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spk04: Hello to everyone, and welcome to Technip Energy's financial results for full year 2022. On the call today, our CEO, Arnaud Piaton, and our CFO, Bruno Biber, 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 statements on slide two. I will now pass the call over to Arnaud.
spk07: Thank you Phil and welcome everyone to our full year results presentation. 2022 was a year where our differentiated hybrid model with its complementary long and short cycle business segments continued to yield strong results and I want to express my deep gratitude for the extraordinary commitment of our teams to deliver excellence in execution and a robust operational performance. Turning to the highlights, Our financial performance is very strong, with EPS growth of nearly 30% year-over-year and notable strength in margins, which increased by 50 basis points. We also achieved sustainable commercial successes. With over 60% segment backlog growth for technology, product, and services, TPS, which reinforces the growth outlook of our highest margin segment, and we booked more than €1 billion of awards in energy transition domains, demonstrating our emerging leadership in carbon capture, clean hydrogen and sustainable chemistry. Based on the strength of these results, and in line with our stated dividend policy to pay a dividend annually that is sustainable with potential for growth over time, we are pleased to announce a 16% increase in dividend to 52 cents a share, which is subject to approval at our annual shareholder meeting in May. The dividend reflects both our commitment to shareholders and confidence in our business outlook. Turning to the operational highlights, as reflected in our strong fourth quarter financial performance, our teams continue to demonstrate their resolve and robust business execution. The strength in margins clearly reflects the overall quality of our project's portfolio, a good level of project closeout activity and de-risking of ongoing work, and a growing revenue contribution from TPS. So, overall, We continue to make good progress in project delivery and TPS activities, and we expect resilience in our future margin performance as Bruno will address later in the guidance section. Before turning to the commercial highlights of the quarter, I would like to reflect on a significant achievement. During 2022, we extended our early leadership in energy transition markets with €1 billion of secured orders across carbon capture, clean hydrogen, sustainable chemistry, and floating offshore wind. And this is not a one-off. The five-fold increase over the prior year is a clear indication of our growing maturity in new targeted markets, and we are confident that our backlog will be increasingly populated by these domains in the future. In fact, we believe the current energy agenda and recent government policy announcements create further incentive for our customers and therefore for Technip Energies to invest in new energy markets and the development of low-carbon solutions. And this is confirmed by our very high level of front-end engagement with customers. As I will discuss later in my outlook, we are developing leading positions with differentiation through technology products and solutions. and we are implementing our strategy towards building our future core. Now let's take a look at key recent awards, front-end management engagement, and exciting partnerships that position us well for future success. We benefited from a series of awards in the Middle East, including PMC services for KOC, and Early Works contract with Adnok for its A.N. Gashab project. Momentum and ethylene markets continued as we booked an award for the Golden Triangle project in the U.S., incorporating our latest emission reduction solutions. Our pertinence in the clean hydrogen market continues to be evidenced by notable successes in the fourth quarter. They include a feed for the world's largest low-carbon hydrogen project at Baytown for ExxonMobil, where the planned facility will capture 7 million tons per year. of associated CO2 emissions, as well as feed awards for industrial-scale green hydrogen projects for ENGIE and UNIPER. Both projects are in the Netherlands and have significant expansion plans into the 2030s, well in excess of their initial 100 megawatt capacities. Also in the quarter, we announced several strategic partnerships, including one with that will see two industry leaders join hands to accelerate the delivery of modularized mid-scale energy to enable faster time to market, respond to scarcity of construction resources, and lower emissions through electrification. In summary, a positive quarter for orders, front-end positioning, and partnerships across several exciting markets. Before handing over to Bruno, I will take a moment to highlight the advantages of our differentiated hybrid model. The combination of world-class execution within the long cycle project delivery business alongside a short cycle margin accretive TPS segment provides an ideal blend to deliver strong financial performance across energy cycles. And this has clearly been evidenced since the creation of Technip Energies, where despite facing various stress tests, including the global pandemic, supply chain inflation, and the war in Ukraine, we have continued to deliver sector-leading financial performance, supported by commercial astuteness, robust project execution, and a resolute focus on cash management. Furthermore, Our asset-light business model has enabled us to pivot towards new energy markets that are gathering momentum, and the strength of our balance sheet will allow us to invest and convert our front-runner positions in exciting growth areas. All this means that Technip Energies is set to thrive in the energy transition while we continue to generate high returns for our shareholders and a sustainable dividend.
