Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Tech net.
See fourth quarter 2000, and <unk> earnings Conference call. At this time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the section you will need to press star one on your telephone if you require any further system.
Please press Star zero. Thank you I would now like the hand the conference over to my if you sign timer. Please go ahead.
Good afternoon, and welcome to Technip FMC fourth quarter 2019 earnings Conference call.
News release in financial statement issued yesterday can be found on our website.
I'd like to caution you with respect any forward looking statements made during this call.
Although these forward looking statements are based on our current expectations beliefs and assumptions regarding future development and business conditions.
There are subject to certain risks and uncertainties that could cause actual results could differ materially from those expressed in four implied by these statements.
Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K. Most recent 10-Q in other periodic filings with the U.S. Securities and Exchange Commission.
French M S and the UK financial conduct authority.
Just to caution you not to place undue reliance on any forward looking statements, which speak only as of the date hereof.
Undertake no obligation to publicly update or revise any of our forward looking statements. After the date. They are made whether as a result of new information future events or otherwise.
I will now turn the call over to Doug 40, hurt Technip FMC is chairman and Chief Executive Officer.
Thank you very much Matt good morning, and good afternoon.
Thank you for participating in our fourth quarter earnings call.
2019 proved to be a year of significant growth for our company.
We achieved an unprecedented level of inbound in the year.
Equaling $22.7 billion.
Representing order growth.
Nearly 60% versus the prior year.
Our success was driven by an acceleration in the market adoption of our new sub sea technologies.
Our integrated sub sea model our E. P C R.
And continued strength in both LNG and downstream projects sanctioning.
In sub sea for your Inbounded $8 billion grew more than 50% versus 2018.
This was the highest annual growth rate for our company in over a decade.
And more than two times the industry's growth.
This growth was driven by our you PCR with our word value more than doubling prior year levels.
And accounting for more than 40% of total inbound orders.
Hi, EGPC eyes, no longer just an alternative commercial model. It has become the model of choice for most of our customers.
Your onshore offshore inbound orders grew almost 80% versus 2018.
Driven by more than $8 billion in LNG Awards.
This included the Arctic LNG to contract from Novatech, which builds upon the success of Yamal LNG.
We were also part of the winning consortium on Exxonmobils real Boomer LNG project.
Although we recorded limited in bound value ahead of the project there probably be expected this year.
Total company backlog now stands at $24.3 billion, an increase of 67% from the same time last year.
Backlog grew across all segments with onshore offshore increasing almost 90% versus 2018.
Importantly over half of our total backlog is scheduled for execution be on 2020.
Providing us with unrivaled visibility.
Total company revenue in 2019 exceeded $13 billion benefiting from higher activity across all segments.
Full year sub sea revenue increased 14% in the year.
By a 15% growth in sub sea services, and an increasing mix of integrated project activity.
2019 also marked a trough for segment revenue in onshore offshore.
We have seen the revenue inflection and have now experienced three consecutive quarters of sequential revenue growth.
And when excluding Yamal LNG total segment revenue increased more than 25% versus 2018, demonstrating solid growth and diversity in the remaining businesses.
And then surface technologies, we experienced growth of more than 15% outside North America.
Our international business now accounts for more than half of segment revenue.
This strong growth more than offset the decline in North America with a total segment delivering a modest revenue increase.
Now, let me turn to our market outlook and segment guidance for the coming year.
Starting with sub sea, we anticipate ongoing momentum in activity for small to midsize brownfield projects and the continued healthy outlook for Greenfield project.
Activity continues to be driven impart by emerging markets, such as Mozambique, Indiana and strengthening activity in important markets, such as Brazil, India Africa.
We also anticipate that sub sea services will again experienced double digit revenue growth.
Driven impart by digital monitoring services, well intervention and asset refurbishment activity.
This strength in both project activity in sub Sea services provides the framework for 2020 sub sea orders to approach the level achieved in 2019.
However, this remains dependent upon the timing of one or two major project awards.
Turning to sub sea guidance, we see revenue in a range of 6.2 to 6.5 billion and adjusted EBITDA margin of at least 11%.
In the first quarter, we expect to see normal seasonal impact with margin improvement over the remainder of the year due to project timing and increased asset utilization.
For onshore offshore we remain confident that additional LNG projects will be sanctioned in the near to intermediate term.
The outlook for long term demand requires this additional capacity.
And just this morning.
Sempra energy announced the selection of techniques FMC.
As the EGPC contractor for their energy or coastal was all LNG project.
We're very proud to have been chosen for this strategic development.
Beyond LNG, we continue to selectively pursue refining petrochemical and bio fuel project opportunities in Europe, the Middle East Asia, and North America, particularly where we can benefit from early engagement or leverage our process technology portfolio.
For onshore offshore guidance, we see revenue in a range of $7.5 billion to $7.8 billion.
An adjusted EBIDTA margin of at least 10%.
Reflecting a lower contribution from Yamal, LNG and an increasing contribution from projects in early stages.
This guidance includes the impacts that we can estimate at this time for the krona bars.
