Technip Energies N : First Quarter 2024 Financial Results and Conference Call Transcript

TECHNIP ENERGIES FIRST QUARTER 2024

FINANCIAL RESULTS - TRANSCRIPT

Technip Energies N.V. Corporate Participants :

• Arnaud Pieton Technip Energies N.V. - Chief Executive Officer & Non-Independent Executive Director
• Bruno Vibert Technip Energies N.V. - Chief Financial Officer

■ Phillip Lindsay Technip Energies N.V. - Vice President of Investor Relations

Paris, Thursday, May 2, 2024, 1:00pm CET.

Operator's Introduction

Operator

Good afternoon. This is the conference operator. Welcome, and thank you for joining Technip Energies First Quarter 2024 Results conference call.

At this time, I would like to turn the conference over to Mr. Phillip Lindsay, Head of Investor Relations for Technip Energies. Please go ahead, sir.

Welcome and Disclaimer

Phillip Lindsay

Thank you, Judit. Hello, and welcome to Technip Energies' financial results for the first quarter of 2024.

On the call today, our CEO - Arnaud Pieton will provide an overview of our Q1 performance and business highlights, followed by Bruno who will provide more details on our financial results.

We will then open for questions.

Before we start, I would encourage you to take note of the forward-looking statements on slide 2.

I will now pass the call over to Arnaud.

Business Highlights

Arnaud Pieton

Thank you, Phil, and welcome to our results presentation for the first quarter, where I will begin with the highlights.

Q1 represents a solid quarter for Technip Energies with continued focus on operational excellence, good commercial momentum and progress in delivering on our 2024 strategic objectives.

We delivered a strong financial performance, with adjusted revenue of €1.5 billion, up 5% year-on-year, and adjusted recurring EBIT margin of 7.3%, which puts us on track to deliver full year guidance.

Commercially, our Technology, Products and Services segment had a very successful quarter by posting a book-to-bill of 1.3 and demonstrating our ability to capture growing demand for our services and solution offerings.

In Project Delivery, we have been selected on three major projects in the period.

This includes Ruwais LNG in Abu Dhabi and the Net Zero Teesside power generation and carbon capture project for bp in the UK.

Both these projects are pending final investment decisions and will be incorporated in our backlog upon reaching this milestone.

In addition, last week we announced the award of Marsa LNG in Oman, which will be included in our second quarter order intake .

As a result of this positioning and our rich commercial pipeline, we expect improved orders in Project Delivery and sustained momentum in TPS to boost our backlog - which at period-end - stood at €15.3 billion, up 27% year-over-year.

Moving to operational highlights, where we are delivering on our portfolio of projects and TPS assignments.

In the 1st quarter, we achieved commercial production at the Midor refinery expansion - a facility that will deliver cleaner fuels to Egypt.

In addition, LanzaJet inaugurated its Freedom Pines plant utilising our Hummingbird technology;

This is the world's first commercial scale facility producing sustainable aviation fuel from ethanol and therefore demonstrating the alcohol-to-jet pathway for SAF.

This is paving the runway for future SAF-related opportunities.

Overall, a very solid start to 2024, and I want to express my gratitude to our teams that continue to drive our leading performance all around the world.

Moving to commercial highlights, where we strengthened our leadership in low-carbon, electrified LNG and net-zero solutions.

LNG remains a critical source of energy on the world's pathway to net zero, and, T.EN is committed to supporting its development while concretely addressing emissions abatement.

Here, we were selected for two major low-carbon LNG developments - the Ruwais project for ADNOC in the UAE, and Marsa LNG for Total Energies and OQ in Oman.

These projects reflect the future and set a new standard for decarbonized LNG production.

Both will integrate electrified LNG trains powered by zero carbon energy sources - nuclear for Ruwais, and solar for Marsa - and these will be amongst the lowest-carbon intensity LNG plants ever built.

On Ruwais, we have commenced early EPC activities for what is a two-train development with production capacity of 9.6 million tonnes per year.

Marsa - on the other hand - is a bunkering project with a production capacity of 1 million tonnes per annum which aims at reducing the shipping industry's carbon footprint by using LNG as a marine fuel.

Marsa reached final investment decision in April and the award will be included in our second quarter backlog.

For clarity, the full award on Ruwais is pending the upcoming final investment decision and is not at this stage included in our backlog.

Turning to carbon capture, where, in March, we received a letter-of-intent confirming our selection for Net Zero Teesside Power in the UK and demonstrating T.EN's growing leadership position as an integrated state-of-the-art CCUS solutions provider.

This first-of-its-kindgas-fired power station will fully integrate our Canopy by T.EN carbon capture solution - aimed at capturing up to 2 million tonnes of CO2 per year.

As a result, the project is expected to provide flexible, dispatchable low-carbon power, equivalent to the average electricity requirements of 1.3 million UK homes.

Net Zero Teesside has been shortlisted for government funding support as part of the UK's net-zero program, and negotiations are ongoing with the customer, ahead of an expected final investment decision later this year.

In summary, these achievements demonstrate our leadership in strategic markets, as well as our commitment to energy supply, net zero ambitions, and geographic diversification.

Turning now to the solid progress we are making on delivering our 2024 strategic objectives.

First, our growing leadership in carbon capture is further evidenced by early engagement and commercial momentum.

In addition to our first awards from T.EN's Canopy carbon capture solutions, we have been awarded multiple FEEDs for projects to decarbonize cement production, gas-fired power and energy-from-waste in various geographies.

