Q2 2020 TechnipFMC PLC Earnings Call
Second quarter 20, Twond 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.
The question during the session you when each press star one on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today not seinsheimer. Thank you. Please go ahead Sir.
[music]. Thank you Lisa good morning, and good afternoon, and welcome to talking about them sees.
Second quarter 2020, <unk> earnings conference call.
Our news release and financial statements issued yesterday can be found on our website.
I'd like to caution you with respect to any forward looking statements made during this call.
Although these forward looking statements are based on our current expectations beliefs and assumptions regarding future developments and business conditions. They are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements.
No and material factors that could cause our actual results to differ from our projected results.
Described in our most recent 10-K, most recent 10-Q and other periodic filings with the U.S. Securities and Exchange Commission, the French and Matt and the UK financial conduct authority.
Well wishes to caution you not to place undue reliance that's on any forward looking statements, which speak only as up to date heroes.
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'll now turn the call over to Doug Party. Her Technip FMC is chairman and Chief Executive Officer.
Thank you Matt.
Good morning, and good afternoon. Thank you for participating in our second quarter earnings call.
On the call today are Maryann Mannen, Chief Financial Officer, Katherine Mcgregor President of took me synergies.
Before commenting on our operational and financial results I would like to begin by recognizing the resilience of our global workforce.
Well, the health well being of our employees partners and customers is our top priority. These dedicated teams worked hard to sleep to maintain business continuity and assays.
Responsible manner.
And dropped this very challenging period, they continue to advance projects and be customer requirements, which was evident in our second quarter results.
We also made solid progress in three core areas strengthening our balance sheet progressing or backlog scheduling.
And accelerating our business transformation all to ensure the success of Technip FMC well through the current so I agree and over the longer term.
With regard to the balance sheet, we took a series of proactive steps in the quarter.
<unk> increased our liquidity by 1.2 billion breed total cash and liquidity to nearly $7 billion.
We secured a permanent modification to our primary debt covenant, which favorably impacts the company's total capitalization ratio.
Together. These actions were taken to ensure that we have more than sufficient liquidity and can maintain school access to this liquidity in these challenging times.
Turning to backlog.
We experienced no cancellations highlighting the resilience of the nearly 21 billion a backlog we have today.
The significant backlog provides us with good visibility that extends over the next several years.
Since the start of the Cobrand 19, offering we have had constructive conversations with our customers.
Dialogue has been very different than what we experienced in prior cycles.
This has resulted in a more collaborative approach, creating new opportunities for us.
Enabled by our proven innovative solutions and demonstrated excellence in execution.
And supported by the financial strength, we possess to whether the market cycle.
These unique attributes also will allow us to more deeply engaged in the way, we partner and work with our customers.
Looking at the second half for the year.
We continue to add new projects to our backlog.
We need to FMC has been selected for the married to serve MPCI project located in the Santos Basin.
We will soon announced a new MPCI projects in Asia Pacific that we'll be using our latest 2.0 technology and we have secured several projects that will be INBONE upon final sanctioning, including subsea installation contracts recently announced by executing on the E piece.
The contract for the as she hydrocracking complex, we announced earlier this month.
Our strong balance sheet and liquidity position and our extensive backlog of also provided us with the flexibility to accelerate our business transformation.
With global actions underway to generate annualized cost savings in excess of 350 million by year end.
[laughter].
We first part of the business transformation <unk> fourth quarter earnings call.
These initiatives are driven by changes in opportunities created from the successful introduction of new business models innovative technologies and digital solutions across our business.
First.
Going forward, we will need fewer assets to deliver more comprehensive solutions.
We will have fewer operating bases service facilities and manufacturing sites, we're optimizing our operations across geographies and its economic returns don't make sense, we will look to exit.
We will have a smaller fleet.
We continue to rightsize, our assets to better align with our differentiated offering and the advantages of new technologies, such as sub sea 2.0, and integrated project delivery.
And we continue to partnering with others, providing us access to these assets in a more capital efficient manner.
Second we're taking targeted actions across the portfolio, particularly in surface technologies in North America, we continue to transform our operations by working with our customers to further drive wellsite operational efficiencies and lower greenhouse gas emissions.
We are leveraging finished rents ever international franchise to capitalize on the longer term growth anticipated in the Middle East Asia Pacific and then the Worsley.
And finally, we continue to level the leverage digital technologies across our organization.
Looking at one of our most recent innovations we are accelerating the development and implementation of our sub sea studio digital platform sub sea studio allows us to significantly reduce the time required for front end engineering by as much as 50% utilizing machine learning and.
To rapidly evaluate field development scenarios, leveraging the industry's largest database of prior projects and best practices.
All of these actions are fully aligned with our strategy of market leadership and business transformation.
These actions will drive the most value when we aligned with those clients and partners that demonstrate a willingness to embrace new commercial models and new technologies.
We are further streamlining all of our business is towards simplification standardization and reduce cycle sorry.