In surface technologies, we anticipate double digit revenue growth outside of North America.
Driven by market activity and supported by our high tier products and technologies.
This growth serves as a strong foundation to our outlook as our international franchise makes up more than 50% of total segment revenue.
We anticipate North America activity to declined 10% versus 2019.
Which assumes an improvement in drilling <unk> drilling and completions activity in the second half of the year.
For surface technologies guidance, we expect revenue in a range of 1.4 to 1.6 billion.
And adjusted EBITDA margin of at least 12%.
Maryann will cover all other guidance related topics later in this call.
In addition to this tremendous commercial success in 2019, we have been taking actions to better position ourselves for 2020 and beyond.
The announced separation of our company is a bold visible step in this regard.
But only represents one aspect of the transformation that is taking place in our company.
In sub sea, we are further optimizing our organization.
To maintain market leadership, you need a combination of innovative technologies fit for purpose assets.
And global execution capabilities in order to deliver an integrated value chain.
Part of our optimization efforts are focused on our assets ensuring that we have the right assets with the right partners.
In the right geography.
And to achieve this we will continue to right size and reallocate our assets to better align with the advantages of new technologies, such as sub sea 2.0.
And integrated project delivery.
And we are also forming new strategic partnerships as demonstrated in our recent announcement with all sees that can provide us with access to unique assets.
In a more capital efficient manner.
These actions will lower operating and capital costs and increased asset utilization and.
And when coupled with the accelerating adoption of our next generation sub sea products and technologies that can help our customers reduce cost and cycle time for greater efficiency.
In surface technologies, we will leverage the strength of our international franchise in order to capitalize on the growth we anticipate in the Middle East Asia Pacific and the North Sea.
In North America, we continue to transform our business by working with our customers to further drive will cite operational efficiencies and lower greenhouse gas emissions.
We are optimizing our services and operating geographies when the economic returns don't make sense.
We will look to exit rather than simply optimize to the status quo.
And in onshore offshore.
Which will very soon become technique synergies, we're transitioning into a new growth cycle.
One that is underpinned by the strength of more than $15 billion in project backlog.
Our global teams have successfully executed complex projects in some of the remote most remote regions and we will continue to leverage this experience an intense focus on the work that lies ahead.
And we will remain selective in our project choices focusing on those prospects that offer the best opportunity for success for both our customers and Technip FMC.
As you can see we're taking actions across all of our businesses.
Importantly, these initiatives are supportive of our strategy focused on market leadership and business transformation.
2019 was another transformational year for Technip FMC.
In August we announced we would further reshape our future through the separation of our company into two industry, leading diversified pure plays.
The spinoff remains on track for completion and the second quarter.
As we have also shared our new company Technip energies plans to host a capital markets day in Paris ahead of the transaction close.
In 2019 reinforced our position as the only fully integrated technology and services company.
In sub sea, we exceeded 100% growth in IP spy inbound.
Driven by an acceleration in the market adoption of our integrated model.
Hi, MPCI, which served as the catalyst for the merger accounted for more than 40% of the total subsea inbound orders in 2019 and has become the motto of choice for most of our customer.
When combined with double digit growth in sub sea services, we delivered full year subsea inbound of $8 billion, an increase of more than 50% versus 2018.
And then surface technologies, we grew more than 15% outside of North America, when compared to the prior year with international revenues now accounting for more than half the segment revenue.
Our significant growth in backlog across all segments validates our strategy and provides us with confidence in our outlook.
We continue to demonstrate our global leadership in sub sea LNG and the international surface market.
I will now turn the call over to Marianne to further discuss our financial results.
Thanks, Dan.
Total company revenue in the fourth quarter was 3.7 billion with adjusted EBITDA of 404 million.
Fourth quarter cash flow from operations was $559 million.
Adjusted EPS was three cents in the quarter when excluding after tax charges and credits of $5.43 per diluted share.
The total after tax charges and credits largely reflect.
Non cash goodwill and asset impairment charges of $2.3 billion, which we disclosed earlier this month and are detailed in our earnings release.
Evaluation allowance of 108 million impacting the tax provision.
Separation cost of 47 million.
And the net restructuring credit of $1 million, which included a gain of 83 million instead see related to the consolidation of the pls be joint venture.
These charges reflect a specific actions we are taking to better position our company for 2020 and beyond as Doug outlined in his remarks.
Included in our adjusted earnings are items for which we do not provide guidance.
Including an expense resulted from increased liability to joint venture partners of 22 cents per diluted share.
And foreign exchange losses of 13 cents per diluted share.
The FX impact, which is included in corporate expense.
It was almost entirely driven by the significant devaluation of the Angolan kwanza in the period.
These two items impacted our adjusted EPS by 35 cents in the period and excluded our adjusted EPS would have been 38 cents per diluted share.
And lastly, with regard to internal control.
We have fully remediated, all previously disclosed material weaknesses.
This will be reflected in our upcoming annual filings.
Turning to the operational highlights in the quarter sub sea delivered fourth quarter revenues of $1.5 billion, a 21% increase versus the prior year quarter.