spk03: With that, I will pass on to Bruno to discuss the financial highlights.
spk01: Thanks, Arnaud, and good afternoon, everyone. Turning to the highlights of our financial performance for 2022, adjusted revenues were slightly down year-over-year at $6.4 billion. While the significantly lower activity on Arctic Energy 2 had an impact on the revenue trajectory in 2022, the underlying project delivery portfolio delivered significant growth supported by higher volumes in LNG and downstream projects, and high single-digit growth in TPS. Profitability improved in absolute terms despite the lower revenues. And adjusted recurring EBIT margins are up 50 basis points year-over-year to 7%, benefiting from strong project execution and TPS growth. Adjusted diluted EPS grew strongly, up nearly 30% year-over-year, I will discuss the mechanics of this improvement later. Adjusted order intake was 3.8 billion, significantly lower year-over-year, given the absence of major project delivery awards. In contrast, TPS achieved its strongest ever order intake, which at 2.2 billion accounted for more than 55% of total orders. Period end backlog of 12.8 billion, continues to provide us with excellent visibility at the equivalent of two times 2022 revenues. Net cash at year end was 3.1 billion and stable versus the prior year. Again, I will come back to this later. In summary, the collective performance of our teams has delivered a very strong outcome in 2022. Turning to our segment reporting and starting with project delivery. where our 2022 performance demonstrates sustained excellence in business execution. Revenues were mostly down year-over-year, impacted by lower activity on Arctic Energy 2, but largely offset by the ramp-up of major energy and downstream projects. Notable strength in margin at 7.9%, up 150 basis points year-over-year, benefited from a high level of later stage LNG and downstream contracts, with several projects commissioned and handed over to customers, as well as a final contribution from Yamal LNG. Turning to orders, the 12-month book to build of 0.3 reflects an absence of major awards. However, it is important to acknowledge the duration of our longer cycle project work. LNG projects, for example, can be multi-billions of euros in value and contribute to our financial performance for four, five years or even longer. Therefore, monitoring book-to-bill over a longer time horizon, as we do internally, gives a better representation of the commercial dynamics and underlying growth of the segment. At a ratio of one, our book-to-bill for the last two years clearly demonstrates that we've been able to replace the revenue recognized by new awards. Finally, project backlog has declined 29% year-over-year to 10.7 billion, reflecting the low volume of orders in 2022, as well as a significant cancellation of Article 82 backlog. Based on the strength of our early engagement and commercial pipeline, we anticipate an improved new order trajectory in the coming quarters. Turning to technology products and services, TPS continues to deliver strong financials, with revenue growth of 8% year-over-year and EBIT improving by 9%. The growth was broad-based, with higher PMC and engineering services activity, strong activity in sustainable chemistry, and growth in licensing and proprietary equipment, notably for ethylene. EBIT margins improved slightly to 9.3% on high volumes and positive mix, despite the higher selling and tendering expenses required to deliver our ambitions in future growth markets. As Arnaud mentioned earlier, we achieved significant commercial success in TPS with a book-to-bill of 1.5, driving a remarkable 63% expansion in segment backlog year-over-year. And this underscores the positive momentum driving our higher margin segment. Turning to other key performance items across our financial statements and the attractive returns we are generating for our shareholders. R&D spent at 50 million is 28% year-over-year and consistent with our strategy for targeted investment to enhance our energy transition positioning. In fact, well over 80% was spent on energy transition. And as part of our ESG roadmap, we intend to reach 100% in 2025. Beyond the growth in EBIT, net income and EPS benefited from several factors, including significant growth in interest income, lower effective tax rate, and the absence of the transaction cost that impacted last year's results. These drove a significant net income growth of 27% year over year. The strengths of our earnings in relation to our equity, which has also increased significantly since the creation of the company, is driving a 20% return on equity, which is comfortably amongst best in class. Finally, the balance sheet structure remains largely unchanged with net cash in line with the prior year, which I will discuss in more detail on the next slide.
spk03: So indeed, making now a deep dive into the cash flows.