In 2019, the success of our sub sea integrated model was driven by the strength of our partner relationships have resulted in the company's highest annual growth rate in order in bound and over a decade.
We expect to enter into another exclusively PCR lives that will be announced in conjunction with the clients first integrated project Award.
As I've said before those that a dog innovative solutions are more likely to succeed in the new energy landscape.
We are even more convinced that this today given the dramatic change in the external environment and its impact on our customers.
And lastly, the third pillar of our business transformation is focused on the strategic initiatives across our portfolio that will deliver new sustainable solutions to our clients.
These initiatives will allow us to leverage our core competencies and engineering manufacturing and project management.
Skills that are transferable and can be applied beyond traditional market segments.
And sub sea, we have created fundamentally changing the way, we design manage and execute projects.
Operating our subsea 2.0 platform he greatly simplify the subsea infrastructure, while reducing greenhouse gas emissions by nearly 50%.
When combined with you.
It also simplifies vessel installation campaigns, providing an even greater environmental and economic benefit.
Our vision for sub sea includes an always metric sub sea system powered by renewable energy. This will further simplify the subsea infrastructure and reduce if not eliminate environmental emissions.
It technique energies, we have significant ics expertise and prospects in the area of sustainable chemistry.
Notably in bio fuels as nest these partner of choice for renewable diesel projects.
We have further expanded our footprint in the circular economy through our collaboration with car beyond to demonstrate their recycling technologies.
We have recently extended our genesis offering to provide a portfolio of advisory services across all of our markets with a particular focus on energy transition.
And we see a very exciting future for hydrogen where we already have proven technology and references for blue hydrogen and are well positioned for the emerging market for green hydrogen.
In surface technologies, we offer high efficiency solutions that enable our clients to reach hydrocarbons faster with fully optimized and environmentally contacts systems.
Today, we have a project utilizing our integrated production system.
Production, allowing the client to capture over 50% of the greenhouse gases that are typically released into the atmosphere trying to production phase of an unconventional development.
In summary, we have the expertise across all segments of the business to deliver the interpretive sustainable solutions that will enable our clients to meet their carbon reduction ambitions.
Let me turn to the sub sea outlook.
Our first quarter call, we noted that up to 50% of the estimated $15 billion and project value captured on our subsea opportunity lists could be extended beyond the 24 month window.
The updated list now reflects real evidence of this trend.
Based on public disclosures made by operators, we have identified each specific projects that have been extended.
On mid 2022.
Importantly, none of these projects have been canceled and they remain longer term opportunities for future Awards.
There have also been new projects added across four different basins. We believe will be awarded within the next two years, suggesting that the previous see identified reduction in value for this opportunities once thought to be as high as 50%.
He is actually closer to 30%.
Remember the subsea opportunity list is not a complete list of opportunities available to Technip FMC.
Beyond this large active large project activity our orders have been driven by subsea services direct.
Wards and small project activity much of which is exclusive to our company.
This opportunity set is generated over $3 billion about and each of the last three years and it's enabled by our market leading installed base growing list of alliance partners and unique integrated feed capabilities.
Our front end engineering teams remained very active.
And more than 60% of all integrated feed work is leveraging the benefits of sub sea studio.
We believe this will generate additional proprietary opportunities some of which will come from our exclusive alliance partners over the next 12 to 18 months.
For 2020, we continue to believe inbound orders will approximate $4 billion in the first after the year, we had 1.7 billion of subsea inbound and with five months remaining in the year, we already see a similar level them down for the second half of the year coming from sort of see served.
This is small project activity and large project awards pending public announcement.
In the answer we will continue to work closely with our customers as they adjusted the current environment and we're excited to serve the new entrants that will likely step into operate potentially stranded opportunities.
That said long term success in subsea is driven by economics innovation and relationships.
Key attributes of taking FMC. This makes us uniquely qualified to remain the sub sea partner of choice now more than ever.
Turning to LNG.
We're currently in the delivery phase of two major projects Corral floating LNG and Arctic LNG too and we continue to advance to the warranty phase of Yamal LNG.
I am always been the industry's most successful project ever.
And the strengthen our execution certainly played a role in the Novatech make consortium's the decision to direct award Arctic LNG to Technip FMC.
Despite the challenges of Cobot 19, we're making good progress on all of these projects on Arctic LNG to we continue to expect activity to ramp as scheduled over the remainder of 2020.
And on the Corral LNG, we continue to achieve key milestones relating to module integration and instrumentation.
Successful execution of these technically and logistically complex projects create strong references, leaving us well positioned to be a key player in the development of the industry's most strategic LNG projects.
Market dynamics have shifted in recent months and this will alter the broader LNG landscape in the near term the number of economically viable projects is likely to decline.
The same can be said of the list of quantified VPC contractors, which will be challenged in this period of subdued project sanctioning. This is not the case for technique synergies. We have demonstrated remarkable resilience through past cycles. We don't see this is the start of an extended downturn for us.
You have already been awarded two additional projects the first being removed in Mozambique, and the second energy or coastal zoo in Mexico.
