Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to these lumberjack earnings call at this time that.
Since our and they listen only mode. Later, there will be an opportunity for your questions. If you would like to ask a question. Please press. One then zero on your Touchtone phone. Please be aware that you will he will not here a cone acknowledging your request you may removed himself from queue at any time by pressing one zero.
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As a reminder, this call is being recorded I would now like to turn the conference over to Simon Farrant, Vice President Investor Relations. Please go ahead.
Good morning, good afternoon, and good evening and welcome to the somebody say limited fourth quarter and full year 2019, earning school.
Today's call is being high <unk> pretty Houston falling to somebody say limited board meeting held here this week.
Joining us on the cool developed Bush Chief Executive Officer.
<unk>, Chief financial officer, and stuff and they get VP finance.
For todays agenda, and maybe I will start the call with his perspectives on the quota and our updated view of the industry MACRA after which Simon I will give us more detail on our financial results then we'll open up to your questions.
As always before we begin I'd like to remind participants that some of those statements are we making today are forward looking these massive involve risks and uncertainties that could cause that results to differ materially from those projected in these statements are there for refer you to our latest 10-K filing on other FCC filing.
I comment today May also include non-GAAP financial measures additional detail and reconciliation to the most directly comparable GAAP financial measures can be found in our fourth quarter press release, which is on our website.
Now I'll hand, the call Ivas Libya.
Thank you Simon good morning, ladies and gentlemen, I.
I'm going to come on its own full topics. This morning, first Oh fourth quarter performance and our expectations for the fiscal <unk>.
So goes Oh view of the industry my quick conditions.
Well, the 2020 outlook and our goals for the Ya and laugh and the dates on a petition for North America.
Before that that whether we'd like to say how proud I am of this remote it seems about four months throughout 2000 Geninety.
The progress we made you know portion what execution in a challenging yeah has been outstanding during the last six months, we set new benchmarks for safety a much improved I'll say this quality performance.
Zika should moderate was greatly to our customers and he's the foundation of popped up all that's almost division.
She privilege to lead such a high performing.
Last quarter about four months I'd like to devalue up all international franchise, well activity was very encouraging.
For the first time since 2014 international margins improve sequentially from the field to the fourth quarter. This led to hundred bps margin expansion for much one two which June 29.
Several factors role, while international financial performance, you and products that each one of the highest level since 2014.
We made early progress University and a couple of many business your needs a call <unk> syndrome muskets funny, we saw some mobile that goes you mix on offshore exploration and digital benefiting reservoir characterization that Dodge and wireline and this is in basketball both of which had one of the best.
I'll tell since 2014.
No Somebody's got LP manage what do you really the sharp decline in land activity and pricing headwinds during the quarter, what concurrently launching and starting to execute Oh no.
And it got land strategy I will elaborate on these you know moment.
Fourth quarter free cash flow was also very strong reading on the is you don't cash flow from operations I've still got pulled was integral but he is working capital efficiency.
This combined with the proceeds home to be sniffles actions.
Let us to reduce net debt by 1.3 beat on that all during the quarter.
Overall, the fourth quarter was they sold internationally was excellent at mile Jeans and that is you don't do not somebody got despite the CE bit drop in activity and we go pricing.
Taken together these very good study do you over your goal in both yes, I guess for generation.
As we told you shouldn't do the fills Walter most business lines, Andrew well, if you would expands the usual seasonal decline.
Well for Livingstone you on says that the maybe it doesn't impact of window disruptions during the fourth well, though we anticipate the international I've got one business. So he called high single digit single show declining over new seasonal impact motion in the higher than in recent years.
Also we anticipate the low single digit sequential decline in North America comedy holiday, so to the execution of while not caught digi and the seasonal showing back.
In addition, the recent and assistance bucket disruption.
I think to joke with equal risk or have you done rest continue to affect our internationals international operations and what was I'll follow some exposure during the first quarter.
In both good Okcupid, you New York I've been video used Jewsikow de risk sumit out through a reduced activity in India.
Also I want you to actually be remains muted due to difficult investment like.
Looking now I'll do Michael there is some easing of the U.S. try that said conflict.
I'd use uncertainty on the economy got book.
The latest forecast demand indicates growth of 1.2 medium bpd in 2020 like.
I didn't 2019.
U.S., putting shouldn't rule, where they'll should slow seem to do company in 2020 and come when short of last year growth due to rising capital discipline and that has it didn't go up in activity.
Well done this would indicate that were on the Opex plus and international non OPEC production base.
This is Michael condition, we continue to see both international looks like it.
These.
They will also increasingly stimulates the investment you when you.
No show and deepwater exploration development as the year pulled us.
Moving now to the outlook for 2020, we don't do see based international M. B Capex spending to grow in the mid single digit ranch.
We expect the civil and you might get complexity in the North American land, we should decline in the high single digits to double digit ranch.