spk01: Free cash flow for 2022 was 86 million, including a 330 million working capital outflow, which reflects the absence of major awards through 2022. As I discussed, in relation to project delivery. The timing of large awards and associated upfront and milestones payments can be lumpy, and monitoring longer cycle trends is more important when analyzing this segment. In aggregate, 2021 and 2022 working capital had a positive impact of nearly 300 million. Because of the specific nature of our cash flows, our preferred metrics to monitor underlying cash flow generation is to look at free cash flow net of working capital. On this basis, free cash flow was 420 million in 2022, with over 90% conversion from EBIT, as we executed across our portfolio and benefited from lower tax rates. Our future expectation for free cash conversion net of working capital remains very strong, and we expect to be in the 75% plus range through cycles. We end the period with 3.8 billion of cash and cash equivalent in line with our 2021 year-end position. Before ending back to Arnaud to discuss the outlook, I will address financial guidance for 2023 and provide a medium-term framework. For 2023, we are confirming expectations for EBIT margins in the 6.7% to 7.2% range. The low end of the range is consistent with the framework we outlined at our capital markets day just prior to the creation of the company and clearly offers some upside potential. The consistency and quality of our portfolio and strength in execution fully supports our margin outlook. For revenue, we are projecting a range of 5.7 to 6.2 billion, which is well underpinned by our backlog schedule for 2023. Regarding the effective tax rate, we see a range of 26% to 30%, which is below the 2022 guided range, benefiting from a more favorable mix of earnings from lower tax jurisdictions, as well as a reduction in French corporation tax. To conclude, I will present a new medium-term framework where we see a positive financial outlook based on the strengths of our backlog, a rich and diverse commercial opportunity set, and the active deployment of our strategy. For project delivery, we anticipate revenues in the 5 to 6 billion range, while customer final investment decisions are not wholly in our control, notably timing-wise. We nonetheless have confidence in improving order intake trends based on the maturity of our front-end engagement pipeline, particularly in LNG and energy transition. We also expect to sustain best-in-class profitability due to the quality of our backlog, our discipline and selectivity when targeting new awards, and our excellence in execution. Turning to TPS. which is a strategic growth segment for technical energies. Here, we are targeting to reach 2 billion of revenues in the medium term. While the growth in segment backlog provides some natural support to our trajectory, we have additional levers to drive the growth. This includes investment, where we are targeting to spend 1% of total company revenues on R&D to expand our range of technologies and enable new commercial offerings to be launched. Arnaud will elaborate on this in his outlook section, but this will support greater penetration of fast-growing energy transition markets. We are also targeting improving profitability with adjusted recurring EBIT margin of more than 10% as the revenue mix evolves towards higher-value accretive activities. Overall, our medium-term framework confirms the revenue growth and attractive margin potential at Technip Energies. Et voilà. I will now pass it back to Arnaud to discuss the outlook. Thanks, Bruno.
spk07: Turning now to the outlook where I will first address the macro. As we discussed last quarter, the world requires an energy system that balances availability, affordability, and sustainability. as well as the critical need to decarbonize traditional industries, there is an urgent need for increased investment and accelerated project development with particular emphasis on LNG and low to zero carbon solutions. And the world is stepping up. Our customers are playing their role through their commitments to increase capital expenditures, grow production capacities, and decarbonize, while government policies are creating the conditions for capital to be deployed in the pursuit of net zero gold. We are already seeing the benefits of these macro tailwinds, first through TPS with a 60% plus increase in segment backlog, and also through significant expansion in both front-end engagement and commercial pipelines supporting the future acceleration in project delivery orders. The breadth of our market offering and leadership in decarbonization and low-carbon energies means that today Technip Energies is more relevant than ever to make a difference in tackling the energy dilemma. Focusing now on our positioning on early leadership in energy transition markets, we have leveraged our core expertise to position Technip Energies to capture future growth opportunities in the energy transition, and these markets now form a major part of our front-end engagement and project portfolios. Firstly, on the rapidly growing market for CCUS, where Technip Energies has developed a leading position with projects and studies that seek to capture or avoid more than 30 million tons per annum of CO2, There, through collaboration, co-investing with technology partners, we are driving highly competitive levelized cost of captured CO2, low energy usage, and up to 99% CO2 