Through being subject to final investment decision and either of these projects are included in our backlog today.
Well Raghu my has been delayed until 2021, the operator for coastal puzzle continues to indicate that if I'd will take place this year.
In addition, we are actively tendering a major project in the middle East and forming front end engineering work on other LNG prospects some of which are likely to move forward due in part to their strategic importance to their host country.
This potential portfolio of LNG projects will provide us with well timed to project overlap and operational continuity.
And the portfolio beyond LNG remains diverse we've built a solid track record of successful execution delivering strategic references in areas, such as downstream and petrochemicals that leave us well position for future Project Awards.
We have through this period with a solid foundation built upon the strength of our balance sheet backlog in execution.
While client conversations remain ongoing the increase visibility we have today gives us confidence in our full year guidance for all business segments.
This is further supported by the acceleration of our business transformation initiatives to maintain if not expand our market leadership.
I will now turn the call over to Marianne to discuss our financial results in more detail.
Thank you Doug.
Looking at our headline numbers for the quarter.
Revenue totaled $3.2 billion, driven by solid performance in both the and Technip energy.
Well surface technologies revenue was impacted by a severe decline in activity in North America.
Year over year revenue decreased as a result of reduced activity operational headwinds from Cobiz 19, and foreign exchange impacts.
Adjusted EBITDA in the quarter was $241 million.
We accelerated our cost reduction program and are on track to deliver cost savings of more than $350 million by yearend.
And we expect a greater benefit from these savings in the second half of the year with the full impact realized in Twentytwenty one.
We estimate total cash cost to achieve our plan cost savings target to be approximately 75 million.
Underlying corporate expense have improved over the last three consecutive quarters, giving us confidence to lower our full year guidance, which I'll come back to in a moment.
Beginning with the second quarter Foreign exchange impacts are now reported separately from corporate expense to provide greater clarity in our financial statement.
Adjusted earnings per share for the quarter were nine cents when excluding after tax charges and credits.
Included in our adjusted earning our expenses, resulting from increased liability payable to joint venture partners, including interest expense and foreign exchange losses.
Together these two items impacted EPS by 12 cents per share in the period and excluded our adjusted earnings per share would have been 22 cents per diluted share.
The company ended the period with cash a 4.8 billion net cash was 300 in 3 million.
We have increased visibility on our task uses in inflows for the remainder of the year and have provided guidance around our free cash flow outlook.
Turning to the segment highlights.
Correct, who did 19 expenses for the company totaled 57 million in the second quarter.
Year on year subsidy revenue declined by 9%, but would have been I'm changed when excluding the negative impact of foreign exchange translation of 129 million due to the strengthening U.S. dollar.
While year over year comparisons are usually more relevant for this segment the 10% sequential improvement in subsea revenue demonstrated our ability to mitigate coded 19 related disruption in the quarter.
The the adjusted EBITDA margin was down 510 basis points versus the prior year quarter, primarily due to the negative for operational impacts related to covert 19, and more competitively priced backlog mitigated in part by cost reduction initiatives.
Sequentially the margin only declined 120 basis points as strong execution, partially offset an entire quarter of covert 19 related disruptions.
Looking at Technip and her team execution remains solid across the portfolio revenue increased versus the prior year quarter, driven by higher activity across LNG downstream and our process technology business.
The continued ramp up on Arctic LNG to more than offset the decline in revenue from Yamal LNG.
Adjusted EBITDA margin of 10.6% remain strong even as we returned to more normalized level given a reduced year on year contribution from your mall and lower margin realization on early stage projects.
Although no project awards were announced during the quarter second quarter.
Inbound orders at 836 million demonstrated good activity in services process technology and loading systems as well as expanded scope on existing contracts.
And in surface technologies revenue was significantly affected by the dramatic decline in operator activity in North America revenue outside North America proved to be resilient with only a modest sequential decline supported by solid activity in the middle East.
Sequentially adjusted EBITDA margin declined 400 basis points to 3.4%.
The decrease was driven by the significant decline in rig count in completions related activity in North America.
We are aggressively addressing our cost base.
In North America, where the majority of our restructuring for the segment has occurred we have significantly lowered the breakeven point, which supports our expectation for positive adjusted EBITDA in North America for the full year.
As Deb mentioned in his remarks, we have taken actions to reduce the impact of the current economic environment on our financial liquidity position.
We added two additional liquidity sources in the quarter.
500 million Euro revolving credit facility the facility is undrawn.
The 600 million pound bank of England, Colgate 19 commercial paper facility.
This facility carried lower interest rate when most of our other sources, we took the opportunity to secure this for the incremental liquidity if needed but.
But it has the benefit of lowering interest expense in these challenge credit markets.
Given the asset to lower cost funding, we repaid the 500 million outstanding balance on our existing revolving credit facility when considering all actions taken in the quarter and including cash a 5.6 billion net liquidity stood at 6.8 billion at the ended the quarter up 1.2 billion when can pay.