We experienced double digit growth in both project and services activity in the period.
MPCI project activity continues to represent an increasing share of revenue reflective of the well established market trend towards integrated project development.
The increase in services revenue was driven by higher installation, well intervention and asset refurbishment activity.
Subsequently subsea services revenue was essentially unchanged despite the seasonal impact of weather.
And adjusted EBITDA for said fee was 185 million with a margin of 12.4% adjusted EBITDA improved modestly from the prior year as cost reduction activities and project completions offset the impact of a more competitively priced backlog.
Onshore offshore reported fourth quarter revenue of 1.8 billion, an increase of 10% from the prior year quarter, primarily driven by higher activity adjusted EBITDA was $260 million, where the margin of 14.2%.
Operating results in the period benefited from the strength in execution across the portfolio.
And finally in surface technologies revenue of 408 million was down 2% versus the prior year well sequentially. We saw modest improvement as we benefited from the strength in international markets offset by the lower North American activity.
Sequentially adjusted EBITDA margin of 13.7% increased 250 basis points.
And reflects the benefit of a higher international mix of business and cost reduction activities.
Turning to cash we have now generated positive operating cash flow for six consecutive quarters in the fourth quarter, We reported 459 million of cash flow from operations.
Some of which resulted from the timing differences between project milestones and vendor payments.
Operating cash flow is 849 million for the full year.
Beyond the operating line capital expenditures were 86 million in the period.
Our full year spend was 370.
374 million when excluding the 80 million impact of the sale leaseback transactions for the die support that's the we recorded earlier in the year.
We paid 58 million and shareholder dividends in the quarter and for the full year, we made 233 million in total dividend payments.
Additionally, we made a distribution of 119 million to the mall joint venture partners.
We ended the year with 5.2 billion of cash on hand.
Now I would like to provide additional detailed the details around our 2020 financial guidance.
With regard to our revenue guidance.
Please note that the segments reflect the new business perimeters as reflected in our separation announcement businesses with approximately 120 million of revenue in 2019, most of which came from surface technologies are now included in our onshore offshore segment in Twentytwenty.
Let me highlight the revenue coverage from backlog.
Instead see at the midpoint of our guidance approximately 71% of our anticipated 2020 revenue is expected from backlog scheduled for execution in the current year.
We anticipate the remaining revenue approximately 1.8 billion will be met by book in turn activity from both subsea services and projects.
Subsea services revenue is expected to exceed 1 billion in the year only a modest amount of this revenue potentially is in backlog today and most services or what are quickly convert into revenue.
In onshore offshore backlog supports approximately 86% of our expected revenue for 2020 at the midpoint.
We anticipate approximately 400 to 500 million in revenue from Yamal LNG.
Turning to the remaining guidance items for 2020, we expect corporate expense net to be 180 to 190 million for the full year when excluding the impact of foreign currency fluctuations.
We expect net interest expense of 80 to 90 million for the full year when excluding the impact of revaluation of partners Mandatorily redeemable financial liability.
The increase from the prior year is largely the result of lower interest income associated with the company's cash balances.
We forecasted full year tax rate in the range of 20% to 32%.
Capital expenditures for 2020 should be no greater than 450 million and we expect cash flow from operating activities to exceed 1 billion with the back half of the year being a little stronger than the first half.
In closing.
That's the revenue benefited from increased activity in both projects in services.
Order growth reflected the acceleration in market adoption of our new subsea technologies and integrated subsidy model.
Onshore offshore revenue has clearly inflected from the 2018 trough as evidenced by the achievement of our third quarter, a sequential revenue growth.
While in surface technologies, we continue to leverage the strength of our international franchise.
Lastly, we generated nearly 850 million in operating cash flow in 2018 with positive results in all four quarters.
Looking ahead, we begin 2020 with more than 24 billion of secured backlog, we have strong revenue coverage for the year in both sub sea and onshore offshore.
We see revenue growth in all three segments at the midpoint of our revenue guidance range.
As importantly, we are proactively taking actions across all our businesses in support of our focus on market leadership and continued business transformation.
And in 2020, we expect operating cash flow to exceed 1 billion.
Operator, you May now open up the call for questions.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. If you would like to remove yourself from the Q you May press the pound key.
We ask that you limit yourself to one question and one follow up. Thank you. Our first question comes from James Evans from Exane BNP Paribas. Your line is open.
Hi, Good morning. Good afternoon. Thank you for taking my questions.
First we'll touch on surface, obviously, a decent Q4 guidance pretty good quite high restructuring charges I just wondered if you could give us a little bit more detail level, what youre doing to drive improved performance as we head into next year yields we saw its appeal for students use.
Secondly around subsidy.
Thanks, guys Twentytwenty is maybe a little bit weaker than that have been expected I mean, just clarify the reason for the deviation.
I just don't you an update on common some external environment things like pricing et cetera.
So just just the picked up between.
Options on integrated awards, and normal awards, and when we see that benefit really coming through your business and the results you deliver thanks.
James I will I think thats set the record for the most questions packed in the in a short period. Thank you very much.