This success clearly demonstrates the confidence that customers have in our technical expertise and our ability to execute.

Second, we continue to innovate and drive decarbonization in our traditional markets.

This includes petrochemicals. Although slower GDP growth is impacting near-term demand and spending, environmental and legislative pressures are driving the industry towards lower-carbon intensity and greater circularity.

This favours T.EN as we are focussed on developing solutions to help customers decarbonize and future -proof their existing infrastructure.

One such innovation - for decarbonized ethylene - was recently recognized by the US Department of Energy with IRA-funded investment of up to $200 million for a plant at commercial-scale.

This new technology - being developed with our partner, Lanzatech - will produce sustainable ethylene from captured CO2 emissions.

Finally, with the announcement of EkWil, a joint venture with SBM Offshore, we aim to create competitive solutions for the nascent floating offshore wind sector.

By bringing together our expertise, engineering and delivery capabilities, we will innovate to further develop and commercialise our respective leading floating solutions.

Sustainability is embedded in our purpose and core values, driving value creation across all of our activities…So, before passing on to Bruno, let me highlight some of the achievements in our Sustainability Report.

We continue to make substantial progress on the impactful targets we have set, and we are being intentional in our decisions.

This is clearly evidenced by our industry-leading safety performance recorded over 250 million worked hours, as well as through increased diversity in the workforce, in our leadership teams, and on our Board of Directors.

On climate, we have made solid progress towards our 2030 Net Zero target for scope 1 & 2 emissions, reducing by 28% compared to 2021.

But emission reductions are only one aspect of the company's impact on the environment.

To preserve the planet, we must also address biodiversity. One example of our effort is our formal commitment to not participate in any projects located in the most sensitive areas as deemed by the International Union for Conservation of Nature.

This is included in our ESG scorecard, and we remain resolutely focused on making further progress on our sustainability journey through 2024 and beyond.

I will now pass the call over to Bruno.

Financial Highlights

Bruno Vibert

Thanks Arnaud, good afternoon everyone.

I'll begin with the highlights of our financial performance for the first quarter.

Adjusted Recurring EBIT was €111 million, up 3% year-on-year.

Margins at 7.3%, are consistent with our full year guidance.

Adjusted diluted EPS at €0.50/share increased by 11% year-over-year, benefiting from higher EBIT and a lower tax rate.

Free cash conversion from EBIT, excluding working capital, was above 100%, leading to free cash flow generation of €119 milli on.

Turning to orders, Adjusted order intake was €850 million, higher year-over-year thanks to sustained momentum in TPS orders, and adjusted backlog ended the period at €15.3 billion, equivalent to two and a half times 2023 revenues.

Closing net cash was €2.7 billion.

In summary - a solid first quarter that puts us on track to meet full year guidance.

Turning to our segment reporting, starting with Project Delivery.

Revenues are up 9% year-over-year resulting from the continued ramp-up towards peak activity on Qatar NFE, a growing contribution from Qatar NFS, as well as good volumes in various downstream projects.

Adjusted recurring EBIT margins are 60 basis points lower year-over-year at 7.5%. As discussed during our full year call in February, Project Delivery margins will trend to a more normalized level reflecting a re -balancing of the portfolio with growing volumes from early-phase projects.

The resulting EBIT increased by 2% year-over-year.

Finally, backlog is up 35% year over year, equivalent to 3.3 times 2023 segment revenues, and providing strong visibility.

Given the strength of our commercial outlook and pipeline in 2024 and 2025, we are confident that we can further reinforce this backlog with high quality projects to support our medium-term performance.

Turning to Technology, Products & Services,

TPS delivered solid financials that are consistent with the trajectory for our medium-term framework.

Revenues were up 5% year-over-year resulting from higher proprietary equipment, as well as renewable fuels activity, and sustained momentum in study work across decarbonization markets.

Adjusted recurring EBIT slightly decreased year-over-year by 3%.

Segment gross margin experienced a sound improvement year-over-year thanks to good execution and favorable mix.

As we continue to invest in the future growth of TPS, this gross margin gain was offset in the quarter by strategic developme nt initiatives, increased R&D spend, and higher selling and tendering activity.

Turning to orders, high demand continues in TPS with €620m order intake in Q1 2024.

This is equivalent to a quarterly book to bill of 1.3 and reflects strong momentum across a broad range of decarbonization services, studies, and PMC call-offs.

It is also a notably pleasing outcome given the absence of larger product awards in the quarter.

This leaves the period-end backlog for TPS at close to €2 billion, consistent with shorter-cycle activity.

Turning to other key performance items across our financials, beginning with the income statement.

Corporate costs of €12.3 million in Q1 are below the run rate for 2023 that was somewhat impacted by strategic projects and pre-development initiatives.

While some of these initiatives are ongoing, the financial impact has lessened.

As global interest rates - for now - remain elevated, we continue to benefit from interest income, which at €20 million is consistent with quarterly trends during 2023.

Lastly on the P&L, at 26.1%, the effective tax rate is consistent with the low-end of the 2024 guidance range, benefiting from a favorable mix of earnings.

Moving to balance sheet, where the picture remains solid.

Gross cash of €3.5 billion is significantly in excess of the net contract liability - which as a reminder contains future project costs, future margins and contingencies.

Existing projects in backlog plus expected awards during 2024 and 2025 will continue to contribute to this differentiated capital structure.

Finally, gross debt remains stable with over 80% long term debt with maturity in 2028 - a comfortable position.