They are to the end of March.
In the quarter, we also secured a permanent amendment to the debt to capitalization covenant of our revolver, allowing for the add back of 3.2 billion of previously impaired goodwill this significantly increases the equity value used in the calculation, providing us with strong support the quickly.
Available to us today.
The ratio for the second quarter is 38%.
In the quarter. We also took steps to extend our debt maturity profile first with the private placement that came due this month. We are currently working to address the short term maturities coming due in 2021.
Turning to guidance, we are now providing 2020 guiding for all three operating segments as well as free cash flow.
In sub sea, we are guiding full year revenue to be in the range of $5.3 billion to $5.6 billion supported by the backlog scheduled in the second half.
In addition to backlog we continue to expect full year revenue for subsea services to be approximately $1 billion.
We expect adjusted EBITDA margin of at least 8.5%, implying a second half recovery.
Our technip energies guidance is unchanged from the first quarter with revenue in a range of $6.3 billion to $6.8 billion and in adjusted EBITDA margin of at least 10%.
The implied step up in second half revenue is in line with the continued ramp in major projects and supported by our backlog scheduling.
And in surface technologies, we expect revenue in the range of 950 million to 1.15 billion with revenue outside of North America, representing around 60% of the total segment revenue for the year.
We expect adjusted EBITDA margin of at least 5.5%.
Broadly in line with the first half, but demonstrating recovery from the second quarter low.
Turning to other guidance item.
When excluding charges and credits we now expect corporate expense of 130 to 150 million.
This is an improvement of more than 30% at the midpoint of the range versus prior year.
The expense reduction reflects earlier than expected achievement of the cost reductions that we discussed last quarter and lower spending in the first half of the year due to covert 19 constraint.
This guidance also assumes a more normalized operating environment in the second half of the year.
We expect their reported tax provision for the full year to be between 80 and $90 million, excluding discrete items. While adjusted net income is forecast to be higher in the back half of the year the tax provision should be slightly lower due to wouldn't change in jurisdictional mix.
Free cash flow, which we defined as cash flow from operation less capital expenditures is expected to be between cash flow neutral and $150 million.
All other guidance remains unchanged from the first quarter.
Beyond free cash flow, we expect to make an additional cash dividend payment to the amount joint venture partners of approximately 100 million in the second half for the year.
In summary.
In an extremely turbulent time for the sector. Our execution has remained strong and we're well on track to exceed our targeted cost savings.
We continue to take steps to improve free cash flow and remain focused on our cost structure, our strength in cash and liquidity and robust backlog have enabled us to accelerate our business transformation.
And with the support of our cost reduction initiatives are demonstrated ability to execute against a multitude of external headwinds and our improved visibility into the backlog. We have provided guidance across all segments given the greater confidence we had in our full year outlook.
Operator, you May now open the call for questions.
Thank you as a reminder to ask the question you want me to press Star one on your telephone withdraw your question press the pound or hash key please standby.
Hey roster.
And our first question comes from the line of Michael Alsford from Citi. Your line is open.
Michael Hi, Thanks for taking my question open.
Thank you. Thanks for taking my question up but one of them on subsea if I could please I'm just really could you talk a little bit about the margin sub sea nothing but in the guidance you gave us the town correct relate to the carpet costs out of subsea margin, but it's still quite low quote unquote guarded well, let you talked about so quickly hubs to go to the about what's the.
We can margin. Please thank you.
Thank you Michael very much for the question.
When you not only did we deliver on Q2 results wheel per also provided you guided installs for the outlook for the remainder of the year.
Which actually has an increased.
Delivery in the second half the year relative to the first half the year in an expectation of margins for at least 8.5%.
Clearly in the second quarter, we were challenged operate efficiently by direct.
Expenses that were called off but also indirectly obviously, the overall business and Thats what were the business.
It was impacted happy to report that through through the quarter and certainly since we spoke in this forum. Most recently back at the end of the first quarter.
Conditions have certainly improve.
At that point, we had a significant number of our total operations that were either.
Temporarily suspended.
Or exit or extended for suspended for an extended period of time, where now back to having all of our facilities operating that being said, we're not back to 100% operating efficiency.
Although again, the resiliency of the workforce and their dedication is really delivered some phenomenal results. So we expect that to continue to improve obviously with the caveat that we don't know exactly what will be the future impacts.
If there were to be future impacts related to other pandemic, but very proud of the work that the team has done the progress that they've made the ability of the to now have the confidence to give you the full year outlook for 2020 with margins continuing to improve in the second half.
Thanks, Doug as I appreciate the extra visibility from the call given today I'm just a quick follow up with a could Oman Qatar.
You seemed very well placed given the work that you're doing on the feed I'm just wondering whether you get any sense as to when that might come to be awarded is it.
Could be pushed into next year or do you feel that they might actually be a twentytwenty sanction.
Certainly a very exciting opportunity and I'm going to ask entering to provide more color.
Yes. Thank you very much. Thank you for the question since then the.