I think I captured for if not five there we don't want to do is I'm going to walk us a little bit through the subsea margin guidance, because I actually think that will in some ways address.
Most of the other parts of your question and quite frankly, maybe is the most.
Most prevalent and what is most new at this point.
And if you don't mind, James I'm going to take just a little bit of time on this and I think it's important that we.
Kind of walk through the progression.
This cycle and would ended up resulting in our 2020 guidance.
So as you know for Technip FMC, we had tremendous inbound order growth of more than 50% in 2019.
And by the middle of the year following the very robust orders with the first half.
Our integrated projects or MPCI, which representing more than 50% of the total subsea orders.
And at that time, I stated my confidence in 2019 would likely more the margin trough at the time.
However, I also noted that 2020 would be a transition year with the main outstanding question for us being more about the progression of the margin improvement.
If we go back to what we talked about a few times as an I.E. PCIA company and the only integrated company.
We have the benefit of being involved in the whole lifecycle, but that also means that the.
Conversion of the inbound or the orders into revenue happens over a longer period of time.
So again, we first half the design and build the equipment and this takes 18 to 24 months.
Before we can install in commission, which can take up to another 18 months.
Meaning that the orders from the first half of 2019 will really drive margin improvement until late 2020 and beyond.
As I had stated in earlier calls.
I've also said the inception of the integrated business model that we will continue to prioritize our assets for these.
Hi projects and for our Alliance partners.
This was quite important as it has been a very competitive period when bidding only day rate contracts on best.
And why was clear that this strategy would result in lower utilization during this period.
We ultimately will benefit from a higher quality backlog driven by direct awards from both our alliance partners and those that we convert from integrated feed to Sci projects.
And we now have delivered on the first part of this strategy as evidenced by the strength of our 2019 inbound.
Our sub sea guidance that was issued last night is also consistent with this message.
And while it is still possible that 2019 was the absolute margin trough the significant ramping activity, we are experiencing not only impacts our company directly but also our suppliers in the supply chain in general.
The elasticity of the supply basis, not proven to be as robust as that of our own company.
Therefore, we are experiencing incremental costs to strengthen our supply chain.
These efforts are well underway.
As these transitory costs come down and as we move further into the offshore campaigns, we remain confident our ability to achieve or exceed our stated guidance.
Driven impart by the higher utilization of all of our assets.
It's important to emphasize our strategy on outlook remain unchanged and we're confident we will deliver double digit revenue growth in 2020.
And we will remain confident that we will deliver margin expansion over the coming years.
With that I'll pass it to Marianne to talk a little bit about the restructuring charges that we have announced today sure.
James Thanks, I think you or your first question was referencing the restructuring charges in North America as you've probably seen we've recorded about 37 million directly attributable to surface you heard down say, we're taking a very focused approach and ensuring that we are exiting businesses in product lines, where we are not meeting the profitability there.
So that charge that we recorded in the quarter represents the exited certain product lines and certain head count reductions and as you can imagine that is largely North America related.
So that we see performance improvement deliver the margin improvement and the success that.
That we are focused on for 2020, so that's what you're seeing being recorded in the third quarter again, largely attributed to North America.
I appreciate the ounces thinking probably every step of also went up because obviously.
Your next question comes from Angie Sedita from Goldman Sachs. Your line is open.
Thanks, Good morning, guys.
Morning.
Good morning, So I appreciate the detail on the subsea margin target was really very helpful. But maybe if we get asked a little bit more on that on the comments you said to strengthen your supply chain, which is obviously very fair is that.
Currently we will see only are predominantly in the first half and second half we could see a larger wrap with all the award you saw 19 in the elimination of those additional cost maybe talk us through 2020 and going into 21 on that margin ramp.
Sure Angie so maybe maybe an analogy I could use is we came out of the gate really really strong and again our growth in 2019, we doubled the industry growth through okay that could be translated into have you seen is an expansion in our and our market share at.
All of that combined at the same time has to be translated through this has to trickle through the supply chain. If you will.
We've been working with the supply chain we've resolved.
Most of the matters.
We're very well advanced I don't want to leave any dough.
And I appreciate the follow up question that the matters are well under control.
Im just pointing to the fact of going back to.
Six almost nine months ago, now and the comments about the 2019 being the trough in the margin and where we came out with the guidance, which was I think just a small small rounding error below that.
It was really just to emphasize it and put a little bit of color around what's actually happening. So to your question. Yes, we see we'll have the normal seasonal activity decrease in activity in the first quarter.
There's no way around that that just has to do with certain geographies, which there's very little subsea activity because of the the sea conditions in the first quarter, but we would expect to see a ramp them through the ended the year in an exit rate that would be more reflective of the type of margins that we will be able to generate from this much.
Hi, quality and high level of inbound that we had in the first half of 2019.
Okay. Thank you very helpful. And then when you have any color on the exit rate feel free to share, but then I would also ask on subs the orders in the outlook for I mean, obviously you've had impressive year in 2019.
Hi.