recovery. And we are particularly excited about the traction we are seeing in CO2 capture to decarbonize gas-to-power and waste-to-power sectors. We are also making considerable progress in other exciting areas. For example, in clean hydrogen and Power2x, our portfolio now exceeds Three gigawatts were with several industrial-scale projects in Europe and beyond. In sustainable fuels, we are partnering with market leaders and have proprietary technologies with applications in sustainable aviation fuels. And in the nascent floating offshore wind market, our solutions are achieving a high level of adoption, having been chosen for over four gigawatts of future potential projects in South Korea and Europe. In summary, as our active portfolio of secured work confirms, Technip Energies is leading from the front in the growth markets of the future. Before turning to ESG, I would like to address the key components of our strategy for 2023, which we are actively deploying to be ready for the future. Firstly, we expect global gas and energy markets to remain strong in 2023 and beyond, supported by further demand growth in Europe and recovering demand from China. Our very active early engagement portfolio consisting of close to 10 feeds across the Middle East, the Americas, and Africa confirms our leadership position, and we will retain our discipline and selectivity as we look to secure the right prospects in the coming quarters. Furthermore, We are strengthening our leadership through the development of mid-scale offerings, including SNAP LNG, as well as the solution under development with Baker Hughes. These solutions will enable accelerated time-to-market and decarbonized production and are totally relevant as we expect mid-scale LNG to account for as much as 30% to 40% of the future LNG market. Secondly, we intend to sustain growth in our creative TPS business segment. While the substantial growth in backlog through 2022 provides natural support to our trajectory, we will reinforce our ambition by expanding our labs and investing into new technology centers, deploying SLN of the future and piloting new circularity technologies, and expanding our range of services through digital advisory and consultancy. And finally, these increased investment and development is enabling us to prepare our future core. In the next few quarters, we will introduce a proprietary range of solutions and products for CCUS from pilot to large scale. And in the power to X market, we are developing more integrated solutions to overcome some of the challenges related to green hydrogen, green ammonia, and e-fuel markets. And as we look ahead, we believe that TEN is uniquely positioned to be the bridge between Electron, and molecule. Now turning to ESG, where our roadmap and scorecard have evolved towards impact-driven targets. During 2022, we delivered strong progress in our sustainability ambition. This includes diversity and inclusion with notable increase in women in leadership position, and we continue to achieve equality in new graduate intake. By consistently maintaining entry-level equality and providing learning and development opportunities, we will retain our talent and succeed in our ambition to have 35% of women in the permanent workforce by 2030. We reduced our carbon footprint while making huge progress, enabling our customers to avoid CO2 emissions through our blueprints, technologies, and solutions. And we have also invested in our people through upskilling entering fair salary inflation adjustments, and through the award of an exceptional bonus to all employees, excluding senior levels of management. And finally, we are thankful that our progress to date is being recognized through improved ESG ratings, including a AAA MSCI rating, and we are committed to continuous improvement on our sustainability path. So in closing, The strength of our hybrid model is clearly demonstrated by our robust performance in 2022, with significant earnings growth supporting an attractive 16% dividend raise. We set 2023 guidance and provide a medium-term framework that confirms our growth potential and sustainable margin trajectory. And the strength of our energy transition portfolio confirms our emerging leadership in fast-growing markets And we continue to invest and innovate to prepare our future core.
spk03: With that, let's open the call for questions.
spk05: 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 touchtone 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 Bertrand Rodier with Kaplan Chevro. Please go ahead.
spk08: Hi. Thank you for taking my question and congratulations for the very strong queue for delivery and robust outlook. Two questions, if I may. The first one is regarding LNG. You are involved in multiple seed studies. How do you see those studies evolving and maturing in 2023? And can you give us an update on where you see the strongest possible conversion into EPC for Technip Energies in 2023. And the second question is on the carbon capture opportunities. You mentioned 30 million tons of potential studies ongoing. It looks to me that obviously the Inflation Reduction Act is a no-brainer and should support massive investments, in particular in blue hydrogen. But can you update us on your thoughts on these carbon capture opportunities and also trying to convert how the 30 million tons per annum of carbon capture could translate into revenues or other intake going forward? Thank you very much.