Extremely exciting what you need he.
As you rightly said you know we've been engaging that project put on time, we the.
I know of choice to we've also been involved in piglets projecting capacity he can she.
An environment and.
Customer that we know very well, but as it typically total we absolutely delighted to be involved in the feed and NP painful, but he can do that.
The timing of this sanction if I'd have to project.
Obviously olivier indication tend to clunky and that these project is indeed up his strategic importance for QB and designed and the communication that we have receiving become accustomed to make I look forward to based project to be thanks in Indonesia kitchen, and now where they can be beach.
Mixture funky very difficult, but to say I could not have decided to these question, but the key for I see that these projected indeed.
The important interesting and indeed lucky to be thanks, and in the near term. Thank you.
Great. Thanks Catherine.
No income.
Our next question comes from the line of Marc Bianchi from Cowen Your line is open.
Thank you.
First question just looking at.
You mentioned some of the.
The covert disruptions and you called out the expense in the in the first quarter in the second quarter as you look to the back half.
Can you give us any sense of what sort of an adjustment we should be expecting.
Sure as I mentioned on the earlier question you know we're certainly.
We have made significant progress and really again, putting the health safety and well being of our employees first set some industry standards and best practices that we've now share not only with our clients, but with our peers and competitors on ways to really try to minimize the spread of the bars, particularly into.
Hi quarters as an example on vessels in the manufacturing plants et cetera, and really really pleased with the progress that we've made obviously the challenge remains.
Will there be additional.
Implications that we are not aware of yet today.
Could occur in the second half and I'll ask Marianne to provide a bit more color.
Certainly thank Doug so as we think about these coded 19 cost that we call out directly maybe a bit about what they all are these are extraordinary expenses. They are unplanned, we do not expect them to be recovered.
These would be as Doug mentioned, when we have a facility that is closed as an example, these are not cost inefficiencies in our plant as Doug mentioned, meaning.
Lower utilization lower operating rate the impact of delayed supply chain they'll stay within our margin.
And as Doug explained we are beginning to see some return to normal so assuming that trajectory continues and we all know we can't necessarily projects that we would expect to see less than the third quarter. These are cost that we would expect to be eliminated from our operating structure given bear nature.
So as we stand today.
Again challenging to project, what would happen with co bid, but we would expect them to be less in the back half.
Then as we continue to return to a more normal environment, we certainly wouldn't be calling them out anymore. The rest of the cost would remain as they do in our margin.
Sure, Okay, thanks for that matter and Doug.
On the cash flow in the back half cash flow that that is implied by the full year guidance.
It's pretty strong.
$250 million to $400 million is the implied range I'm just wondering if there's anything unusual milestone payments or anything like that.
Or if we should think about that kind of implied conversion of EBITDA free cash flow as you know what the business can really do on a on a recurring basis.
No an important question and we appreciate you asking it because we would like to provide some additional color and and you know when we think about our company as a project business.
Prepayments on on awarded projects. If you will is not unusual.
Part of the overall mix and part of the projections that we need to make and Marianne.
I'll provide some additional color.
Sure. Thank Doug.
One thing to keep in mind, just as you look at the year to date performance in particular in the quarter. We had two items that happened in the quarter that I would say or.
Certainly not necessarily operational and not not repeating in the first is we made our second payment against a previously settled litigation that outflow happened in the second quarter, obviously, that's not repeating in the back half of a year and you also may have seen the discussion of a settlement of about a.
113 million to me in the Technip energy segment, while we were successful in a good news and settling that this quarter, we will not be the cash flow attributed to that settlement until the beginning of next year. The second part of your question is whether or not you can consider the back half of the year as a more normal conversion and I would say.
They were beginning to get there as you will know as Yamal continues to be a smaller contribution.
You are EBIT and frankly less impact on working capital, we have less working capital impact in the back half of the year and he can begin to see greater conversion. We are obviously, assuming a series of project milestones you know how we stay obviously try to stay cash flow positive across the you see that.
In the back half the year based on our guidance.
Would be improving so you can begin to look at the back half of the year as they better representation of the conversion that you should expect in a more normalized environment.
Great. Thanks, so much.
And our next question comes from the line of Wong from me.
Your line is open.
Hi, Good morning, good afternoon, a couple of questions from me.
Firstly.
On your sub sea order intake you sound very confident.
Hit that target.
Can you just talk about some of the conversations you're having with your clients.
What I kind of sticking points for them to make the how is pricing evolving just because of that more color on those conversations. Please.
Sure aiming and good afternoon.
Okay.
In my prepared remarks, I tried to highlight the fact that we.
Received several awards, which have not yet and announce or not yet.
Met all the requirements for us to include in our backlog both in store see as well as in technique synergies. So in sub sea I talked about the that provides a project in Brazil, I talked about a project in Asia Pacific, which by the ways and MPCI project utilizing sub sea 2.0 technology.