This aligns with the strength by international franchise and makes the execution, if I'm not top TV, Evan more critical to protecting our retail from any further I can see downside.
Well this is not good outlook on mission would be to grow internationally, both mid single digits. Excluding the impact of with recent diversity true. He will come on moved to growth on the back all through long cycle booking execution and contained all somebody's got to high single digit decline as a consequence of both.
Good conditions and strategy execution.
Within the smoking the Buckley.
Capital structures, such as you've been skewed our lead to additional on the plumbing business your needs will be material.
This ends on the bucket, but also mission pull them should continue to enhance and chemical notion tough almost and cash flow for most of the savvy supporting lines.
We are confident that a shade and mix of international activity rule, we see both available what do you quoted you doing the next for Walter Weve contribution from new degree adoptions stronger offshore activity and digital transformation.
Oh sure like DVD willing 'cause unique role towards deepwater basins lace up out of 2020, inflicting decks that osha investment, but I will see and large independent.
Therefore, we expect international mile genes to further expand in 2020 building on a momentum from still going out for 29 G.
In addition, and I and as an outcome of the non strategic execution. We also expect North America mileage into expense despite the headwinds on activity and the revenue collection.
This would be to first your seems to they felt team we search any woman funnel show about four months across international and North America muskets.
This aligns closely with I'll stop as you focus on returns both margin and cash in Azure.
I know off some comments on the non stop digi content and execution to she brought on margin expansion not somebody got despite the expected double digits musket confection 20 twin.
In September waterfall, New Belmont Cottage institution, you grew to the specific scared to fit and pick the news you access approach to West All North America to double digit margins byproducts rising returns overall.
For the most but we have completed a review of our current business portfolio buff, almost well Mci L pics and value and the anticipated market trends and the cumulative all available options, both organic and inorganic to achieve a step change in returns and an asset light portfolio transformation.
Although this is still ongoing we're ready to ship key aspect of this topic as you today.
First and to address one Steve the largest elements of our mills I make up of.
We have decided to reap opposed to be sets across three hubs to decentralize the superstructure around the allows us basin.
We forgot aligned organization and capability, so I'll keep customers and maximize the positive impact of technology and integration.
This does it into a net traditional 30% of deployed flexthree capacity and impacted VP of fourth quarter sequential decline.
This represents a new celski, both capacity gap compared to deliver so the fill call due to any 19.
Oh, a 50% reduction when compared to our total available capacity.
The greater alignment guesstimate on major bases will also increase and then go did you get it's like fleet to more than 80% of total leading to a much reduce spoke musket exposure.
While we believe destruction pool once investments is shaping it for the better into a focus unprofitable business line, we'll keep options open and be ready to participate into finance market consolidation offering given the white box, though and economics.
Circle, what were season onshore code to begin operations in North America.
Bucket that we believe is comedy dies and welfare nivo the significant integration not perform on sticking energy upside.
So we are pushing opportunity for the future fall what belief business line in North America.
We believe that this portfolio is best sell through was younger players that conservative actually distribution network and better aligned with that group on bucket.
We continue to develop the business she bought our people and several customers how did we find the right opportunity.
Finally, we continue to accelerate the fitful basins strategy, where we sit activity franchise uptick there as you access to a mixed walk of local basin specific bucket.
This was the most whether it be success budgeting and measurements in 29.
We'll expand these I said well that asset light model to all got business line to increase our market reach while optimizing our infrastructure and capex requirements.
She bought this decision we of course, you need to Washington that eyes off, but if we believe we've estimated 25% addiction.
You location before the end of 22000, and that's just the superstructure golding.
We have already I'd use our workforce by more than 14 old with employees since Q3 2019.
The action related to this strategic execution when completed we generate savings in excess of 300 million that out on an annualized basis, when compared to Q3 2019 overnight.
Oh ambition for North America landed 2020 has been clear that he set for margin expansion. Despite the and saw that will actually be joke.
Why don't strategic this season.
Oh really litigation greater than the decline at a market they contribute incremental earnings and cash flow compared to 2090.
This will allow fogo proposition rules and Capex allocation dwells international market.
I hope that might come on this morning afford you more color on our fourth quarter performance as well, especially I don't sit office bought on full year ambition. While also providing you with insights on our strategy for North America.
Now before I hand over to someone that I would like to recognize the contribution yes made over more than 37 years or fiscal yet, we still magic and more than 13 years, leading to finance function of this company.
Settlements that down next week, but we continue as a CEO as tough as you've got advisor to me.
I'm also very pleased to welcome Sip and BJ Giudice fall I put it was expands and functional expertise.
With this I turn it over to Simon.
Thank you Olivier ladies and gentlemen, thank you for participating in this conference call.
Fourth quarter earnings per share excluding charges and credits was 39 cents.
Just sort of presents a decrease of four cents sequentially.
