that balances affordability, availability, and sustainability. As such, there is an urgent need for increased investment and accelerated project development with particular emphasis on natural gas, LNG, and low to zero carbon solutions. And let's not forget the critical need to decarbonize traditional industries, a theme we highlighted on our first half results call alongside key awards in carbon capture. For Technip Energies, this market reality is evidenced by two key trends. First, We see strong TPS order intake in Q3, driving a 60% step change in segment backlog year-over-year, with notable awards in renewable fuels and ethylene. This reinforces the revenue growth trajectory of our highest margin segment. And second, there has been a mature growth in our commercial pipeline for project delivery since we presented our full year outlook in March. with substantial early engagement in energy transition prospects, including LNG, as well as decarbonizing traditional markets. Therefore, we expect a significant improvement in order intake trends over the next 12 to 18 months for our longer cycle segment.

Turning now to the highlights.

Third quarter revenues and EBIT were robust, further strengthening the year-to-date performance. Revenues for the underlying business, excluding Article NG2, grew by more than 20% year-over-year. On a full company basis, revenues at $4.9 billion were essentially flat, with a declining contribution from Article NG2 almost fully offset by activity growth on other ongoing projects. We posted the strong EBIT margins of 6.9%, which are in line with the medium term trajectory we set for the company at inception. At this stage of the year, and in the context of our orderly exit from Article NG2, it is now appropriate that we return to full company guidance, which Bruno will discuss later. Finally, Nine-month orders of 2.7 billion are 55% weighted to TPS, reflecting the very strong momentum for this segment. In contrast, we see a strong recovery for project delivery orders ahead of us. Now, I would like to update you on Article NG2. Our orderly exit is progressing, and we have demobilized all operational personnel from the project. We have signed an exit framework agreement with our customer, which we are currently implementing, and we anticipate completing this process within the first half of 2023. In light of this, the remaining backlog on the project has been slightly reassessed in the quarter and stood at 890 million at the end of Q3. We reconfirm. that we do not expect any negative net financial exposure as a result of our exit from Arctic Energy 2. Turning to the operational highlights, our teams continue to demonstrate robust business execution, and I would like to express my gratitude for their performance and dedication in difficult circumstances. We have continued to make strong progress across the portfolio delivering project milestones, and activity outside of Russia increased as planned over the quarter. The strength in margins demonstrates the quality of the underlying portfolio, an improving mix, including growth in TPS and sustained excellence in project delivery. Overall, our performance year-to-date and improved visibility underpins our full year outlook. Now, let's take a look at key recent awards and how we continue to position the company for an increase in order intake across strategic markets. In SLN, we booked a large proprietary equipment order for project one for INEOS in Belgium. This award follows our early engagement work, including the selection and licensing of our proprietary technology earlier this year. The cracker design utilizes our latest technology enhancements to achieve a CO2 footprint at least 50% lower than the best existing facilities. And the furnaces are modularized and designed to transition to 100% hydrogen firing in the future, in addition to the plant being carbon capture ready. I will revisit the exciting market potential for ethylene in my outlook section later. Our broad offering in clean hydrogen markets achieved notable successes this quarter. This includes a first licensed sale for our proprietary blue H2 by 10 solution to decarbonize a petrochemical plant in South Korea. And in Australia, a green hydrogen project for URI, which consists of a 10 megawatt electrolysis plant for phase zero. This will generate green hydrogen, which will be used to produce green ammonia. In addition, recent announcements indicate our involvement in green hydrogen projects of industrial scale in excess of 100 megawatts of capacity each. Elsewhere in the portfolio, we have secured access to other opportunities through front-end engagement with key studies in a number of markets, including LNG and floating offshore wind. And finally, we continue to invest and strengthen our position in technologies and the markets of the future. During Q3, our partnership with Swiss sports brand ONN, Lanzatec, and Borealis announced CleanCloud, the first ever shoe that uses carbon emissions as raw material. The process included the application of our hummingbird technology to produce bioethylene. And we look forward to working with the ONN team to scale up and industrialize this solution. And in line with our strategy to expand our plastic circularity portfolio, we entered into a cooperation agreement with AP Chemi for advanced plastic waste to olefins technology. Here, we will contribute our ethylene expertise and proprietary purification technologies to commercialize a process for the chemical recycling of plastic waste. So, in summary, a very positive quarter for others, notably in TPS, where our Q3 book to build was 2.8%. and several promising seeds planted for the future. I will now pass over to Bruno to discuss the financial highlights.