spk07: Thank you, Bertrand. So let's start with your first question on LNG. So indeed, we have about 10 active feeds on LNG, which is a very rich pipeline. And when I say active feed, it's work for which we're being paid by our various clients. And across, I would say, three main geographies, the Middle East, Africa, and the Americas. So I will start with a bit of a disclaimer. Obviously, we don't control, as you know, we don't fully control, I would say, the FID, the timing of the FID by our customers. It's always helpful when we find, when we give them a price that they like, and it's an encouragement for them to take a faster FID. But having said that, I would say there is... high level of likelihood that LNG will convert from feed to project delivery orders within 2023. I would say, you know, we have about 100 MTPA worth of, sorry, 60 MTPA worth of LNG under preparation through the 10 feeds. I think that we will see in this year We should see in this year about 20 MTPA worth of LNG reaching FID. I think it should be a reasonable target. Now, a reasonable assumption. Having said so, once again, I repeat, we don't control the timing of it, but it's no secret. We are actively bidding in Qatar, and the offers are in the hands of our clients now. You know, we're now depending on the celerity and the pace at which they will review and the challenges for sure and the time of the negotiation and then reaching FID by them. So a reasonable, I mean, all the billing blocks are there for, you know, multiple awards. The number of awards will obviously depend on, I would say, the volume of the number of MTPA per award. So if very large projects are being sanctioned and reach FID, the number of awards may be smaller, even though the number of MTPAs is higher. So let's see how this will develop. But that's, as you know, the reality of our market. So all the building blocks are here for conversion in 2023. It remains competitive. So, we're not alone in this market, and it's a competition. This is why you will always hear that we are a little bit cautious when it comes to disclosing a thing on FID and chances of success. When it comes to CC carbon capture, yeah, we've identified north of 30 million tons per annum of CO2 to be captured through the various feeds that we are currently executing, so the front-end engineering studies or pre-feed, the concept studies. So it ranges from feed to project execution because we have one very large project ongoing, the CELCIO project in Norway. Indeed, we've had successes in the past few weeks. through being selected by ExxonMobil for the Baytown facility, you're right to say that the IRA is going to act as an accelerator towards Blue Hydrogen, in particular, Blue has its advantages. For as long as you have the CO2 sequestration infrastructure, you're simply depending on gas, which gas is available, less dependence on rare earth, less water consumption, etc. So blue hydrogen will see its own market, clearly in the U.S. initially. And as always, clearly for people who know what to do with the hydrogen. So, well, there's no question about the market or the offtake, which is the case when it is for the likes of ExxonMobil, who are going to use the clean hydrogen to decarbonize their own asset base. But it's also the case for other players around the world. The pertinence of blue, I would say, is a very natural fit for us and a natural possibility. a solution for decarbonization. About the, I would say, how to convert a number of millions of tons of CO2 being captured into revenue, a little bit difficult for me to give an answer because Bertrand, you know, we will not all the projects will be through Lumsum EPC. We will decide that it's probably better for us to tackle some of these projects through OpenBook or EPCM, partly reimbursable, etc. So it will be, once again, there will be different types of contracts for carbon capture. Now, the Celsius project, when we announced it, I believe I stated that we were not in the micro size of projects, but in the multiple hundreds of millions, and that's for half a million tons of CO2. So it all depends on the environment, and it all depends on the type of, I would say, contracting model we decide to select for one or the other opportunity. Not all of them will be fully PC. We may go through EPCM, like it's the case for the project, for example, not related to carbon capture, but for MESTE on biofuels. For the client, it's a multi-billion investment for us because it's a service contract. It's about 10% to 15% of their capex. So it will depend. If the conditions are right, as always, we will go for more, i.e. more EPC and more top line. Otherwise, we'll remain very selective and prudent.
spk03: Thank you very much.
spk05: The next question is from James Thompson with JP Morgan. Please go ahead.
spk02: Hey, good morning. Oh, good afternoon, I should say. Thanks very much for taking my questions. Firstly, Arno, you know, in terms of that sort of medium-term guidance, you know, you're obviously being quite a bit more constructive or bullish on the TPS business in terms of the scale and the margin potential in that business you obviously talked about. double digit previously, but could you kind of help us understand maybe a little bit about where the kind of backlog needs to get to? I mean, it's been a very much a kind of book and turn business, but you know, targeting 2 billion of, of, of, of revenues, does that mean it's going to get slightly longer cycle and we should expect it to, you know, the backlog needs to actually be sort of more like a 1.4, 1.5 times, um, to deliver that sort of revenue number. That'd be the first question.