And if you could talk about the opportunity set price PPI and 2020 as far as total and as a percentage of inbound orders and then you made the remark or if that subsea orders could approach 2019 levels.
But is dependent upon one or two major awards and maybe if you give us some further color there.
Sure in terms of the.
The way I look at it and use it is kind of.
It's just our way of doing business going forward.
We so I think that Weve somewhat established that night I believe even the rest of the industry is now acknowledging that which which I guess is somewhat flattering.
Where we go.
In 2020 versus 2019, I see no reason why the percentage of IP.
I would not be under similar or greater level than it was in 2019 again, we have a very healthy portfolio of integrated feed studies, it's important to remember that our ability when we convert those integrated feed studies the integrated MPCI projects. These become direct awards to.
Our company.
We also have an expanding list of exclusive MPCI alliances we added two more in 2019 with two additional customers, meaning 100% of their integrated work is coming or 100%. Other sub sea work is coming to us through our new integrated model.
So with that I would expect over time as Weve clearly demonstrated in just two years from zero to close to 50% of our business being integrated into a trend that is very likely to continue not use for us, but eventually for the rest of the industry as well.
So I think that continues to look quite strong in terms of the absolute order level always hard to tell hard to stayed at this point during the year and we don't give absolute guidance on.
On order intake, it's very difficult given the size of our projects in the difficulty to time them within a particular 12 month period.
But what we do show is an opportunity set over the next 24 months, we published that we update that regularly.
It remains robust, but I remind you that a large percentage of our awards don't show on that list that is the projects that are let's say publicly available to us into our competition or some of our competition that would qualify to do that work.
We have that exclusive set a proprietary opportunities again from our alliance partners or from the.
Sci integrated feed studies excuse me that can turn into direct award IP size, if we reach a certain project economic threshold that benefits both the client.
As well as ourselves typically driven by an accelerated time to first oil.
When we look at it.
And that's the reason I made the comment I did yes, 2019 was a very robust year. Some things obviously would have would have to continue to have a very strong year would have to have some things go right in 2020 to be able to match that level of order inbound we.
We had some billion dollar plus awards in 2018 and 19, we may not see those billion plus awards in 2020, although we do have a portfolio of large opportunities that if they all came together in the timing all happen.
By the 30 Onest of December of 2020, we could be in that we could be in a very similar ranges we are.
Going forward from 2020 versus 2019.
Great. Thanks, I'll turn it over.
Your next question comes from Lillian Starke from Morgan Stanley. Your line is open.
Hi, good morning.
And so on and see if you could provide the way to follow on the operating cash flow guidance and.
Recognize some of that may be part D driven by cash advances that you might expect for him from clients, but I would just wondering if there is also any underlying improvement that you're seeing on your own working capital dynamics and then the second question I had an ace and on the back of what we're seeing on that kind of Iris.
Is there anything I know you I working with certain Chinese yards and is there any delays or any concern at this point in time.
Okay sure. So thank you Lilian I'm going to make a comment around the client of ours and that I'm going to pass it to Catharina Mcgregor, whose with me and as you know is this the CEO elect protect deep energies and has been very involved and is currently the president of the GPU for onshore offshore and is very involved in those projects so well.
Let her add some additional color and then maryann will add some additional color around.
The cash flow comment that you made which I appreciate you pointing it out we're very proud of the progress that we've made to continue progress that we've made and the good progression in.
Just remind you that we are a business of projects and there will always be a new projects coming in and projects closing out.
And we are very pleased with the trend of our cash flow in the projections that we were able to share for 2020 I'd just in terms of the krona virus. So first and foremost we are deeply.
Concern for those who have been impacted we are very much monitoring the situation and have put in place the appropriate actions to try to ensure the health and wellbeing of all the 37000 women and men of our company in the many many more contractors.
That we work with in the various sites in the various projects around the world.
But catharina again put some additional color around the so maybe an example to what's actually happening on the projects.
Yes, Thank you and indeed, we are a in light of the context of the Cohen of Vivus working very actively and I would say collaborate TV as well with our customers, but also with us have contracted and with our partners.
To make sure that we take appropriate measures to really mitigate the impact on that project.
So what we said is that the guidance that we gave you on onshore offshore reflects what we see today as the impact of the colonize vivus of the could have either.
So to give you any bit of examples of some of it seems we doing again working very collaboratively with our customers and that we'd ask you failures in one of our project. For example, we were able to Chaunce here some engineering hours from one of our Chinese based step contractor to one of outpacing center.
The other project as some orders were placed callaway diverted from that Chinese about yet to in European based but yet and we have a nimble actions like these that we are able to take again working as fluctuate yes possible, we now five knows suppliers and customers.
Million high Marianne here, maybe just a little more color around the cash flows and again. Thanks. Thanks for your question I think you know in certainly given the backlogs that we have in the significant project component. Our objective is certainly to be cash flow positive or at a minimum cash flow neutral against the entire portfolio.
So I think what you see happening as we continue to execute along that backlog is that continued improvement and certainly working capital is a piece of that.
Okay. Thank you very much for that for the color.
Your next question comes from Sean Meakim.