But an increase of three cents when compared to the same quarter of last year.
During the quarter, we recorded 209 million dollar of net pre tax charges. This reflected 456 million.
Dollar of restructuring charges offset by $247 million gain on the formation of descent joint venture.
The restructuring charges largely relate to our North American operation.
They consist primarily of write offs relating to facility closures and exiting certain activities as well as severance.
These restructuring charges and the related write offs were all recorded at the end of the quarter.
Therefore, the fourth quarter results do not include any significant benefit as the result of this charge.
Our fourth quarter revenue of $8.2 billion decreased 4% sequentially as in 2% growth in our international operations.
Was more than offset by a 14% decline in North America.
Pre tax segment operating margins decreased by 60 basis points the 12.2%.
Highlights by product group with as follows.
Fourth quarter reservoir characterization revenue of 1.6 billion dollar was essentially flat sequentially.
While margin increased 59 basis points to 22.4%.
The margin increases was primarily driven by higher SCS software sales.
During the revenue of 2.4 billion dollar was also essentially flat as lower revenue in Russia, and North America land was offset by increased drilling activity in the middle East.
Margins were flat at 12.4%.
Production revenue of 2.9 billion dollar decreased 9% sequentially driven by a 33% in one system revenue in North America Lad due to lower demand and pricing pressure.
This decrease was partially offset by strong international completions activity.
Margins of 8.8% only decreased slightly by 32 basis points, primarily due to the effects of the lower once them activity, partially offset by improved international margins from higher activity.
Dominant revenue of 1.4 billion dollar increase 2% sequentially as one sub sea surface systems, and then make systems each.
These increases were partially offset by the effects of the divestiture of the measurement business in connection was Acentia transaction.
Margins decreased 359 basis points to 9.1%, primarily as a result of lower margin on one subsea projects and impact of North America on the short cycle activity.
The book to Bill ratio for the comment on long cycle business was 1.5 into Q4.
The one sub sea backlog increased to $2.2 billion at the end of the fourth quarter.
Now turning to Schlumberger as a whole effective tax rate excluding charges and credits was 16% in the fourth quarter, which was consistent with previous quarter.
I was very pleased with our cash flow in the fourth quarter.
As we generated 2.3 billion of cash from operation.
This brings the total year of 2019 to 5.4 billion dollar from operations and $2.7 billion offer free cash flow. In addition.
During the quarter, we received approximately 590 million dollar of net proceed as a result of the closings of the sense, yet joint venture and the drilling tool divestiture.
Our next improved by 1.3 billion dollar during the quarter to 13.1 billion dollar.
We ended the quarter, which total cash and investments of $2.2 billion.
Over the course of the fourth quarter, we repurchased an additional $1.1 billion of outstanding notes, the vast majority of which whether due to mature over the next two years.
These repurchases combined with the actions we took last quarter.
Sure to reduce our interest.
Expense.
Going forward would widen the same time, improving our debt maturity towers.
During the quarter, we spent $494 million on Capex and 255 million dollar.
Capitalized cost relating to asset performance solution projects formally known as SPM.
We also made $692 million of dividend payments, we did not buyback any stock during the quarter.
Full year 2020, capex, excluding hps and multi client invested investment is expected to be flat with 2019.
Before I turn over to call to the operated 40 to one day.
I'd like to take the opportunity to thank you our shareholders and analysts.
I know we've been through.
Tough times due to industry condition and overall it has been a very productive relationship.
I ask you to please welcome Stephan as a new CFO and extend and the same go to see.
As a departing statement. Please remember cash is king a now back to operate.
Thank you and our first question comes from line of James West with Evercore ISI. Please go ahead.
Hey, good morning.
Good morning to them.
Maybe first for for Simon I. So thanks for your many years of help guidance and then certainly wisdom and you'll be missed.
Thank you James Thank you very much.
So Olivier as we think about.
The second half of 2020.
You talked about revenue quality, improving clearly with international and offshore that's a much better mix of business for slumber save for the industry in general could you maybe expand a bit on on that and what it could mean for.
Both.
Revenue growth, but also a margin continued margin improvement in your business.
No. Thank you James.
So I think back to what our share during my prepared remark, we foresee that the.
You're on your growth internationally will be in line and slightly better that.
You can mid single digits, when we exclude the effect and impact of the divestiture. We had that does in fact at about 2% internationally.
I also read through the fact that foresee that the single out for B mall.
Robust the first half on the back of offshore both.
Offshore deepwater up opportunity, where we see and projection engagement. We are we focused and no significant upside in the later, but of the year due to exploration as what our development. So the impact of this we expect we'd result into not only 5% of it or what are your goal for you but also.
Margin expansion.
In excess of 100 bps for the full year internationally.
Okay. That's very helpful. And then I guess, if we think about the full year and I know you guys don't don't give full year guidance, but.