spk07: Yeah. Thanks James. And hi, um, So in terms of TPS, the reason for providing a medium-term guidance is also to set an achievable ambition, but to clearly signal that our level of investment and the focus of our commercial teams will be towards growing the TPS part of our business, the TPS segment. TPS is technology, product, and services. So services, usually smaller orders, very short book and turn. When it's about products, like it's the case for Ethylene, when we sell a license plus the associated proprietary equipment, well, the time for fabrication of the equipment, et cetera, it's a slightly longer cycle. So you're more into the 18-month cycle than into the six months. the product component of TPS indeed provides somewhat of a longer cycle color to this short cycle segment. And the, you know, we're setting an ambition also because in the areas of, I mean, beyond Etilen, in the areas of carbon capture and also Power2X, the secret will be and remains in the ability to integrate technologies. And in Power2x, for example, if we want to solve for the challenges related to green hydrogen or ammonia or methane and e-natural gas and whatnot, you need to consider that electrolyzer is the key component, but you need to look at the periphery of the electrolyzer. There's a lot to be optimized and a lot to be developed in terms of potentially proprietary equipment that will make a difference in making, in turning Power2x and green molecules into something more competitive, in addition, of course, to benefiting from low-cost electricity or clean electricity. But if we exclude the cost of electricity, there's a lot to be achieved in designing products and solutions that I think we will naturally put on the market and hopefully will be selected going forward, so 2025 and beyond, hence the medium-term framework. And it's really, in all spaces, TPS, it's... It's ethylene, of course, because ethylene is not over. It's carbon capture. It's PET chem. It's circularity. It includes for services. I'll tell you, we have services related to floating energy as well. So it's pure studies. So it's a very vast array of scopes that you find within TPS.
spk02: That's very helpful. And just, I mean, maybe I missed this. There's been quite a lot of information flying around today. But Arctic had about 800 to go. last quarter, how much have you kind of processed there and what's left to work through in the first half of 2023?
spk01: Yes, thank you, James. I will take that. So, yeah, we had disclosed at the end of Q3 the remaining backlog on Arctic, progressing on the exit framework agreement. Obviously, as you know, we fully demobilized all the operational teams over the summer, and now all the work is about handing over and exiting from the projects. So this is ongoing. Obviously, this backlog has decreased, is decreasing as we execute our exit framework agreement. We said that, you know, we contemplated, we thought that the exit framework agreement would be completed by the first half of 2023. This is still very much the case and ongoing. so that this backlog will be decreasing as we execute that.
spk02: Okay. Thanks, Bruno. I'll have it up. Cheers.
spk05: The next question is from Guillaume Delaby with Societe Generale. Please go ahead.
spk10: Yes, good afternoon. Two questions, if I may. I'm going to try to push a little bit more on the LNG front. Congratulations for your partnership with Baker Hughes. When I listen to Baker Hughes, I have the impression that basically energy sanctioning, notably in North America, might be pushed a little bit to the right, i.e. rather end of 2023 to beginning 2024. So I know you don't want to comment, but could you maybe elaborate a little bit again on that? And second point is about Abu Dhabi. You have a big contract for the AIL and GASHA projects. It's a massive project for ADNOC. Could we expect some more packages to be awarded by Technip Energy over the next two to three years on that one? Thank you.
spk07: Thank you, Guillaume. And thank you for pressing us on LNG. Yeah, we don't like to talk about FIDs because we don't control them. Now, I will try to characterize LNG in the Americas. LNG Americas, and that's where we, you know, Baker Hughes and I converge. For us, for Technip Energies, certainly, we are tackling this market through our modularized options. So the SNAP concept and all the ones we are co-developing with BeckerU. Because we will not take the construction risk in the US. I think that, again, the pace of FID in the Americas could be, indeed, more towards the back end of 2023. In my remarks, we are mentioning very clearly that it is about the next 12 to 24 months. LNG, there's a lot to be awarded, over 100 MTPA, and it's not going to be all awarded into 2023. And once again, the number of the awards may depend on the actual volume that is being awarded. So if... the Middle East are the first out of the bloc awarding very large quantities or very large strains. We may see a bit of a slowdown for the smaller ones because they might not come on stream any sooner than the large volumes from Qatar, which would be awarded in 2023 and therefore starting producing in 2028 and 2029. So this could indeed somewhat affect the pace of the award in some geographies. Now, the variety of the feeds and the geographies, from land to floating, by the way, is such that there's plenty to be awarded out there, hence, I would say, a reasonable level of confidence in our ability to secure and grasp some of that out there. In terms of LNGASHA project, massive project indeed. We have been awarded a fee. So we have a team mobilized in UAE. We're working with our client. It's a reimbursable scope. It's open book. So we are working alongside with ADNOC on the design and on the pricing of the infrastructure. So I think it's only the... The beginning of the road for LNGasha, now the importance, and I will put a caveat there, the importance is to be able to reach, again, a design and a solution that has a cost base that is compatible with the one that the client and its partners can sustain. And this is the work that is currently being undertaken. So we don't have the conclusion of that. It's live and it's active. So we need to be a little bit patient before taking finding out whether we have the right solutions at the right price point for the project. Thank you, Arnaud. I turn it over.