From JP Morgan Your line is open.
Thanks, Good afternoon.
Good morning show.
So maybe to follow up on the cash flow guidance.
On the traditional basis implied more than 500 million hours of free cash flow sounds very positive.
Can you maybe just put some parameters around.
The influence of prepayments on LNG Awards, a little more granularity with respect to working capital and then just.
You see the impacts of cash from financing with the MRL and 2020 on cash.
Sure Sean So again.
Yes, the Marianne to provide the more detailed answer but I just think it's important that we we are projects business. We will always have new projects coming in in advance payments as you will point out from those.
But we also gave 2020 cash flow guidance, so I think which you'll be able to see very clearly is the continued improving trend.
That is also reflected in our guidance we are you.
Sure, Sean and maybe a little more color around the MRL I think is as you asked there and you know you can actually see it when we produce the 10-K, but you know our MRL today sits at about 300 million dollar so at a minimum I.
Assuming no other further changes on the project that outflow I will hop into the partners at the time at which both Technip FMC ended partners decide for that payment to happen. So that happens in the financing section is as you well noted, but that outflow will happen I think the second part of your question again was around working cap.
Capital and we certainly won't try to get as granular there, but you know as you know a big piece of the changes in 2019 were and as we talked about that the big outflows that we saw from Yamal as we continue to progress toward completion of that project. I think you can expect that the outflows from yamal will be much less than 2020.
Then they worry in 2019.
Okay. That's very fair thank you for that.
And then doug's comments were interesting when he mentioned.
The supply chain that proving to have the elasticity of your company and Thats, let us have incremental costs.
That or perhaps transitory as they that carry into the Capex budget for 2020, I was hoping we can maybe give a more granularity of that $450 million that you're planning for this year.
Thanks, Sean no not directly.
From the supply chain considerations, the capital budget, which you will see reflecting the capital budget is those incremental commitments. We made that are part of particularly the large subsea projects. So when it's a greenfield project.
And we are providing the full MPCI, including the life of field contract, which we call Hi law for integrated life of field contract.
Most of those come with a certain level of capital expenditure in order to support a 15 2025, even 30 year life of field sub sea contract and if you think about it this way that's kind of the tooling in the assets that are required to go out if there's any need to be able to recover to win.
For inspection for repair for monitoring services associated with those subsea installations.
Got it very interesting okay. Thank you.
Your next question comes from Bertrand Hodee from Kepler Cheuvreux. Your line is open.
Hello, everyone to question and if I may one on subsea margin. Thank you Doug for.
Providing a kind of.
The main moving but can you quantify.
What is the impact of zales supply chain equipment in cost you are seeing for 2020.
And also can you give us some guidelines around utilization rate of the vessels.
We expect full 2000 between gene.
And then we'd have a follow up question on the cold.
Colin I virus.
Okay sure. Thank you for drawn.
So let me cover the the first one which was to quantify the impact of the supply chain.
Look I think it's again I want to make sure it's very well understood. It's it's well under control. We took these orders in the first half of 2019, we started placing the orders with the supply chain. During the first after the year, we have a complete understanding this isn't a.
New discovery, we have complete understanding of.
What's happening and we took that into account been reflected that in our guidance. So hard to quantify the exact impact, but I guess you can tell by the guidance level that we provided.
It's not usually it's not a huge number.
And it's well under control, which is why we were able to.
Provided the guidance and the confidence that we have in the guidance for 2020 of at least 11%.
In terms of the guidelines around utilization.
Again, we don't really see utilization improving much until the second half and really not until 2021 2022, and that's when we'll see a meaningful impact in the overall improvement of the utilization of the fleet tied to those MPCI Awards.
Okay. Thank you and then the do you follow up question on the on the cooling I've actually so if I understood well your guidance in onshore offshore oil would include.
Some of the impact that you can estimate at this time for the CLO and I virus.
Yep.
Can you help us understand what was the ZZ back to Q.
Currently included as a potentially in terms of revenues being deferred or in terms of.
Margins.
Yes, obviously, we were not quite ready to give you a number because what we've done any that we look back to.
But for you and on the aggregate estimated the impact on some of the internal milestone that we could see moving and made a judgment to to give you. The revenue guidance. He twentytwenty to read into that oil the theme packs. So we wont give you and we don't have video breakdown, but at this stage and I think youve similar I did very well that.
I kind of view off our revenue the guidance. We gave you integrate the impact that we see today.
Divided.
Okay fair enough. Thank you.
Welcome.
Your next question comes from that Vince mentioned all from Scotiabank. Your line is open.
Hey, guys good morning.
I guess.
I was.
And to expand on Sean's question. So can you help us think about the 50 million enough Capex what are the bigger buckets you mentioned.
The projects, but it's going to spend more on that and bullets and what that does.
Typically bigger buckets.
Sure I'll I'll provide you some additional color so you know.
Well, there's a certain level maintenance capex associated with the existing asset base, both the manufacturing assets as well as the fleet.
The the increment in the only increment that you're really seeing is tied to that tremendous inbound growth.