Thanks, Arnaud, and good afternoon, everyone. So, turning to the highlights of our financial performance for the first nine months. Adjusted revenues were flat year-over-year at $4.9 billion. This included around $1 billion from Arctic Energy II. Revenues excluding Article 92 increased by 23% year-over-year, and TPS growth year-to-date is 6%. Adjusted recurring EBIT was $336 million, equating to a margin of 6.9%, a 60 basis point increase versus the first nine months of 2021. This was due to strong product execution and margin expansion in TPS. I will come back to that in more detail on the next slide. Bottom line is very strong, with adjusted net profit 40% higher than the prior year at 223 million, benefiting from the growth in EBIT, lower net financial expenses, and the absence of transaction costs that impacted last year results. Adjusted order intake was 2.7 billion, with 1.1 billion booked in Q3. Book-to-bill on a trading 12-month basis has trended up versus mid-year and is expected to improve further in the coming quarters. Net cash at period end was 3.3 billion, again up versus H1 position. In summary, despite a challenging external environment, The collective performance of our teams is continuing to yield strong results. Turning to guidance, with three quarters of the year behind us and improved visibility on our exit from Arctic Energy 2, it is appropriate to return to full company guidance for 2022. We expect full year revenues in the range of 6.2 to 6.5 billion clearly supported by backlog schedule for the fourth quarter. We see adjusted recurring EBIT margins of between 6.7% and 6.9%. This is broadly in line with the year-to-date performance and is above the 6.5% achieved in 2021. Our expectations for effective tax rate remains at 28% to 32%. And I should point out that this guidance is consistent with the prior financial framework, which, as a reminder, excluded the contribution from Arctic Energy II. While it's obviously too early to provide any firm financial guidance for 2023, there are several building blocks to consider when estimating our top line. We have $4.5 billion in hand for 2023, as per the backlog schedule. Future orders in both segments will also contribute to this top line. As we implement our exit from Arctic Energy 2, there will be some residual revenue contribution from there. On margins, as we have previously mentioned, sustained margins will be delivered through effective cost-based management, strong project execution, and the growth from TPS activities. All this is supported by the execution and materialization of our strategies. Turning to our segment reporting and starting with project delivery, where our first nine months' performance demonstrates robust business execution. Revenues were modestly down year over year, with a significant decline in contribution from Article G2, largely offset by 30% growth in the underlying portfolio as major LNG and downstream projects ramp up. Segment adjusted EBIT was $280 million, equating to a margin of 7.2%, up 80 basis points year-on-year. Margins benefited from a strong contribution from LNG and downstream projects in the latter stages of completion. Excluding Arctic LNG2, the margin was in line with the overall performance at 7.3%. This demonstrates the quality of our underlying portfolio, the maturing mix, and strength in execution. It also underpins our confidence in the outlook for the remainder of the year and beyond. Trailing 12 months book-to-bill was 0.4, reflecting the absence of large awards in the period. But it is worth noting that this calculation includes significant revenues from Arctic Energy 2 over this period. Backlog has declined 24% year-over-year to 11.7 billion, impacted primarily by the majority removal of Arctic Energy 2. Excluding this project, backlog is nearly flat, benefiting somewhat from favorable FX movements. While Arno will provide details in the Outlook section shortly, we are confident that book-to-bill trends for project delivery will improve significantly in the coming quarters. Turning to technology products and services, TPS continues to deliver strong financials with revenue growth of 6% year-over-year and EBIT improving by 13%. This growth was driven by higher PMC and engineering services activity, especially in the Middle East, and strong activity in renewable fuels and process technology, including licensing and property equipment, notably for ethylene and for PBIT, a biodegradable polymer. EBIT margins improved by 60 basis points to 9.2%, benefiting from higher activity levels overall and a favorable mix, including process technology and advisory services. And this expansion has been achieved despite higher selling and tendering expenses to deliver our ambitions in future growth markets. TPS backlog, which has seen a huge 60% expansion year over year, While Arnaud will discuss this in more detail later, we have benefited from sizable recent wins in renewable fuels and ethylene, as well as the strengthening of smaller rewards in the third quarter. As such, trading 12 months' book-to-bill has improved 1.4 from 0.9 last quarter, with a clear acceleration in this third quarter. Turning to the other key performance items across our financial statements, And beginning with the income statement, R&D at 34.5 million is materially higher versus last year and consistent with our strategy for targeted investment to enhance our energy transition positioning. Net financial expense at 7.2 million is down versus the H1 position. As I discussed last quarter, the rising interest rates environment around the world will benefit us thanks to the large cash position on our balance sheet. And we see this in Q3 with higher interest income on our deposit. Finally, the balance sheet is largely unchanged versus the first half and remains very strong. Let me conclude my part of the presentation by discussing cash flows, where the first nine months performance shows continued strong free cash flow conversion. Free cash flow at $122 million included $153 million working capital outflow. Net of working capital, free cash flow was $275 million and consistently strong as we executed across our portfolio. Cash conversion from EBIT, ex-working capital, remains high and we continue to expect to deliver consistently high free cash conversion net of working capital in a 70% plus range in the medium to long term. Regarding the potential impact from Article G2, as we progress further on our orderly exit, we will experience some working capital and cash outflows as we close out purchase orders and subcontracts. But as previously mentioned, no net negative financial exposure is expected. Below free cash flow, the key items include Our major dividend of 45 cents a share, which was approved and paid in May for a cash outflow of 79 million, and 54 million related to share buyback. We end the period with 4 billion of cash and cash equivalent. I will now turn the call back to Arnaud for the outlook.