spk05: The next question is from Daniel Thompson with BMP Paribas Exane. Please go ahead.
spk06: Hi, good afternoon, gentlemen. Two for me, please. So, firstly, maybe one for Bruno. I mean, is there any risk of margins dipping below 3%, kind of a lower end of your medium-term guide six and a half percent in the event of unexpectedly high order intake in project delivery you know just given the kind of sanctioning environment we're expecting over the next year or has this kind of been factored into the guided range already and secondly Margins in project delivery in the fourth quarter were obviously quite elevated versus expectations with a few sort of non-repeating items in there. Could you quantify the impact of these or point us to what the sort of ballpark underlying margin was in project delivery in the fourth quarter?
spk01: Thanks. So, yeah, you're right. We gave in the medium-term framework the range for EBIT margins for project delivery. We also gave a range for revenues. And, you know, your question is correct because you know that in the early phase of projects, we do not account for margins on a linear basis. Overall, if we were having a conjunction of a huge spike of orders, to some extent, if we were stepping out on the higher end to some extent of this revenue range, then to some extent, yeah, maybe from a relative terms, We would see in the very early phase if we could be lower. But with a range of 5 to 6 billion or in this vicinity, in a portfolio which is much more blended versus the historical part, some of the history when we look at back in 17, 18, 2019, today we feel quite confident with the medium-term outlook. So it's really the quality of the backlog, what we have on hand, what is being executed, kind of more mid-phase, what we are pricing today, and what we see unfolding in the next 24 months. So this gives us visibility, kind of a bit of a full cycle. So this gives us the ability to see that new orders will help to sustain increased revenues in project delivery. The new project, yes, will be slightly dilutive or will be dilutive at first, but you will have the contribution from the more mature projects in our portfolio, and then you will have the sequence. But as long as you remain in this vicinity of revenues through cycle, we think we're quite comfortable with the margin trajectory 6.5 to 7.5. Now, in terms of... contribution in the latter part of the year. First, obviously, you know, we've always said that it would be the final contribution from Yamal. We've received the final acceptance certificate. So we've had some contribution on that. Obviously, 2023 and beyond, no contribution at all to be expected. And it's also beyond that. Obviously, some progress on Arctic, but also the rest of the portfolio. You know, a start of production on Coral. progress on long-term where we're close to 95% progress. So, and then over HURL fertilizer projects in India. So, quite a good progress on quite a few of the projects in the portfolio that also helped sustain this good level of activity.
spk03: Okay.
spk06: Thanks. Thanks, Bruno.
spk05: As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Jean-Luc Romain with IC Market Solutions. Please go ahead.
spk09: Good afternoon. My question also relates to LNG. One of your competitors noted that it was kind of preparing to remobilize in Mozambique in case the situation was getting better and was renegotiating the price of the contract to take inflation into account. What would be the order of magnitude for inflation between when the projects were postponed than today.
spk07: Good afternoon. That's really a question for the company who has made the statement. We are not ourselves in a position or we are not facing a situation whereby we are having to remobilize on a project that has been stopped or interrupted. So now maybe I can help provide some color on the situation with regard to inflation and the evolution of the cost base. That may be helpful. And again, I don't have, and we don't have the details of what orders and what POs have been placed on this Mozambique LNG project, so we're not the right company to ask. Now, inflation is out there. It's not everywhere, but for sure it's impacting some of, I would say, some of the chapters. When you look at the cost base on the project, some of the lines clearly are being affected, in particular around construction, for example, when we've seen wages growing around the world in all countries pretty much. You know, you just need to pay your workers and the construction crew more than you would have maybe some, you know, two to three, four years ago. So that's definitely true. Some custom materials have also still haven't, you know, come back to the pre-war level. Now we've seen also some normalization in some areas, for example, for bulk material and steel materials. Shipping is coming back to, I would say, more reasonable levels. It deserves to be looked into in detail. It's difficult to give a blended aggregate percentage of increase for a typical LNG project. We will not be doing that. and certainly not for Mozambique LNG, which I don't know how much has been procured already, and that's really a question for the company in question or the client.
spk09: Thank you. Actually, I thought you might also be concerned, even if I was thinking total energies might be willing at some time to restart its project. That's why I was asking the question.
spk03: Thank you very much. Thank you, Jean-Luc.