It it seems to me that we've got a bit of a hockey stick going into the to the back half and so.
As we think about.
Where are the I guess I guess, so were expectations or both your your internal expectations, our expectations et cetera.
Do we think that.
You could the second half strength makes up for what will be a little bit of a weaker than potentially.
Expected first quarter.
Yep.
The first quarter. Indeed, you I've had my prepared remarks, I'd lighting, the high high single digits sequential decline.
For international income on the low single digit declining in the North America. Although this will combine due to the seasonal affect the transition from a.
Good to what we do mix in Q4 into Q1 into high Decrementals in the into into Q1 s that that sees our expectation. However, I think from the we're not wait a second Alex I think from the second quarter. We expect the the mix do you have to improve the execution of our strategy to.
Start to bear fruits and the international our Bluetooth.
Do you go back to normal seasonality, so combination of which should provide.
Provide to support for growth.
Of our earnings.
From a sequentially from Q2 on Walt.
Okay very helpful. Thanks Love it.
And next we go to Sean Meakim with JP Morgan. Please go ahead.
Thank you good morning.
Good morning show.
I'd like to maybe just continue a bit more on the framework for 2020.
Maybe just expand on some of those thoughts.
So we're looking for margin expansion across both North America and international.
Could we unpack a little bit of.
What's building your confidence that we're making the turn here on margins.
Given the emphasis on the back half of 2020, how much would you say is confidence in what's happening in the market from on a macro perspective versus the impact of your self help initiatives.
Okay.
If you more lights on this Sean I think I would like to own tough no summer gun International.
I believe the international market is poised for further growth.
Nothing we come other than mid single digit is poised for for the offshore mix, including later part of the deepwater both of which combined to present.
The good.
Club or mix that will help.
Execute.
So internationally I believe that the combination of fall.
So felt through capital stewardship program underperforming business unit called traditional far also mission that Todd.
Steven Bucks onto the service business line income multiples.
And the effect of all technology adoption on those sub level offshore markets as well as international digital transformation, we're all combined to Lisa hundred bps plus expansion in international.
So we have some confidence there obviously all depends on the topline.
And activity growth, but you have we have confidence in this is shaped and to the federal revenue mix.
Mike on cost North America, we depend on.
Execution of our strategy days, the downside risk as a similar to last year. They some uncertainty onto the market spent and onto the pricing headwinds that could affect and delayed some of the.
Benefits that will collect from the NYSE cottage, but all in all both for the phone reason malls have felt and not not execution strategy, North America and market condition as well as contribution of our progress internationally will combine.
To ship at our margins next year.
Understood. Thank you for that that's very helpful. Maybe just to continue on North America.
A couple of clarifications and just maybe to go a little bit deeper.
Sounds like you said half of your horsepower is going away is that being stacked.
With the potential to come back or are we scrapping horsepower, maybe if we could clarify.
The difference there and maybe just I was hoping to talk about the rest of the product and service lines are the potential for other divestitures or other transformative type of transactions that you're considering leveraged here about the rest of the portfolio North America as well.
Yeah. Thank you have heard the come out roommates and I made the in my prepared remarks, we have decided to cuts.
Deployed capacity by 50% when contrasted with the first got off to a 2090.
And we will self imposed these as a cap going full well.
Thats results into about 50% of like capacity that we don't intend to deployed and I think what ice cold cold stack codes. The unemployed you will not be deploying fall.
As we are imposing oh and restructuring obviousness about three basis on three large hubs to sell the most activations and as such we will not a expect you to increase our capacity.
Beyond this you have heard the choice we made to exit.
Go to being on shore to evaluates divestiture of what list and to further accelerate our technology access fees for basing strategy to replicate the success of PNM, Although these combined with certainty.
Topline a decrease.
So when the markets due to the self imposed cap on capacity as well as the exit of somebody says you need but also we're result into high grading.
Our portfolio margins as well as benefiting from the success on technology access a business model asset light model to replicate GNM and expense and that is is what do you expect to see.
Thank you for clarifying I appreciate that.
Next I go to Scott Gruber. Please go ahead.
Yes, good morning.
Good morning, Scott.
Just stayed on the now outlook for North America, you provided that the market outlook and commented that.
Yeah, I would also be an impact.
From scaling down and exiting from some businesses.
Any potential additional color that you can provide a range of.
Additional impact.
From the strategic shift on the topline in North American 2020.
Relative to the market.
Goodbody speaking I think we gave the gallons that north American land, we see.
We see a market contraction of high single digit too low double digits.
On the back of what we are exhibiting we believe if everything is executed that will be in the mid teens to high teens in the mid teens declined from the same scope not something that.
The same scope okay. So that's the guidance again to share with you. Okay. This X top contraction.
We anticipate will be a few.
A few percentage point of a decline compared to what we see the market.
Got it and obviously, you're exiting the more capital intensive.