Thank you, Bruno.

Turning now to the outlook, where our TPS portfolio is strengthening and our energy transition pipeline is expanding. Let's first focus on TPS, which achieved significant backlog expansion of 60% year-over-year to $1.8 billion. The third quarter was notable for key awards in renewable fuels, with the Rotterdam Expansion Services Award for Neste and the Essilen Proprietary Equipment Award for INEOS. These two awards, had a longer cycle dimension to the TPS backlog. In addition to this, TPS benefited from a well above average quarterly run rate of smaller technology and services awards that are shorter cycle and more book intern in nature. As I said previously, TPS is a strategic growth segment for Technip Energies, and we continue to enhance our position in the value chain. Beyond Ethylene, markets are supportive notably in decarbonization, clean hydrogen, and many other energy transition themes. Our increased R&D spend is focused on enhancing our technology portfolio, and we continue to actively scout the market for suitable technology bolt-ons. Turning to project delivery, where we see a further improvement in macro outlook and strengthening of the commercial pipelines. The energy sector is now entering a multi-year expansion phase, which is necessary to address energy availability and affordability. This is further supported by governments around the world creating conditions for capital to be deployed in the pursuit of net zero goals, such as the Inflation Reduction Act in the US and the Repower EU Plan for Europe. Against this backdrop, our energy transition commercial pipeline has expanded by 50% compared to the position at full year 2021 results. Two main factors are driving this. LNG, where prospects are being reactivated at a pace rarely seen previously, and energy transition opportunities, excluding LNG, which are accelerating with a near doubling of the commercial pipeline since the start of the year. These trends fit very well with our strategy and are supportive of a sustained improvement in orders over the next two years. In summary, a very positive commercial outlook across the majority of our markets, which is enabling us to deliver on our purpose to engineer a sustainable future. Turning now to SLM. The market, which is historically GDP-led, has seen a reduction in major new capital projects over the last three to four years due to new capacity coming online and recent economic uncertainties. But we are now seeing recovery in near-term market prospects as well as structural drivers that will support the market through a recession scenario and over the long term. This includes regulations such as the EU packaging directive, national and political economic agendas, and refiners strategically expanding into petrochemical production. In addition, we should not underestimate the drive for decarbonization, both to optimize the new infrastructure and to future-proof existing production capacity. Our market position is very strong. Reinforced through the Stone & Webster acquisition back in 2012 and continuous investment in R&D programs, we have a robust technology position with more than 40% market share of licensing. This leadership position gives us a seat at the table for a high proportion of prospects and provides us with an early engagement tool to evaluate and select the right models. Sometimes, this can be through pure licensing. Alternatively, we can license and supply proprietary equipment, such as furnaces, as was the case for the recent INEOS award. Or we can license technology, supply our products, and secure the project's EPC, like we did for Borouge 4. Over the next decade or so, we see the market adding nearly 80 million tons per annum of facility and capacity. With several prospects currently being assessed, we remain well positioned for additional awards in the coming quarters. Finally, we are making substantial improvements to decarbonize the production of ethylene, including integrating CCS technology, firing hydrogen as a fuel, electrification, and through circularity using feed from recycled plastics. And we're not done. Our sustainability drive continues through further R&D and open collaboration with partners as we develop the SELN of the future.