We pointed out in 2019, and the continued investment to support the growth rate of our subsea services business, which as I pointed out our grew substantially in 2019, and we expect it to repeat in 2020.
Okay.
And I guess.
You have talked about.
Owning boats as big non essential for subsea business.
Can you talk about what are your latest thoughts if they are any data way. If you have any thoughts around divesting that piece of the business.
Well I think the whole industry needs to restructure in really good focused on driving through cycle returns not just peak returns and in order to do that we have to look at the capital structure of our industry and we have to look at the capital structure of our individual companies as in many other attributes, particularly in the sub sea business.
We believe that we are leading by example.
So you know we took some very decisive move we announced some asset sales.
During the last year and will continue and we announced the very important partnership as well with all season, and we will continue to look at ways that we can work collaboratively.
With anyone any one at all.
In order to ensure success for the industry going forward and once again make it a very attractive place for the investment community to put their money because of the type of margins that we'll be able to demonstrate on the through cycle basis. If we keep looking at it individually as to the own size of.
Our assets, regardless of what type of assets they are.
We tend to.
End up in a situation where the industry is overcapitalized and we don't generate the type of returns that are required. So no. We are very open to working with anybody and we have demonstrated that.
And we will benefit from that in terms of the type of returns that we'll be able to generate.
Because of that type of behavior.
Thank you.
Your next question comes from Mark Wilson from Jefferies. Your line is open.
Yes.
Hi, good morning.
Doug Marianne as I'd like to ask about the.
An update on the Brazil riser situation.
The.
At the situation flanked by Petrobras you just give us an update that Doug and techniques involvement in it.
Sure. So the issue as we know is there's a phenomenon called stress corrosion cracking. It happens when a few conditions are met those conditions are very.
Prevalent.
In the pre sold reservoirs and the pre so composition of the hydrocarbons that are produced.
And therefore, we see an accelerated rate of stress cruising cracking.
In that environment, why my emphasizing that this is a well known physical phenomenon it happens anywhere where their steel.
Placed in a certain condition.
Where this type of event can occur by the way standing structure a bridge if you will.
Still made out of steel is experiencing stress corrosion cracking, it's not it's absolutely well known and understood.
When the pre salt was developed because of the high Seo to content and the fact that a flexible rise or if it when the annulus is flooded.
Can accelerate that phenomenon. So it's a well known phenomenon. It just becomes accelerated so look the industry at a this is an industry phenomenon.
We are obviously the leader in the flexible pipe both technology and certainly in the installed base and continue to be so we've been working very actively actually with industry.
But I'm very much directly with Petrobras and making sure that we could clearly understand the phenomenon in this condition.
And then be able to model, which so that we could predict.
The let's say the impact of the effects of distress corrosion cracking whilst at the same time and in parallel developing solutions that will be less.
We'll be more resistant or even.
Stress corrosion crack FCC, if you will stress corrosion cracking free.
And that's exactly the process and that's what we're doing so its multi dimensional was I'm pointing out.
We are well advanced on the first element, which is now being able to model and predict and working very closely with Petrobras on that so it's very it's it's a combined issue and it's now a well understood issue and we're able to model with.
At the same time, we're developing the solutions a hand in hand, with Petrobras and we're very pleased and they are more importantly, they are very pleased with the progress that we're making we just had a review on the subject matter two weeks ago with Petrobras leadership team and we'll continue to work with them in an opening collaborative way to solve.
This industry to solve this industry phenomenon.
And ensure that we will have a product that there will be able to use across their portfolio because it's important to understand what we're really talking about as a small application of flexible pipe.
If you look at the total amount of flexible pipe sold this is a very small portion of that total market that has impacted it's not all of Brazil. It's not all of Petrobras is not all of pre salt is in a very specific.
Isolated.
A situation.
That being said, we're committed to solving it as I pointed out and are making good progress in that situation in regards to the rest of the business around our flexible product line.
It continues to.
It continues unchanged if you will.
And continued to be quite robust.
Excellent. Thank thank you very much and then.
One short follow up Marianne just in Fourq you cash build.
It's about $400 million of.
Additional contract liabilities came in and the working capital I just wondered if you could give.
Split between subsea and onshore offshore.
So.
Did cash flow change in the quarter as you pointed out is largely driven by the change in contract liabilities and as you know we try not to be those segments specific it gets to a level the granularity, but if you think about some of the major moves in the project. Then you can think about how they might be as we're progressing through in the early stages both.
Doug and Kathleen have talked about that.
It might be it might be helpful, but certainly milestone payment as I mentioned, we try to stay ahead of that cash flow curve.
That indicates obviously, we've got we've now we've got work to complete you can think about the size of some of the major projects that we've announced recently and that might help in the thinking about this separation between what steps CN and onshore offshore.
Okay. Thank you okay.
Your next question comes from Amy Wong from EU BS Your line is open.
Hi, Good afternoon, a couple of questions from me. Please the first one is Jeff reference to yard tremendous success on winning integrated CFO Sir.
Probably actually on the industry has to seems to have embraced this solution and yourself. Another big competitor seems to be locking up a lot of the market share. So can you talk about.