Business library that often times tend to be.
More.
Capex intensive like you just talked about the cash dynamics.
The business.
Yes, as you go forward in 2020.
Are you near neutral on the net cash you think you're going to be able to generate.
In the business and what are the restructuring just given the cash consumption from some of these product lines.
There is there ahead, if you just provide color on that front as well.
Sorry, Scott is this your question about North America or in total.
In North America, you know how is once been for instance, cash generative today.
Such a you lose cash with the scale down or is it consuming cash today, such as you'd actually save on.
Cash given the scale down.
No we in what Rob.
Okay. Simon here again, we are expecting to be better than you would throw one system and actually it's not through the system consumed Jack one system is we've been managing get to be neutral, but will be better than neutral going forward.
Just so the restructuring helps the cash profile one.
Oh absolutely.
Got it important clarification. Thank you.
Thanks.
Next we go to Angie Sedita with Goldman Sachs. Please go ahead.
Hey, Simon I Echo James's comments, and I will share the very best in the next chapter of your career.
And Olivia I would appreciate the detail very enlightening I called it that's great to have the granularity that you provided today.
All right, how Paul So I would add on the internet or the North America commentary.
Anything through 22 wanting comment a little bit on international margin thought around North American margins on a scale to fit strategy and how we should think about margins over the course 2020.
As you see lower revenue growth, but obviously margin impact and I wouldn't think about it the Dod that contacts.
Yeah, I think Angie so good good morning, Angie So yeah do do you read the writes a watershed before I think the margin progression in North America will result from too.
Pretty good action, one is a high getting for portfolio.
Through either capacity restriction exiting some underperforming business, we need all basing location as well as exiting all all divesting. Some part of abuse net does was that were not accretive to our margin all to our cash flow.
And secondly, combined with.
Accelerating a what we call a fit for basing what you'd call out technology access that is an asset light model aiming at the franchising some of our technology.
Local players vision layers of basin players.
And complimenting.
Savvis a service access service business model with a an extended knock at each with a particular resets. So this has proven to be.
Effective.
Satisfying our customers and the expanding our market last year we've.
I can't even bucks onto the margins of all segments. So we'll report you accelerate this sort of combination of this dude.
Do you expect to see impacting margins North America.
Okay. So and then further around.
North America and one Stan.
Do you view, one standards cordier operations into the thing that you need to be and won them longer term and what other option for the rightsizing the business or strategic partner D. C for that business overall in North America for 2020 and beyond.
As I've said before we believe it's critical that we 40 Bucks space.
Into the North American market first it's a market is here to stay it's a market that we overtime.
Going back to use.
And the aligned we follow up well take that as you like stability.
Although we believed that we will continue to evaluate alternate ways to pass but into these markets for now we have decided that we lifesize, we scaled to fit and we refocused our one steam operation to be fit lean and more profitable, but we'll continue to upset.
The market opportunity as we have said all options on the table and when and if an opportunity arise with the wipe out there and the right economics, we take this that and and look at attended way to keep possibly into the market and yet.
Yet.
Exit this.
Great. Thanks, I'll turn it over.
Thank you entry for your comments Simon here.
And next loaded.
Next I want to David Anderson with Barclays. Please go ahead.
Thanks, and good morning.
You're talking about your strategy of an asset light more technology driven businesses in North America.
Seem to fit pretty well with digital.
Being a primary growth drivers you talked about you made a number of agreements Delphi late last year I was wondering if you could just talk about how you see the progression of revenue over the next several years I guess are mostly be in the reservoir characterization business is it fair to assume that maybe the topline comes down a little bit initially as you move more towards of subscription based models.
Talking about maybe this business doubling but I'm just kind of wonder if you could just kinda give us maybe a little bit of a a road map of kind of what this looks like over the next few years. Thanks.
Thank you Dave I'm not sure what gives you a detailed roadmap today no, but I would comment on on some of the remarks. So indeed, we have stated and I believe we're still a setting and having a key ambition to double the these the revenue in the next few years.
We don't do not anticipate that the transition to swapped out of the service will materially all we are actually negatively impact our revenue trajectory.
We are not opposed Somali now these on the last couple of years, we're going to growth more due to the market condition as well as the.
The fact that dial Dempsey offering was not having the readiness and the breadth.
To expand into the marketplace. So this has been addressed upping the.
So its form that didn't happen in September give us an opportunity to not only commercialized full knew that few product but also.
Craig.
A step change and the and the new momentum in industries that we thought open strategy. So combination of this debt for new product and opens up the GE asset at a momentum that as I talked to the engagement with customers. We have seen what are the engagement that that much all eyes with Exxon for treating a drilling diesel product.
In North America, So you will see.
The total.
Opportunity GE to be.
Communicated in the coming weeks and months.