In closing, we have delivered a robust performance for the first nine months of the year.

With this and improved visibility regarding our exit from Article NG2, we return to full company guidance for 2022. TPS orders in Q3 drove a step change in segment backlog bolstering the growth potential in our highest margin segment, while the commercial pipeline for project delivery has expanded through higher energy transition and LNG opportunities. TEN's business strategy is fully aligned to an improving energy market outlook. Supported by our strong balance sheet and commitment to further invest in technologies, we are well positioned to enable solutions for affordable, available, and sustainable energy. and we remain resolutely focused on generating value for our shareholders through effective capital allocation and sustained excellence in execution.

With that, let's open the call for questions.

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Kate O'Sullivan with Citi. Please go ahead.

Hello. Hi there, Arnaud, Bruno, and Phil. Thanks for taking my questions. The first question is around Arts Academy 2. You mentioned it was reassessed the backlog in the quarters. obviously increased by about 40 million despite revenues. Could you provide some further color on the moving parts here? I'm looking forward to how we expect the Arctic LNG2 backlog and revenues to move through first half of 23 before you exit fully. And then secondly, you talked about the, I can come back to my second question, sure.

Okay, thank you, Kate.

Actually, I will hand over to Bruno for the backlog question, which is a very interesting one. Thank you for asking.

Yes. Hi, Kate. So in terms of backlog and the moving parts for Arctic Energy 2, as we know, we've entered discussions with the clients about our exits, and we reassessed the scope of work which was being done And this led to some reduction in Q2. And obviously, as we continued our discussions, we slightly updated basically the third quarter. This will be further adjusted as required based on ongoing discussions with the client that will continue. And just as we close out of any projects, basically, We have a team mobilized. We will incur costs as we close out subcontracts, we close out POs, we transfer POs. And this cost of completion will also then in turn generate revenue out of the backlog. So we will continue and make reassiments. Some or part of this backlog will translate to revenue, but this will be further adjusted as we get along the process. As we said in this quarter's release, we expect to be fully completed by the first half of 2023.

Okay, thank you, Bruno, there.

And just a second question, if I may. You've talked about the expanded energy transition opportunity set, but specifically on LNG and the Northfield South expansion in Qatar. Could you provide any colour on that big process and timeline? I believe it's a competitive tender, but you obviously are the incumbent on Northfield East. Thank you.

Yes, Kate, thank you. And indeed, we believe that there is significant investment that is still required for the years to come to ensure natural gas, and LNG in particular, as a key part of the energy transition. The NFS expansion of the project in Qatar is one we are competing for. While we are the incumbents, you're right to say that it remains a competitive landscape. The calendar and the timing is unchanged in terms of the technical submission which has taken place. And in terms of the commercial submission, which will take place in all likelihood before year-end. And after that, it's really within Qatar Energy's hands to decide on the FID. But the process is progressing and studies are ongoing, including the preparation of the future infrastructure, and it's, I would say, potential improvement in terms of the low-carbon solutions, which we are very excited about because we have a major role to play in terms of the solution we can contribute. So I would say it's a live process which is pursuing its course, I would say, as planned.

Thank you.

The next question is from Jean-Luc Romain with CIC Market Solutions. Please go ahead.

Good afternoon. My question relates to LNG as well. We have seen the situation this year with lots of LNG required. So far this year, finally very few new FIDs and LNGs. We are expecting NFS for next year and a couple of others. How would you explain it's so slow finally with current prices which should maybe get the acceleration to be faster than that?

