Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Technip Energies NV (THNPF, Financial) achieved double-digit revenue growth to EUR3.2 billion in H1 2024, driven by strong volumes in project delivery and steady growth in TPS.
- EPS grew by 50% year over year, benefiting from strong margins and higher financial income.
- The company secured significant commercial awards, including two low-carbon LNG plants in the Middle East, contributing to a book-to-bill ratio of 1.3 year to date.
- Operational highlights include the successful performance test of the Midor Refinery expansion and the commissioning of advanced furnaces at Shell Skyline facility, reducing CO2 emissions by approximately 10%.
- Technip Energies NV (THNPF) reported its highest-ever first-half net profit, up 50% year over year to EUR188 million, supported by strong operational performance and financial income.
Negative Points
- TPS EBIT margin guidance is tracking below last year, with increased R&D and higher tendering activities impacting margins.
- Working capital was an outflow of EUR735 million in the first half, largely due to timing and cut-off items, with limited impact from project delivery awards.
- The company faces challenges in scaling the TPS business while growing underlying EBIT margin, despite increased investments in R&D and strategic initiatives.
- The market for engineers is competitive, and Technip Energies NV (THNPF) has increased its headcount by 1,000 people, which may impact operational costs.
- The LNG market outlook suggests a balanced market towards 2030, raising questions about the rationale for approving significant new capacity in the near term.
Q & A Highlights
Q: The first one is on TPS margin guidance. You have a medium-term framework, which is 10%-plus. And again, the 2Q margin is tracking a bit below last year. Is it proving more difficult than anticipated to scale the TPS business, whilst at the same time growing the underlying EBIT margin, not just the gross margin? You've highlighted the increased R&D and high tendering. Just wondering to get to double digit would that have to dial down?
A: Good afternoon, Kate. So TPS from a revenue and margin perspective, we've seen material growth from '21 to '23 and then continued growth in '24. As we pointed out and as you also referred to in your question, we are investing. And while we've seen growth in the gross margin of the TPS contribution, at the same time, we're continuing to invest. And this means that while we are on the trajectory to 10%, this takes time as revenue growth and gross margin growth. To put things in perspective, for instance, half year over half year, the incremental R&D investment is EUR12 million. So we've moved EUR23 million in H1 '23 to EUR55 million H1 '24. And over the full basically P&L of the company, the impact of this in incremental R&D spend would have meant that EBIT of 7.2% actually would have been EBIT of 7.6%. So you see the impact of this investment. Yet, at the same time, we are delivering in palace. So we are totally committed to continue to put EPS above EUR2 billion from services or more Technip content with associated products and proper equipment. And we are investing all these things of R&D, which puts growth in TPS even beyond that for the future. Improves things like low carbon, LNG like biopolymers, and some of these aspects. So we are on track, I think for us, we have the capacity to invest, and that's what we are doing, but will reach double digit for TPS.
Q: Just thinking about carbon capture opportunity, you were awarded a service contract for the Exxon Louisiana project. And you've been quite clear in the past about not wanting to take construction risk in the US. I'm just wondering, do you see that limiting the size of individual awards you can target in the US versus other regions?
A: About carbon capture, which is a sizable opportunity or where we see sizable opportunities, I should say, in Europe and in the US. Well, we will continue to stay true to our principles when it comes to the geographies where taking lump-sum construction risk is in compatible with the risk profile that we want to give to the company. So in the US, we will continue to work as we have done and then EPS, so engineering procurement fabrication. So we are fabricating module outside of the country, or EPSCM, where we do procurement services and construction management, but the construction risk goes to a local construction partner. So we will continue following this model. We'll continue to remain extremely disciplined. The key in being successful is to team up with high-quality partners who are capable to take the, I would say, the responsibilities that we are not ready to take ourselves in the US because not having enough of a footprint and not being vertically integrated, so we don't own our own construction resources. So for as long as we continue to find the quality partners, we will not be limited in the amount of and the volume of business we can take in the US, in particular. Interestingly, in carbon capture, we are differentiated through our solutions. So there's actually no lack of partners wanting to team up with us because we are the source of new business opportunities in what is the new domain, i.e., the carbon capture domain. So there is a strong momentum. And, I would say, for any construction company in the US, we are a good horse riders, if I may say, towards future business and success, thanks to the way we are able to differentiate through technology around the capture.
Q: Could you provide us an update in terms of pipeline for new LNG bit on the market? If you have a few words to say on Coral that would be interesting?
A: Thank you for your two questions. I'll start with the one related to LNG. As indicated, the LNG opportunity set exceeds or is in the range of [EUR30 billion] by the end of 2026, so it's a very healthy pipeline. I will point to the fact that we are having very good success this year in low carbon or electrified LNG. And I would say, [the foreign] intake in that space in spite of starting the year with the moratorium on LNG in the US. So basically, carving out a very large geography for LNG. What is remarkable and credit to the teams at Technip Energies is to having been able to put Technip Energies in a position that, in spite of such moratorium, we are successful in all our geographies and securing high-quality prospects securing also, I don't think a lot of innovation towards decarbonizing energy. So from that standpoint, I think it's remarkable and it's important to not forget about the LNG moratorium, which has taken part of the market at least for new [negotiation] trains away for some time. Now, having said that, there are still opportunities in 2024, and you named Coral. So the engagement with the client continues. As I like to say, we don't control the date of FID, so whether it's going to be on that side of December 31 or into 2025, we don't know for sure, but there is a high probability or possibility for this award to take place or this FID to take place in 2024. Beyond Coral, well, at some point, I think there could be a revision of the moratorium in the US. So we continue our involvement with developers in the US, and we have many conversations and the conversation actually never stopped. So we took advantage of the moratorium to progress some early engineering and the de-risking of potential future projects. We've also continued on the engagement in February 2024. Qatar announced that they were committing to an FW. While there isn't much more to say on the matter, but we've continued our, I would say, engagement with Qatar Energy and preparing about the launch of such projects. So that's into the future. There are more opportunities around floating LNG as well in South America and still in East Africa. You've read probably like I have about Rovuma, that is a fit competition that is ongoing in Mozambique, and there are two contenders; we are one of the two. So it's actually very rich -- for us, the, I mean, the LNG pipeline of opportunities I mean for the back end of 2024, but also in 2025 and 2026. And remember, we like to say that we are chasing quality over quantity. The good thing about our positioning in LNG and about the LNG market for Technip Energies is that, while we are focusing on quality, quality also comes with quantity because those awards and those projects are usually of a fairly large size and
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