Both internationally and in North America, and both in the Wolf roll product the permits or in the edge operation. So we are working hard on several fronts with several customers and we're making progress and I think their leadership. We have established is recognized cause industry.
He is valued and will.
Only accelerates and going forward.
If you don't mind like to switch gears, if I could just kinda talk with the middle East for a moment here you had a very good quarter.
By all accounts in your commentary on the progress and Middle East, but it's kind of comes with a bit of caution on your first half the remarks about the OPEC agreement I was just kind of curious on two fronts here isn't much of your business natural gas driven so or maybe your mix is a little bit different but I would've thought the natural gas I don't have held up and then secondarily. If you could just comment on the status of the.
Teekay contracts I know, it's been a big focus of yours to try to get those fixed if you could maybe just give us a little.
Inside of the progress there. Thank you.
Firstly on sell you a question on on the Middle East market that Doesnt mean use market that thing is still very steady and I think is poised for food for the growth. However, based on the on some of the Cup Oh OPEC plus grants on occasion, we see some of the development.
That have been started to be the polls have delayed.
In the context of of Cups now the gas is indeed.
A very active gas development project are very active party offshore in the in the Middle East and this is a this is not slowing down this is actually accelerating and we feel about spending to these.
Coming into the L. STK, indeed, domestic as being under scrutiny, beating the d. so across the cause the world and I'm happy to report that we have made steady progress.
To stabilize a and improve the operational performance and also to address on occasion, specifically Q some customers, beating the lease or elsewhere.
Specific contractual terms and liability that we believe we're not appropriate.
When the complexity at risk or don't get you want to we had so we have made progress on those so I'm pleased to report that so every time I go to Saudi and bucket out getting increasingly positive feedback from the customer and I'm pleased with the city pull guys with my team.
Good here. Thank you.
And next we go to the line of Kurt Hallead with RBC. Please go ahead.
Hey, good morning.
Morning Cook.
I Echo everyone's comments on Simon and Simon I look forward to frequenting your restaurants.
Thank you very much.
[laughter] right.
Yeah. Thank you so much for all the great color. This morning with respect to the outlook on the macro and the specifics and make the one the one area that I was looking for a little bit more color on myself related to the margin dynamics in North America, and the magnitude of the potential margin improvement on a year on year basis, and I kind of.
Asked this in the context of as you know you don't report margins on a geographic basis, you report them on a segment basis. So really just trying to get some sense on on how to think about the north American margin improvement on a year on year basis.
Yeah, I think I can reiterate some to come on I made I think the the the level for margin improvement will be to lever.
I'm not looking more pricing that is headwind that.
We have estimated to be two or 3%.
Well, it's really focus on the on the on the pressure pumping excluding.
Negative.
Expansion there we believe that the two levers will be the hiring of our portfolio to capacity capacity Cup and all to exit and the the change of business model to thing there is excess so the impacts of those two.
Satisfaction with.
We believe generates and expand our margin Mama Bible and 100 bps in North America on the way too.
I'll double digit returns that we are setting our strategy.
The pace of which I think could be accelerated you refer to the market finish enough I will give you ought to be seeing headwinds if the pricing.
Let's get to Detroit, but we're confident that will have.
Triple digits, a basis points improvement in North America large.
That's really helpful. Thanks for that and then just a follow up on the on the SPM monetization. So can you give us some color on how things might be progressing and how you might see.
The opportunity to monetize some of those assets in 2020.
Yeah, as we mentioned in the last earning call I think the process of asset divestiture for the bone do you have to in Argentina actually is progressing very well. So we are in the advanced stage of the divestiture, there and Weve closing anticipated during the first quarter of 2020 after all started.
Closing condition.
That's the situation and the progress yes.
Great. Thank you.
Thank you.
Next we go to Byron Pope with Tudor Pickering Holt. Please go ahead.
Good morning.
I'll just have one question on capital allocation now that you're.
Graduating all your investments through a return on capital versus growth lands.
And thinking about the 2020 Guidances Capex is flattish year over year I would think that North America would be down directionally. So it's sort of implies that you've got some attractive.
Opportunities to allocate capital internationally and offshore in 2020, so I was not asking for specific color, but just.
Wondering if you could maybe give a little bit.
But since for.
The investment opportunities that you guys have both internationally onshore as well as globally offshore in 2020.
Yes, Indeed, I mean, we'll comment on that the wide on your comment on this a Stefan short a good morning by on so as you said all 2020 Capex, where when you exclude multiclient than our peers investment will be more or less in line. We what we spent in 919. So it's a it's 1.7 billion what will be different.
Very is how we will allocate visa cross or or different businesses as we apply on new capitals to auction process. So due to illustrate visa gift bags, but we'll go to our international businesses will increase in 2020 twod, 85% of the total spend as a reference list.
Sundays was there was just over 55002 years ago. So it's a significant switch.
And also we re direct a large portion of that.