Jean-Luc, good afternoon. So as you know about LNG, this is more of a long cycle business and it can be sometimes challenging to truly compress FIDs and project durations. Now, it's not for the lack of interest for new LNG projects. I think the landscape or part of the landscape may be shifting in favor of established LNG players. And this is why you are seeing the likes of Qatar Energy progressing with NFS. And really, while there is no massive acceleration, I can tell you that there is indeed a higher pace to this prospect. But they are absolutely keeping the right course and they are on track for their FID decisions whenever they will decide. And it's the same for other players in the UAE. We've seen and you are aware of the fact that we signed pre-FID agreements with a couple of developers in the US. So we have seen no change of course in terms of our engagement with those players. And I think what we're observing is a market that is now being driven by a strong interest for solutions that can be providing a faster-to-market solution. opportunities, i.e., the modular designs. And you know we are well positioned when it comes to modular designs for LNG or through the productization of the LNG infrastructure through modularization. And I think what we've been observing is an acceleration of the interest for faster-to-market modular design that will particularly advantage those who will select this solution in the coming year. So there is no anxiety on our end in terms of the pace of new world. You may recall that should 2022 have been a a normal year without a war in Ukraine, we would have booked, in all likelihood, more orders in LNG for our clients in Russia. Obviously, this has not happened. It takes a little bit of time for the pipeline for us to not replenish really, but for the remaining opportunities to convert and materialize. But it's coming, so no anxiety from our end. And on the contrary, I would say a lot of optimism on the back of the faster-to-market modular designs that we are promoting.

Thank you. May I ask an incremental question? On the other side of the equifaction chain, there is the regas. And we all know that the onshore regas plants may be difficult. Then you would have to do that to use the gas for power plants. Would there be a way to re-gas to power to accelerate the process for making electricity and maybe not being onshore?

You're talking about gas to power offshore solutions?

Yes, yes. Re-gas to power, for instance. I don't know if there is research on that or whatever.

Yes, we have actually teams who are working on solutions like the one you're mentioning. And it's an interesting theme which has been going on for some time between us and our clients in the industry. We don't have at this stage a clear line of sight of an opportunity that could convert in the future. It is about differentiation and bringing the price tag at the right level for probably the kilowatt hour. So it's work that is ongoing, and we have teams mobilized working on some of the solutions. But too early to say if and when any of that could convert into a real business opportunity. But indeed, it is a theme that is attracting interest.

Thank you. If I may, what is at the back of this, maybe further down the chain, further business opportunities would be the decarbonization of the gas-to-power plants. You remember we've been notified of Celsius, waste-to-power. We're working on the consult technology. So at the back of more projects from gas-to-power, we have the technology, we have the solutions for decarbonized such. So almost more opportunities for us in the decarbonization agenda and coming obviously on top of the facility to RIGAS.

Thank you.

The next question is from Mick Pickup with the Barclays. Please go ahead.

Good afternoon, everyone. A couple of questions, if I may. Firstly for Bruno, can I just check in the quarter? Obviously, it looks like Arctic had a very strong profitability quarter. Is that just because you know where the end of the project is now and you could hit milestones on that? That was the first question.

Thanks, Mick. Obviously, Arctic was contributing based on the discussions. And as I said earlier to Kate's question, we will continue to work on our exit, executing the exit framework agreement. And this will generate cost and revenues. As you know, the project's recent performance is not necessarily indicative of what its future contribution could be. Of course, it's the outcome of de-risking milestones, commercial closeouts, project completion, so the Arctic closeout and exit will be just the same as every project. From our point of view, obviously what's important, Arctic is one project within our portfolio. It's important not to consider just one single project in isolation. The project always will be driven by a portfolio approach. So a bit more Arctic. For instance, this quarter, Yamal was significantly down in Q3 versus H1 run rate. So for Q3, Yamal's contribution to the gross margin of technical energies was really quite low, quite immaterial. So in other words, you know, high Arctic, this multi-year recurring questions on Yamal, Yamal cliff, a kind of low Yamal. So Q3 is almost to the point where we've entered a post-Yamal world. So what you will see unfolding in future quarters is, yes, some contribution from Arctic in revenues and bottom line, depending on some of the closeouts. And of course, the ramp up of the rest of the project and the project delivery, which will come into play for next year.