And I talked about a portfolio of projects in the North Sea recently announced by Ecuador. In addition for Technip Energy's, we announced the Ashik project.
Which is over $1 billion in total value so.
It's been a strong period for us in terms of.
Words, we have not been able to in pound all of those yet.
Conditions haven't been met but we'll be back it's not a question of nuclear projects will be sank judicious that slight timing issue.
And unfortunately, a few of those fell outside of Q2, but they certainly will be in Q3, that's what provides us the confidence so in my prepared remarks to be very clear.
That we had 1.7 billion in the first half of the year and we already have a clear line of sight on another 1.7 billion.
So you think you have to look past the Q2 order rate just because a lot of things fell into early Q3 or awarded Q2, but we'll be F. aidid Q3.
So if you add those together we have five months to.
So in the last 10%.
To approximate 4 billion of the guidance that we had previously provided and therefore still have a still have confidence Amy.
We'll achieve that in terms of the conversations in the pricing.
You know the clients are very much focused around.
Ensuring that they can achieve their very best project economics. Therefore, the majority of the conversations that we have and a very large portion of the total awards that we receive or direct awarded to our company most of which don't actually come from that sub sea opportunity list that we publish which is.
So this for the public domain that others also have access to we have a list and I indicated in my script as much as $3 billion a year on a recurring basis.
That that is exclusive to our company. This is what makes us so unique and which allows us to not only be the market leader, but extend our market leadership with our new technology offerings and our new commercial models. So those conversations really aren't around pricing Amy there or are in the project economics and we were.
Together with explained it very collaborative way to achieve those most favorable project economics. That's that's the difference between our company and the others in this space.
Sure.
Good insight just a quick follow up from area.
The cost savings could you quantify how much of the cost savings were realized in the second quarter. Please.
Yes, Thanks Amy.
As you know what Weve indicated is by 2021, we will have achieved all of the 350, plus so that the run rate going into 2021 would be at least 350 million, where we are ahead of that trajectory as we get the as we all we're planning to get there. So we are more.
More than 50% complete with all of the action that we need to take in order to achieve that through that half of this year.
Great.
Thanks, very much Marianne I'll turn it over.
You're welcome Amy.
Our next question comes from the line of Sean Meakim from JP Morgan Your line is open.
Hi, Thank you.
Doug just to start on rigs to continue on the subsea margin discussion.
The guidance for.
Fiscal 20 implies a 9% plus type of number for the back half so directionally that's constructive.
It's early but investors are not start looking to 2021, so maybe too early for guidance, but maybe not too early to think about some of the building blocks.
This year you got it Julie's $4 billion of awards that's.
Below 2020 revenue so maybe growing revenue next year's bit more challenged that's where we end up but I think you're award commentary sounds pretty constructive here, but for some potential upside maybe thats backup 20 or first half 21.
[music].
Services opportunities can be better of Kobe disruptions recede.
Well can turn still obviously very important how would you frame those building blocks in terms of what drives margin progress back towards a more normalized level next year.
Good morning, Sean. Thank you for the question and I think you highlighted the building blocks very well.
If you look at the.
The order inbound projection for 2020 years, we just discussed.
You can start to project that in 2021, we are ready.
A lot of.
Central revenue covered we have a strong backlog.
We've obviously just got done talking about additional awards and the additional awards in the second half of this year. So.
As far as the revenue line and you're right. It's early to give twentytwenty one guidance, let's let's remember we just.
Today are giving each to 2020 guidance given the disruption.
The world experienced last quarter.
But it's fair to talk of old and as you said you were seeing a nice progression of the margins in the second half of the year based upon the guidance that we provided.
And as we look into 2021, we expect continued to improve in terms of getting back to more normalized operating efficiency.
We have another strong backlog, we'll be adding new orders as we just discussed so when you look at it again it gives us confidence that we're going to continue to be able to go back to more normalized level margins now one headwind.
Several but the one headwind that I would we know that that didn't come up in the euro in your question is the fact that as summer. This backlog risky Julie has occurred it naturally pushed out the latter stages of the PCIA projects or any sub sea project, but when we certainly for us.
The benefit of having the PCI projects, it's pushed out that installation campaign.
In some cases push it out of 2021 it into 2022.
So that's the one headwind will be basically the fleet at the fleet utilization.
And the and the economic.
But the low utilization the economic impact that that would have that would have largely dissipated in 2021 based upon the strong orders we had in 2019 and again, what we were originally expecting for 2020. So you know so it's kind of a balance but I think when you look forward you theres.
The backlogs strong backlogs resilient, we're getting new orders and certainly have we very large portion of the total market. We continue to add New Alliance partners may not have come across in the script, so I'll repeat it.
We're about to announce a new MPCI exclusive alliance partner.
Serious player in the sub sea space, So things are moving in the right direction.
We obviously have to allow the Toby.
Impact to dissipate get back to a more normalized environment, we don't know what the future will bring in regards to the pandemic. So we have to be cautious.