International No Capex two business units that are accretive to our overall margins and we love a specific focus on new technology that generate premium pricing.
Very helpful. Thank you ill turn it back.
Next we go to Marc Bianchi.
With Cowen. Please go ahead.
Hey, Thank you.
Following up on the Capex question and as it relates to a p. as what should we be anticipating for Capex in 2020 freight PS and could you talk about how that.
Would be with or without the Argentina divestiture.
So I think I'll take that question as a as well as different here.
But just before we discuss 2020 I just want to quickly that goes back to 19 auto line investment for ideas was 780 million.
This was already down 200 million compared to 28 in.
We said in the buzz about will be managing their ideas portfolio on the cash flow positive to be positive basis, and Thats really is really the focus we more delayed the level of investment accordingly, and I can confirm that we vis a 780 million capex in 19, we didn't generate quite a bit.
Of positive free cash flow.
Good even though a bit above our initial expectation so.
Now when you get into 2020 , we have a finalize our plans for each of our ideas projects and.
I can say over the free cash flow from if years we've increased.
Beyond 20, nines insignificantly actually so the corresponding level of investment will will clearly be lower over the 19, particularly on the back of the Argentina divestiture on but we will maintain the the level of inventory of investment, but necessary to generate that positive guest.
I want to add a little bit more on the cash I know the question is around the hps investments, but I wanted to highlight the strengths that we have seen in 19 that it will continue in 2020 on cash generation.
As I said in my prepared remarks, the total free cash flow reached 2.7 billion.
And when you look at our commitment on the return of capital.
We it dividend or the the buyback that will continue its more or less met by our generation offer free cash flow.
In addition to this when you look at the investments divestment that we made the proceeds that came up from the two transaction, we were able to reduce the debt and we ended up was $15.1 billion. So going forward. This will continue to be a focus and.
I took over to mention this fact, because it was a lot of questions in the past on our.
Meeting the dividend cash flow requirement and as you see in 19, we were able to mitigate the situation and to get to a point, where we are within adjusted.
For millions of dollars.
Right. Thank you for that Simon My follow up is unrelated on on lift.
Olivia you mentioned potentially some changes with your rod lift strategy in North America I'm curious if you could talk a little bit more about the outlook. There is it something that's just specific to the rod lift business and the capital intensity are you seeing some sort of a structural shift in demand.
No I think this is very specific today capital intensive.
All the or at least a specific specific business, while we believe.
Uh huh.
Our strengths as organizations are taking you through settles out as an organization that Sally.
Best aligned with.
The suburbs of this of this business and we believe that they are partners that to the and we'll certainly we're focused approach being better place to execute.
This oddly business in North America, So thats very similar to two what we considered in the past for drilling tools, where we reached a decision to divest here we are evaluating that decision.
Thank you.
Mexico to Bill Herbert with Simmons. Please go ahead.
Thanks, Good morning.
Can you talk about your free cash flow margin do we attain.
The double digit margin in 2020, and then secondly can you also can comment on expected working capital performance for the first half of this year all last year that with a challenging you consumed a lot of cash in Q1, and then Q2 as well I'm just curious as to what your expectations are.
For working capital in the first half of this year.
Sure Bill I'm going to cover a bit about 19 and give you an indication.
Going forward, but the Stephane will also free to comment on 2020 onward.
As far as.
I want to profile is concern and you know this the first half of the year, we consume a bit of liquidity in the working capital first quarter normally there is a consumption because of compensation related.
Payments on a year end bonuses comes during the first quarter and as you saw in 19.
During the second half we.
Improve this working capital and we produce.
Free cash flow required.
2020 will be similar reflected in the first quarter, we're going to consume.
Cash in the working capital, but as we have declared we are improving our.
Our free cash flow generation and the in our expectation at 2020 will be to 2019 or even better. So this is where we are.
The growth towards a double digit is.
Well defined and I think implementation of this strategy will get us over there.
Okay, and then and and and the way it with regard to the actual free cash flow margin expectation for 2020, it doesn't sound like.
You're getting hit double digits for the year, but you think that the margin will be improved because I think youre you're already at 8% for 2019, if the math us right.
Your your math is correct.
I mean, the double digit is is a is an objective and probably 2020 will not be reaching there.
Okay. Thanks.
Next we got to line of Connor Lynagh with Morgan Stanley . Please go ahead.
Thanks, I wanted to ask about Cameron Onesubsea in particular, obviously, some very good orders in the quarter here, but there was a comment around.
Some of the project margins coming a little lower is that is that a onetime dynamic in the fourth quarter is that sort of symptomatic of what margins look like on a go forward basis, just wondering address that.
Good morning cut off that let me come up on this so I think we have.
The Onesubsea, Indeed, I think as been very successful in the fourth quarter to raise that booking with success, but purely on the back of these on longer.
Large.