Thank you. And then let me ask a question about last Friday's press release with Shell CanSolve. Obviously, you've been together for many, many years. What's just prompted the closer collaboration and what exactly is it that you're putting together?

Yeah, thanks Mick. What prompted the communication and I think that Shell have themselves communicated on the matter more recently is basically the conversion of this collaboration into a real commercial success. and a long lead of prospects that we are currently pursuing and we are promoting and fronting, I would say, this on behalf of Shell. And we made the announcement because we basically... strengthen the relationship and formalize it in a way that the roots are going deeper in our respective organizations in terms of collaboration and future commercial arrangements of who's getting what when deploying and promoting the CanSolve solution for carbon capture at scale. about officializing what the teams have been putting together and the traction we're experiencing around the world for the solutions that we will be deploying together.

Okay. Thank you. Cheers.

The next question is from James Winchester from Bank of America. Please go ahead.

Brilliant. Afternoon, guys. Thanks for taking my call. So the first question is regarding the backlog cover. Because last year, if you kind of take the midpoint of guidance, you had about 93% coverage. If you kind of take the same time last year. Is there anything operationally which would mean this would be lower for 2023? And then secondly, my final question, could you provide a bit of color on what project was the main driver for the accruals on completed contracts? I just noticed there's an increase of 50 million. a year-end 20 to about 250 million at the end of the first half of 2022. And have we seen this unwind this quarter? Thank you.

Hi, James. Thanks for your question. So if I take the first one on the backlog and the backlog cover, as I mentioned in my prepared remarks and for the build-up, Obviously, you know, we are today at 4.5 billion of backlog which is scheduled for execution next year. Any project, you know, it's difficult to draw real conclusions historically because you have moving parts. For instance, yes, we have a larger TPS award which is slightly shorter cycle. Historically, we never had less TPS cycle. We also have more growth in PMC where we don't recognize the full benefits of the backlog and we basically inbound and make revenues when we have firm service orders. So it's difficult to draw on a conclusion at any point of time. But as you point out, the dynamic remains and the building blocks are the same. So first you start with the backlog which is in hand, $4.5 billion and There is obviously new orders to come in project, in services, in TPS, in Q4, which will contribute to next year. There will be contribution also from new orders in 2023 for future execution already in 2023. Of course, the later we go into 2023, the less of the contribution. And on top of that, as I mentioned earlier, we will have some contribution there from the remainder of the regional component of Article 82 as we perform on the exit framework agreement, which will generate some contribution. So these are the building blocks which I've tried to summarize in my previous remarks, and that will constitute basically the building blocks for 2020 revenues, which obviously will be integrated when we release guidance. For your second part of your question related to completed contracts, that's technicality. So for some projects which have been completed or close or continue to be completed, some in the downstream, but also partly Yamal, where we've had basically we transferred them from when we completed the project from a technical operation, from NCL to other liabilities, and as we have cost or not, they are released.

Okay, thank you. So just to confirm, when they are released, would that be a cash impact or just kind of P&L?

It can be a cash or a P&L. It can be both, depending on the outcome.

Okay, thank you. Very clear. Thank you very much, Conor.

You know, James, I think I'm going to stress something that Bruno mentioned a bit earlier about the way to consider Technip Energies and its portfolio. It is very important to continue to not look at a particular project in isolation from the rest of the portfolio. We are, and the performance of the group is that of the result of those projects altogether. And we have at any point in time, you know, Bruno said it, over 100 projects being executed. Some in early phase, some in closeout phase, etc. So we're not going to make it, I would say, an official communication to describe what's super late and closing out, etc. It's the portfolio performance that matters. And the same applies to Arctic, which is actually, in a way, entering into some form of a closeout phase. That's what we're signaling through the exit framework agreement. And at the end of the day, our shareholders will recognize EPS on a full company basis. any dividend that we will propose will be on the basis of the full company results performance and not in isolation looking at one or a group of projects away from the rest. And I think it's a very important message that I wanted to convey on this call. And so thank you for giving me the opportunity through your question.

Brilliant. That's very clear. Thank you.

The next question is from James Thompson with JP Morgan. Please go ahead.