We also have to consider that there's a bit of the headwind, but all that means is we're going to continue to move forward in a accretive and constructive direction in terms of the subsea margins.
Realizing that.
The real benefit of the recovery of the fleet and the installation will now be more likely.
Latter part of 2021 in 2022 versus the which would have been more in 2020.
That helps you show.
That is very helpful. Doug I appreciate that feedback.
Maybe we could just have a similar discussion.
Around technip energies.
Just think about building blocks in the next year. So in this case.
The Amal roll off like real headwinds year on year for margins.
Some big new projects still starting up that's likely another headwind lease for 2021.
But maybe cover coverage for revenue looks more secure then sub sea. So that probably helps to some degree just curious how confident you are in terms of being able to stay in that sweet spot.
Perhaps lower margins than when the I'm always a bigger part of the mix, but still staying above that underlying downstream level, so perhaps somewhere in the high single digit type of range.
Sure roll your malls not over yet and.
We do have a large portfolio of other projects that are very important to us as well and I'll pass it to Catherine provide more color.
Yes. Thank you. Thank you very much because he made any to said you have to say you also described did begin got well. Thank you.
So we we have as as you know they swung back up 13.8 billion you ended up.
At the end of Q2, which is good and innovate indeed, a lot of revenue and strong revenue next year in Damndest Mig you've described each well, we expecting a step down in a Yemen revenue, which obviously.
I think you the aggregate EBITDA all five into its next year on the other hand, the remaining of the portfolio has been accumulated in our backlog from a very selective absolutes as usual, we believe flooding the way and we make sure we choose and we were very silly.
TV, India into perspective project wind fold Deane, so that even deducting E. Very found a gross margin side backlog axiom and that you will see that next year.
Lets put you so.
Very much new linked with the execution that we've demonstrated that we have demonstrating you can expect consistent delivery not it did that we'd have to normalize for sure for Yemen, we'll have to take into account that he can and he two is progressing well, it's going to continue to ramp up it will continue to be.
Indeed, early phase, which will obviously he's acetate had we done credence.
I mean, we called mission, but overall I would say.
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Very strong.
Justin Muddied simplify that we expect from next year, we that change in mix that to your understanding way well.
That's very helpful. Thanks gathering.
You're welcome.
Our next question comes from the line of Kurt Hallead from RBC Your line.
Hi, good morning.
Hello weaker I.
Hi.
Hi, My initial follow up question.
For for Marianne on on the free cash flow guidance that was provided for the full year.
Just wanted to get some clarity on that.
That free cash flow already embedded the $100 million expected payments or they're going to go to the of all JV partners.
Correct.
So that yamal payment actually fall below free cash flow you see that in the financing objects in the of the cash flow. So short answer is no that came in is not in our free cash flow expectation.
Because it doesn't it doesn't fall there and they don't want.
But the back half of the year does include obviously assumptions for project progress in inbounds and other milestones around.
The project as we as we outlined but that addresses your question.
Yes, It does help and then let Doug.
You you definitely Rouse my curiosity with respect to your commentary around some of the strategic initiatives for subsea.
Onep Energy's, especially as it relates to the all electric powered.
Let's see system.
As well as your commentary about blue and green hydrogen for technique energy. So I know, it's going to be wait too early for this that the financial impact within the next year or two but im just wondering what kind of momentum you see building.
Were port technique, specifically craft and specifically within the course of the next that alone six to 12 months.
And what kind of traction anything you can get within that timeframe for those for those initiatives.
We will occur.
You touched on the two key ones.
A lot of the other initiatives I would say or not obvious in terms of their momentum and certainly not obvious in terms of the returns associated in those in some of the renewable space and although we are participants across the renewable space we.
We really want to focus on where we can provide differentiation and weekend have returns that are very attractive.
Versus if you will some of the more commoditized parts of the renewable space. So you touched on the two key ones on its very much how we see it which is.
The electrification of the offshore which is a big big opportunity I would say, there's a tremendous amount of enthusiasm that momentum on the subject.
And we are very very unique position here.
Because there's a lot of attributes and technologies that are required to be able to do this it's not simply providing the electricity, but it's the infrastructure and the equipment in the design and the interfaces with the sub sea completions that are really really unique we've been working on.
This spring period of time.
We are partnering well with others in this space and.
We believe this will be very attractive opportunity for our clients as they had stated.
Environmental.
Emissions.
We can become a key partner for them and help them reach those ambitions and this is an example of how we could do that.
We're looking beyond just the electrification and we're actually looking at the electrification through re renewable energy this is where our exposure.
And so being involved in the very first offshore floating windfarm gives us a lot of credibility in the space and a lot of experience and knowledge in the space and as an example, not necessarily from offshore floating win but that could be a very unique solution and one that we're very well ahead.
And to be able to provide to our clients a nother potential energy source could be hydrogen as you point out and we're very excited about that I'm going to pass the microphone to Catherine let her talk a bit about our vast experience in the area of hydrogen.
Yes.
Thank you. Thank Doug Thank you for the question.