spk05: The next question is from Jamie Franklin with Jefferies. Please go ahead.
spk12: Hi, guys. Thank you for taking my questions. So the first question is for Bruno. I just wanted to get a sense of the working capital profile through 2023. And then the second question I had was a follow-up on this PCSA agreement you have with ADNOC. So you talk about preparing the open book cost estimates. I think that's the first time I've seen that specifically mentioned in an award announcement. So I'm just wondering, are we likely to see more of that contracting model going forward? And has clients' willingness to enter under that model increased? Thanks.
spk01: Thanks, James. I think the first part, unless Arnaud wants to do the cash flow.
spk07: The cash flow might not be as good as what you'd be able to do.
spk01: So on the cash flow, as you know and as always, we will remain very disciplined so that each project has a positive cash flow profile. For some time, maybe we were not seeing the benefits from interest rates and so on, but we also do it and we mostly do it from a risk perspective and what we've seen for Russia last year is just a very, very good reminder as to why we should be doing it. So Basically, the way it works is obviously as you have new projects, down payment, first milestones, you build up a bit of a working cap position, and then you have a more neutral or plateau period, and at the tail end of the project, you have some unwind. What you're seeing this year is in 2022, with that and with the absence of major awards, we've seen more the impact of basically the Taylor hand, plus obviously the impact of exit and unwind of Russia, which has explained some, let's say, negative working capital contribution. If I look at next year, basically, Probably first part of the year and before the new awards come in, you will have this kind of continuous trend. And then you will have the positive coming from the larger awards when they're booked and when they're awarded and when they come into our backlog. And basically, this will re-contribute basically to the working capital position of the company. Without working capital, that's why we try to communicate on that. ex-working capital, our EBIT to free cash flow is expected to remain consistently strong in the 75% plus range. So the cash conversion of our business is very strong and will remain to be very strong. And basically working capital, so within kind of a continuous more negative first part of the year, then basically positive contribution from the new world, probably something around neutral, so you could have a plus or a minus, but overall around more neutral year versus 2022. And basically, if I take a bit of a step back, long term, what I've also said previously is, you know, our balance sheet structure was sustainable, so I would not expect any major material changes in our balance sheet structure in the medium term.
spk03: That's great. Thank you.
spk07: And Jimmy, thank you. And thanks about your question related to the model open book or reimbursable. So when you think about Technip Energies, we're really here to design and deliver our clients' projects. We do exist through our clients' projects. This is why we're here. And our duty is really to manage to find the price point at which their projects can fly and are viable, and we can make money, and they can make money on the long-term basis. So our duty is really to, one, trying to differentiate through the solutions that we can develop, make them more cost-efficient, more inventive in the sense of what they bring, how much they contribute, and how less they cost versus others. And that's our duty to bring the cost point to an acceptable level. So a way in the context of inflation, for example, beyond differentiation, or once we've designed or we have a solution that is being adopted, a way for us to de-risk and for them maybe to take advantage of, let's say, the future deflationary market environment, with price going down, is indeed to go into an open book mindset. And some of the clients, we always put it on the table, by the way, some of the clients like it and they want to, I would say, contemplate this way of contracting. Some don't like it and really want to be attached to a form of EPC. Okay, in this case... ADNOC has adopted this one. It's a way for us to de-risk, but also a way for them to go probably faster because you save on the bidding phase. And to play a little bit, I would say, the upside from the supply chain that you may be receiving or may be benefiting from in 2024. So it's always there. As you know, we have various... contracting models in the portfolio and you will always find some of our projects using these models some don't but it's very much a matter of our preference together with our clients preference but in this case this is what's happening and yes we will see more of that in some other areas but it's not so different from what we currently have in the portfolio in terms of the mix. So this is a big one-off. It's notable because it's a big one under this format, but we have plenty of that already in the portfolio.
spk03: That's great. Thank you very much.
spk05: The last question is from Lebec Baptiste with Odo. Please go ahead.
spk11: Yes, good afternoon. One quick question from my side. Regarding your 10 active feeds for LNG projects last year, is there some projects which are offshore or FLNG projects in these 10 active feeds? Thank you.
spk07: Yes, there are. A bit less than half of them.
spk11: Okay, perfect. Thank you. Thank you.
spk05: So this ends our Q&A session. I turn the conference back to Mr. Lindsay for any closing remarks.
spk04: Thank you. That concludes today's call. Please contact the IR team if you have any follow-up questions. Thank you and goodbye.
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