Great. Thank you very much for taking my questions, Chaps. I just wanted to talk a little bit about TPS, if that's all right. Obviously, a big pickup in the order book through the third quarter. I guess we've thought about this business as a sort of revenues being kind of 1.1, 1.2 times the order book at any one point in time. Should we expect that to continue as this kind of grows pretty quickly, or should we think about it as a sort of slightly longer cycle business some of the projects in TPS or some of the workflows, I should say, in TPS get more significant in nature.

Hi, James. Good afternoon.

And so thank you for pointing out to the strength of the backlog or the strengthening backlog in TPS. The more we will enrich the portfolio of Technip Energies through productization, the more indeed there will be somewhat of a longer cycle. I'm not going to call it a long cycle because I don't want to put TPS at par with projects delivery. That would be a mistake. It's going to remain shorter cycle than projects delivery. but there will be an element of longer cycle added to the short cycle nature of the TPS business. So, as you've observed and we've communicated this quarter, there is a very rich pipeline of opportunity that has materialized in the domain of Ethylene, this queue in particular. And in Ethylène, we are coming with not only man-hours and capabilities of engineering or technologies and licenses, we're also coming with equipment and that's adding a proprietary equipment, the furnaces to name them. So this is adding indeed the longer cycle component to this short cycle business in nature. The investment and where we are spending our money in R&D and in the development of solutions for Technip Energies is indeed into more technology and more license, but also more technologies in order to generate more proprietary products. And this is a trend that you should expect for Technip Energies going forward. And I do expect that in 2023, we will communicate on more proprietary products now hitting the market. and a different type of offering and new solutions in the domains of clean hydrogen, in the domains of carbon capture, which itself, when you think about what we are developing with Shell on the counts of technology and the joint promotion and marketing of it, there is an element of that that is going to turn into, I would say, a productization of the solution, so that actually there's a faster time to market for who wants to decarbonize. The more we continue to invest the way we are through technologies in order to generate more proprietary technologies and equipment that we can sell alongside the engineering hours and the licenses, the more you will see indeed some of the longer cycle color painting or coloring, sorry, the TPS backlog. So it will remain a mix. But yes, indeed, probably a bit more products for the future. And thanks to that, I think we can maintain, at least for the foreseeable future, somewhat of the trajectory for the... the type of book to build that we will be demonstrating in the future for TPS. It has been experiencing some growth. We've told you all that we wanted to continue investing for this growth, and this will materialize in growing backlog, or in a backlog that we believe can be sustained at the type of level that we've reached in the queue.

Okay, thanks. And, you know, you've previously spoken about an ambition to kind of take that business to a double-digit type e-bit margin. You know, the types of work you are targeting here, will that get you there? Can you give us a view on when you might be able to get to that sort of level?

I think maybe I can start and then Arnaud can follow up. Obviously, if it was too early for me to provide a guidance for the full company, let's consider a bit even earlier to provide a guidance for, let's say, segment split. But as you point out, and as Arnaud mentioned, we have the capacity to invest. We are trying to differentiate through technology, more R&D. We have the cash, and sometimes it's a recurring question, the cash balance, available cash, What I can say with confidence is that we are very comfortably net cash positive in the multi-hundreds. It's been growing, it's sustained, it will continue to grow because, as I said earlier, we have a very good EBIT free cash flow conversion. So what this means is beyond the dividend, beyond the deleveraging, if we want, this cash now and for the future can be put to good use for increasing investments. And that means accelerating the pace in investment in R&D, in investment that we will make. And as we said earlier or previously, these investments will obviously target the GPS segments, more solutions, more technology that will be to sustain the growth. And as we sustain, yeah, at 9.2, we have the double digit insight. How we get there and when, I think it's too early to tell.

Okay. Fair enough, Bruno. Just finally for me, obviously last quarter you talked about winning a billion of pure energy transition work in 2022. How far along are you now and are you still confident of getting to that level by the year end?

