SECOND QUARTER 2016: STRONG OPERATING PERFORMANCE

  • Adjusted revenue at €2.8 billion: stable versus 1Q 16; balanced between both business segments
  • Adjusted Operating Income From Recurring Activities1 at €260 million
  • Order intake at €1.5 billion
  • Balance sheet strengthened with record €2.2 billion adjusted net cash
  • Diluted EPS2 up to €1.03; Net Income of €123 million

COST REDUCTION DELIVERY AHEAD OF SCHEDULE

  • Cost reduction plan ahead of schedule with €900 million savings to be delivered by 2016 (previously €700 million) out of the total planned of €1 billion

FULL YEAR 2016 OBJECTIVES UPGRADED

  • Adjusted Subsea revenue between €4.7 and €5.0 billion, adjusted Operating Income From Recurring Activities around €680 million
  • Adjusted Onshore/Offshore revenue between €5.7 and €6.0 billion, adjusted Operating Income From Recurring Activities around €280 million

On July 26, 2016, Technip’s Board of Directors approved the second quarter 2016 adjusted consolidated financial statements.

  1. Adjusted operating income from recurring activities after income/(loss) of equity affiliates excluding exceptional items, depreciation and amortization. No exceptional items in 1H16.
  2. Adjusted operating income from recurring activities after income/(loss) of equity affiliates excluding exceptional items. No exceptional items in 1H16.
  3. Adjusted operating income from recurring activities after income/(loss) of equity affiliates excluding exceptional items, divided by adjusted revenue. No exceptional items in 1H16.
  4. Net income of the parent company excluding exceptional items.
  5. As per IFRS, diluted earnings per share are calculated by dividing income/(loss) attributable to the parent company’s shareholders, restated for financial interest related to dilutive potential ordinary shares, by the weighted average number of outstanding shares during the period, plus the effect of dilutive potential ordinary shares related to the convertible bonds, dilutive stock options and performance shares calculated according to the ‘Share Purchase Method’ (IFRS 2), less treasury shares. In conformity with this method, anti-dilutive stock options are ignored in calculating EPS. Dilutive options are taken into account if the subscription price of the stock options plus the future and still outstanding IFRS 2 charge is lower than the average market share price during the EPS reference period.

Thierry Pilenko, Chairman and CEO, commented:‘Operationally, the second quarter performance highlighted our teams’ continued drive to win new business, execute our clients’ current projects, reduce our cost base and maintain our balance sheet strength. The result was a solid quarter of profit and cash generation. Strategically, the agreement to merge with FMC Technologies shows our determination to drive change in our industry, as it evolves in response to a lower oil price; the merger process is progressing well, with significant milestones completed.

Quarterly performance highlights

Regarding second quarter performance, the key elements include:

  • Strong Subsea activity across our regions, delivering an OIFRA at €200 million and margin at 14.6% on revenues down 12%;
  • A resilient Onshore/Offshore performance, with OIFRA at €74 million and margin at 5.1% on revenues down 7%;
  • Our cost reduction program is ahead of schedule and expected to deliver €900 million already by 2016, demonstrating our ability to build a leaner business faster
  • Strong cash conversion: cash flow of €205 million drove record net cash to €2.2 billion end of June;
  • Order intake of €1.5 billion, in line with 2Q15 and well ahead of 1Q16, with projects providing visibility and additional workload for both our people and assets.

Within Subsea, our vessels were active on North Sea projects such as Kraken and Edradour, and notably in West Africa on GirRI (Angola), TEN (Ghana) and Moho Nord (Congo). In Brazil, we renewed the charters of both our Brazilian-flagged pipelay vessels, the Skandi Niteroi and Skandi Vitoria.

In Onshore/Offshore, we inaugurated the largest ethylene cracker project in the Americas – Etileno XXI for Braskem (Mexico). In Malaysia, our first Tension Leg Platform (TLP) sailed away on Malikai for Shell and Petronas FLNG Satu has been moored. The Yamal project continued its solid progress through the quarter, with 48 modules having departed their fabrication yards since the beginning of 2016. Order intake included a mix of early stage, reimbursable and technology-related work, as well as additional scopes on larger projects such as Yamal.

Accordingly, in light of the strong performance in the first half, we have upgraded our 2016 objectives:

  • Adjusted Subsea revenue between €4.7 and €5.0 billion, adjusted OIFRA around €680 million (previously between €640 and €680 million);
  • Adjusted Onshore/Offshore revenue between €5.7 and €6.0 billion, adjusted OIFRA around €280 million (previously between €240 and €280 million).

Market environment and outlook

The recent rise in the oil price coupled with evident deflation across the supply chain in oil and gas gives all market participants more confidence to plan for the long term. We are therefore seeing continued focus from clients seeking to get upstream projects to work – notably fast track projects like tie-backs and brownfield, but also larger, strategic investments. This should not create undue optimism. We continue to expect for some time yet a slow rate of new orders and continued competitive pressure across the industry, notably for offshore developments: the prolonged and harsh downturn has not ended.

By contrast, we continue to see good interest among our clients in investing in downstream facilities in the current environment.

Technip continues to position itself at an early stage for work across our portfolio of activities, particularly for large or complex projects that require integrated skills and experience across different market segments, or where technology expertise is critical. Our order intake over recent quarters, as in the second quarter, reflects these strengths in both offshore/subsea and onshore/downstream.

Technip and FMC Technologies combination

On May 19th, we announced our intention to combine with FMC Technologies. The transaction brings together two market leaders and their talented employees, building on the proven success of their existing alliance and joint venture, Forsys Subsea, uniting innovative technologies, common cultures and values, enabling rapid integration. The combined company will harness a new generation of comprehensive solutions in Subsea, Surface and Onshore/Offshore to reduce the cost of producing and transforming hydrocarbons. The merger process is on track. In June we reached two significant milestones ahead of schedule:

  • We signed the official merger agreement mid-June, following the conclusion of the works council consultation process in Europe;
  • We received a successful early conclusion of the U.S. antitrust review from U.S. regulators.

Internally, the planning for the two companies’ integration is gathering momentum. In June, we announced the senior leadership team and the principles and organization of the merger integration. We expect further milestones over the coming months and will continue to communicate in tandem with FMC Technologies on our progress.

Conclusion

Our second quarter results again show Technip’s focus – in our day-to-day operations and our strategy – on meeting our clients’ needs for solid execution and early engagement to drive their project costs down. Project execution and cost reduction supported our profitability and cash flow and we maintained a strong balance sheet. With FMC Technologies, we will be an even broader oil and gas services company: providing technology, equipment and project management expertise. Together, we will drive change by redefining the production and transformation of oil and gas – to win projects, gain new markets, and continue to build talents – and creating long-term value for all our stakeholders.’



This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
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