A large integrated project for subsea subsea processing and I've invested leader there that we keep this leadership going fault, some very very confident and they they are being very pleased with the performance on one sub sea.
Now looking at the margin of come on I think is due to our two factors. Indeed, the long cycle margin been for a while things have been very clear on this on the.
In compression the backlog that.
Both onesubsea and leading to some extent booked in the last a couple of years I've been at.
As reduce a margin due to the market condition and pricing.
Condition at that deteriorated this has been offset partially or fully in the last two years by a short cycle.
Business that did benefit from that the growth in Ireland, Gillian dealer last year and did offset on the kept the margin very healthy.
The combination of low North America activity passing Edwin.
For the alongside the short cycle combined with this backlog of credit the condition of the margin. We have seen this is not here to stay with a couple of quarters to recover but I do expect the margin of.
Have come on over time, and certainly in 2022 Ecova ads to.
She grow compared to 19 and go back to 18.
That makes sense. It just in terms of the North America realignment is there a significant impacts we should think about on cost savings or or scaling down and Cameron or is that largely related to traditional oilfield services.
It's largely related to traditional Oh free services I think as I commented before they come on performance have been.
Given the strong until until sometime I think last quarter was EBITDA for a challenged due to severe trough no.
Well some of our short cycle will still continue to adjust and make sure that we are structure to you.
ER.
The aligned with the market condition, both pricing and a with the size of the market and we will continue to expand our come on franchise internationally as we have been successful so I would expect that the.
The short cycle will or will be adjusted structurally to reflect the market condition and we will dive a diverse and increase our focus on threshold as we have done the last couple of years.
Got it thanks for the color.
And our last question will come from the line of Chase Mulvehill with Bank of America Merrill Lynch. Please go ahead.
Okay.
It's helping globally Inc.
Hello.
Yeah, you're only regarding how you hey, sorry.
So I want to come back to.
The the pressure pumping in the amount of capacity. They then you've actually reduced so if I do the math correctly. It sounds like that you stacked about 600000 horsepower in 2019, and maybe you entered the year 29 team with about 700000 horsepower cold stacked well done my math right.
So how should we think about how much of that could come back and the cost.
Got it would take to bring that capacity back into the market.
Sure.
Intention here is not to cold stack all won't stop.
And bringing back intention here is is to right size the capacity, which we did this structure the organization, which we are doing and he focused on where we believe we have the best alignment with our customers. We are the best leverage for technology has about technology also face efficiencies dignity Foundation.
Oh, we can bring the most benefit to the through August amount to the market. We have on this and we don't intend to you.
To bring back capacity.
Going forward.
Okay that makes sense that clears things up a bit lot questions about that coming over to the international side.
You guys are focused on margins. It seems like a lot of your peers are focused on margin improvement on the international side.
So maybe could you talk about pricing on international you know given that everybody is focused on margins are you seeing more discipline on pricing.
Are you able does to push pricing in particular in the middle East at this point yet.
Similar to come on we made last quarter I think they see the dynamic where on large integrated compact and hybrid in complex, we still see beating middle east the elsewhere internationally, we see see.
Negative pricing pressure downward pricing pressure whereby Columbus.
In more remote location or more specific exploration offshore or.
Difficult project execution, we see and we have seen and we have had the opportunity to negotiate better price and we see better also discipline from the in the market on both on all the service provider. So we said it market is still composted with a large integrated composite and discrete.
Offshore exploration or remote location and we believe this trend will continue in 2020.
Okay I appreciate the color I'll turn it back over thanks.
So I believe that concerning the time I think we'll have to conclude this goal so ladies and gentlemen, I would like to Allied Nike message to conclude the global disco first the solid results of the fourth quarter on the full year I've highlighted a significant progress was made in our international a function.
And the early steps, we took in execution of our North American land strategy.
The momentum across organization and the feedback from our customers continue to be they push it even should bode well ambition for 2020.
Our view for 2020 remains positive on the international market, which will be loaded on the back end of the year popular in deepwater activity internationally will benefit from further improvement in activity mix and the of inequality.
Which when combined with our capital stewardship and tough almost program will drive further margin expansion as a continuity of progress made in civil now for 2019.
You can cost we face another year of declining North American market condition, but will accelerate I'm not as competition to fast track our commitment to were still double digit margins.
Our actions, including scale to feed capacity reduction commercialization towards asset light treating those excess and ultimately better business unit exists we combine to reverse margin decline and we still ambition to grow both earnings and cash flow in contrast to 2090.
Why 2019 opened a new chapter for the company 2020 offers the opportunity to amplify the impact of our new performance vision.
For the benefit of our customers and to accelerate Keith cutters Yemen's to improve returns for the benefit of our shareholders.
Thank you very much for your participation today. Good day, everyone I look forward to seeing many of you in the coming weeks.
Thank you.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Conference recording has stopped.