Yeah, James, we've continued making our way into the billion that we communicated last quarter. And we are, at this time of the year, exceeding the 800 million mark. We're well above 800 million. And so I think the billion mark or around the billion that was something we communicated last quarter is well on the horizon. And we continue to book new projects, new studies. And that's always – we haven't discussed that recently, but the quality and the quantity – of early engagement basically drives the quality and the quantity of projects in the future. And in energy transition, we've seen a very big acceleration, a continuous acceleration in 2022 through studies, but also a real sizable award. The momentum has not slowed, and that's why we're talking today, and we are well north of 800 million at this time of the year. So, yeah, we should land around the billion as we indicated at the end of the first half.

Great. Thank you very much. I'll hand over.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Oisdine Wegen with Fernlist Securities. Please go ahead.

Hi, thank you. I just have two questions. The first one is, if you look at the 2023 backlog, you now have 4.5 billion scheduled. How much of this is coming out of the 1.8 billion TPS backlog? And second question is, if you kind of go back in time, if you look at the first quarter of 2021, you had around 17.8 billion backlog and you had contract liability of around 17% of that. Now you have backlog of 13 and a half and contract liabilities of 3.4 billion, which basically means that contract liabilities has gone from 17 to 25% of the backlog when the backlog has been called decreasing. Can you just explain some of this to the audience?

Sure. All right. Okay. You go, Bruno. Thanks. So, first, to cover your backlog question, as I know I was mentioning earlier for TPS, you know, we have significant step-ups, 60% backlog increase, and that's including, you know, a mix of things, including services, but also SELN, which are somewhat with production, somewhat a bit of a longer cycle. So not splitting today, but yes, part of this one point, this step up in backlog for TPS will be included in 2020's revenues, not all of them. Some will go a little beyond 2023. What it means that the trajectory, what we said historically is we wanted to target for TPS high single-digit, low double-digit growth, I think the materialization of the step-up in order intake and backlog is totally consistent with this trajectory. So you should have some comfort of this trajectory with that. It won't be done 100% next year because it has, for some part of it, a bit of a longer cycle over that. So they will contribute. And, of course, new projects, new worlds will further contribute, as I mentioned earlier. For your questions on the percentage and maybe the balance sheet structure, which basically comes back to cash flows and our structure derived from the project. So if I take a step back and if I walk you through this kind of year's trajectory, As anticipated, we had some negative working capital movement in Q3 and within the year. And as we close out Arctic and the normal evolution of projects, you should expect also to see some small negative in Q4. If I take a further step back, and if you take 21 and 22 view, obviously you will still be in a very positive contribution. And as I said, more importantly than going forward uh you know the a b to free cash conversion being high uh we have we should be at the 70 percent level then for your structure the the balance sheet structure should should not change drastically over the future and we feel it's sustainable so 2023 and beyond and it's not obviously a working capital guidance that i'm giving now but the way you could look at it or you should look at it is, yes, projects in the later phase of completion, of closeout, do generate some slightly negative working capital impact and outflows. And, of course, they are offset, partly offset, more than offset by the new streams of projects that are coming in. So, as Arnaud was outlining, from a TPS perspective, from a project delivery perspective, we've had an increase in the amount of of opportunities, which will generate an increase in the book-to-bill and in the order intake for projects. So as this comes, basically this will also replenish basically the working capital and the net contract liabilities. So you should not expect to see a very significant and structural change to our balance sheet, which is the outcome of our discipline on cash flow, positive cash flow from projects, discipline in T&Cs, non-linear margin recognition, where we keep provisions for risk, and we can release them as we de-risk or execute the project. So these things remain, and the balance sheet structure of the company should remain.

You know, Einstein, and thank you, Bruno, there is, when I think about the backlog for project delivery, complemented by the backlog situation on TPS, it's basically giving you a very high percentage of secured revenue for 2023 because of the nature of the respective businesses. And it's extremely comforting to be entering or to be ending soon 2022, knowing that we can rely on this very predictable and high level of known percentage of known projects and revenue stream, both in project delivery, but also in TPS. And as Bruno's mentioned, for TPS, which is shorter cycle, you know, there are more, I mean, there are orders every week. So there is a natural short-term replenishment of the backlog at a high pace because of the nature of the short cycle business.

Understood. Many thanks. Thank you.

Gentlemen, there are no more questions registered at this time. Mr. Arnaud Pieton, I turn the conference back to you for the closing remarks.

I'll take that one, Arne. That concludes today's call. Please contact the IR team with any follow-up questions. Thank you very much and goodbye.