Obviously, we are extremely excited.
By the momentum around aggregating. These days, we do believe that I've heard anything to pay a pivotal role in the featuring that's unique being such a keen in any carrier.
Many many different application the nice thing actually that we've been in hydrogen fuel because he was 60 years.
And we've installed 270 plants around the wed and obviously it was coal because what we call great Isogen, but we've also when people my new that we've actually below 50 Blue Eyed you then you need to close to it.
So we have very differentiated offering and we'd have proprietary yet seemingly format.
You need we have capabilities, we some special equipment.
We do see between Nisha into we have not technology references.
An experience. In addition, we have technology partnership.
Kevin captured so when you combine all that you understand why we actually excited about the prospecting blue agile Jen.
Of course, when you look at the projects in the aggregate demand and I didn't protection, there will be the need and with exciting could position should I come from the clean I did and we keep.
Clean I do Jane However, the economy and do commonly so a question does the lots of room for the Blue I go Dan. We teach you know the grey edges and weve carbon capture which is something that we commenced study can today can provide today. So that is very exciting strong position what today. If you look I think.
I mean I do is an obvious he said he can speak more emerging.
Also I excited about to be kept by bidding into potential of integrating we digest and unique at industrial scale. So for lodging industry, which will benefit from green nitrogen, we think that's our role as integrator.
Project management, Youre integration will be useful in helping making the economy.
So you know no matter, what you lose raging looking I do again, we think that keeping that indeed has it been willing to play. So that's it that's very exciting any stocking now by the way.
Back to you Doug.
Thank you for that I appreciate that color.
And we only have time for one more question today. Our last question comes from the line.
Aside from ATP capital markets. Your line is open.
Thanks for.
Taking my question.
The you've talked about the green hydrogen other as you transition.
Ideas.
Would you say that vision all your different ideas and he is the hydrogen aspect the most exciting that you're working on.
Number one and number two as a percentage of revenue what does that contribution right now of these emerging energy transition studies.
Sure. So thank you very much appreciate the question I know, obviously, an exciting subject to follow up on I'll be brief because I know, we're running out of time.
Actually the electrification offshore I would say is as exciting about high as hydrogen and could be very very impactful.
We're talking about.
Going to zero emission.
You know a production that is quite significant when you look at you know hydrogen yes.
The renewables and of the differentiation that we have in this space for US. It is the most exciting and we believe or we can create the most differentiation and get very constructive returns again as opposed to a lot of the renewable space, which is.
You know.
The award numbers are large, but the returns are poor and.
And that's not the type of projects that we want to focus on so we're going to keep driving and doing our core. We just joined the hydrogen council and we want to be an active voice in an active advocate and really helped to push the development in those areas in terms of a percentage of the total contribution we probably don't have enough time to get into.
All the.
All the dynamics of.
The question is do you do you look at LNG as a very critical energy transition fuel. We certainly do I'd certainly has a significant impact in the ability to be able to make it a fungible commodity through LNG. If you include LNG. It's a large percentage if you exclude all hydrocarbon and just look at the pure renewables.
It's a smaller portion of the company today, we're pivoting strongly in this direction and securing to secure our future as well. Thank you.
Thanks, if I can maybe just one last question.
The did you took us and technology digitization of the.
In the Technip Energy's solution.
Business, that's something that you talked about last year.
Are you in that progression in that and introducing those those ideas into that business segment.
Sure sure. We're looking after digitalization of our company across the board internal processes external processes.
We highlighted the last couple of quarters actually introduced last quarter and highlighted a bit more this quarter sub sea studio.
This is this is really really significant.
It's going to just drive our differentiation wage even greater.
And we're seeing evidence of that very quickly.
It's going to expand beyond the front end engineering. It will become if you will the waste subs see will be developed digitally from the initial front end all the way through the late to the feel of the project. So there's a lot more to come on the subject, we'll be continuing to communicate that to you and others as we go forward.
In the area of surface technologies, we're moving to fully digitized.
A system for well completions.
It's really again quite exciting.
And has a you know as the impact in terms of.
The natural benefits of things being digital but but it also has a benefit from a greenhouse gas emissions as well.
Three and all that you conclude today's call by talking a bit about the digital transformation within Technip energy.
Thank you very much dog in the assuming that means that can even as easy we are progressing very well in some of the game changing technologies around digital and particularly on the though tween, particularly on.
Come on at this moment too, but you can only around each on following the interest on the end to which allows optimized development then you need to be deployed and designed for customers. So we have a series of the very good end game changing solution that we wouldn't be looking forward to talking much more into future.
You mean much.
Yes.
I would now like to turn the call over to map Seinsheimer for closing remarks.
This concludes our second quarter conference call a replay of the call will be available on our website beginning at approximately eight P.M. British summer time today. If you have any further questions. Please feel free to reach out to the Investor Relations team. Thanks for joining US Lisa you may end the call.
Thank you ladies and gentlemen, this concludes today's conference call. Thank you for participating.
No.
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