Other competitors, arguing are reacting to this assuming a increasing take up of integrated solutions and how there.
Tied to compete with you on that front.
And then my second question is bigger picture just can you talk more in general about your technology leadership in subsea you touched on your flexible 2.0 program, but also want to understand some other emerging technologies like 20, K play how important will be the technology before you too I sort of Maine.
Our even start to win more market share as as I, just wondering pipeline progressive thanks.
Thanks Amy.
Look I'll.
I'll be brief on the first one on the what is the competition doing around Sci.
I'm sure they're talking about eight I'm sure, they're trying to figure that out right now.
It's not evident to me what they're doing but what is clearly evident is this is the way that the market is going.
We're real thankful that in 2016, we had division.
We're even more thankful that in 2017, we completed the the the transaction and obviously most thankful for the recognition by our clients in the amount of over $7 billion of integrated awards that they've given us thus for the vast majority of those being direct awarded to our to our company. So.
We're just very thankful for the situation we're in it.
In regards to technology leadership in sub sea. It's obviously an important it's one of the important elements. The commercial model has been usually successful, but the ability be able to merged out with a technology program that not only drives the sub sea.
Expansion to the subsea market in an example, like 20 K that you pointed out which is very important indeed.
It also can be fundamentally change the way that we.
Conduct our business or operating model, both in terms of our physical footprint as well as in terms of our assets. So sub sea 2.0 has had a profound impact on our manufacturing footprint in a positive way. If you will from a cost point of view or from a returns point of view and I strongly believe it's sub sea 3.0 and beyond.
We'll have the same type of impact on the installation capabilities going forward for ourselves and ultimately for the industry.
All right that's very interesting thank you very much.
Thank you and we only have time for one more question. Our last question comes from Kurt Hallead from RBC. Your line is open.
Good morning, or afternoon, and thank you very much for fitting me in here I appreciate that.
So so Doug I just wanted to it maybe follow up real quick to make sure I understand the correctly. How you were going through that very detailed explanation of the transition year of 2020 and the impact on the subsea margins related to that transition as much of significant backlog flowing through the system. So.
Would it be safe to say that maybe I have got a baseline of the margin that you have in backlog.
That would be maybe 100 basis points higher than that minimum point of guidance that you provided and therefore the difference.
Is all that incremental cost at your occurring through the supply chain.
To to make sure you can execute on these projects is that a fair way to maybe look at that.
Certainly a creative way to put me in the corner Kurt.
I'm not going to fundamentally disagree with your statement.
That's fair enough and then on the this last one year on surface Tech when the split does occur that will be roughly 20% looks like 20% of the.
Technique.
FDI.
EBITDA.
I found interesting your commentary about the North American market, where you thought the second half would be stronger than the first half a that seems to be running a little bit countered as some other commentary that we've been picking up throughout the earnings period. So just want to get your perspective on on how you see that evolving.
I just.
Just wanted to try to calibrate that with other things we've been hearing.
Yes, Kurt look I'm not going to pretend that I have a crystal ball that others don't on the North American market and doing it for too long I don't think anybodys ever gone right over a 12 month period, it's just way too dynamic of a market.
Most of our competitors are now only giving each one guidance and yes. We could have went that route as well we put out the view that we understand from our from our perspective understanding kind of our market position and what we're trying to do in the market.
But I think like everybody else, we'll see how the first half develops and we'll come out with updated guidance for the second half when it's more appropriate.
Okay, and I think just to finish off on here you know you've indicated that there's an opportunity to take the integrated model from sub sea into surface. Just wanted to get an update from you on how that may be progressing.
So thank you very much it's a great notes and on.
It is going well and we are well be talking a lot more about that at the Technip FMC analyst day later this year.
Alright, thank you.
And if I could operator, I've never done this before but I'm going to ask a question because I'm a little bit.
Yes surprise, we didn't get a question around we just announced an LNG award as part of my prepared remarks. The award came just maybe one hour before this call.
That is a huge huge.
Element for our company and for technique synergies going forward. So Catherine could you tell us a little more about the award that Doug announced earlier today [laughter]. Now. This is set to have thank you know for your question.
Just a couple of wed say that in general we are still extremely positive about the LNG outlook for future demand. Additionally, infrastructure will be needed.
Additionally, on positioning within the LNG market is very strong and not to come across as a of any coffee done but that only if you. If you tried you will play a is that can tackle these complex that energy project until today the announcement from Sempra energy off of these awards either.
He is really coming as as a as a great such action, we very very pleased with these awards a it's the result of very audio engagements, we that customized a recognition of animal and as you track record to also experienced in Mexico, which we had before so we've only fees and looking forward to deliver on this project. So.
Thanks other question.
I would like to turn the call back over to Matthew Seinsheimer for closing remarks.
Thank you. This concludes our fourth quarter conference call a replay of the call will be available on our website beginning at approximately eight P.M. Greenwich meantime, today. If you have any further questions. Please feel free to contact the Investor Relations team. Thanks for joining US operator, you may now in the call.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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