KBR, Inc. (KBR) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to this morning's call on KBR Technology, A Perspective on Hydrogen Infrastructure Investment. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Jerry Revich. Sir, the floor is yours.

Thank you. Good morning, good afternoon and good evening, everyone. I'm Jerry Revich from Goldman Sachs. And on behalf of Michele Della Vigna, Head of European Energy and Carbonomics Research, along with Ashok Sivamohan, we're thrilled to welcome the KBR executive team responsible for the company's hydrogen strategy. We have with us Doug Kelly, President of Technology Solutions; Ben Sawford, Vice President of Global Advisory; Mark Sopp, Executive Vice President and CFO; Alison Vasquez, Vice President of Investor Relations. Thank you so much for joining us. So we are on...

And on behalf of the company, Jerry, from KBR's perspective, thank you for hosting this, and we're really pleased to be with you. So thanks for making it happen today, Jerry.

Our pleasure, Mark. And we are required to make certain disclosures in public appearances about Goldman Sachs' relationship with companies that we discuss. The disclosures relate to investment banking relationships, compensation received or 1% or more ownership. We're prepared to read aloud disclosures for any issue upon request. However, these disclosures are available in our most recent reports available to U.S. clients on our firm portals. Disclosures and updates to those disclosures are available by ticker on the firm's public website at gs.com/research/hedge.html. This conversation is not intended for the media and is off the record. Now with the legal portion of our programming out of the way, we have 15 minutes of management introductory remarks to be followed by Q&A. If anyone has any questions they would like us to cover, please submit them via the webcast or e-mail Michele or me. With that, Mark, the floor is yours. Thank you.

Jerry, thank you. Thanks to Goldman Sachs for hosting the event today. We're super pleased to be here. One more legal matter is please pay appropriate attention to our forward-looking statement in the materials presented, and trust you'll do that. I'm really pleased to have 2 real world leading experts with me today in the field that we're talking about with Doug and Ben. And so they are the stars of the show. I'm just going to say a couple of things upfront here on KBR holistically, and then I'll turn the floor over to Doug. Just to give you an idea of KBR. On to Slide 3, please. And I'll kind of move left to right here. Big picture, KBR delivers science, technology and engineering solutions to governments and companies around the world from a scale perspective. We're about $6 billion in annual revenue. We are a people company. We have about 30,000 really smart people who inspire both us and our customers every day and make our customers successful using very specialized skill set and time-tested domain expertise. That's a really big deal for us. And we couple that with innovative technology, particularly in the area we're talking about today. The one way our people are very special, and I think this is a differentiator as they are truly operationally focused. So we have boots on the ground in all of our businesses. We truly understand the end-user environment, their needs, and we cater our solutions to meet them and consistently have done so for decades and decades. About 2 years ago, we narrowed our strategic focus to these 4 vectors that you see here. While we do a lot of other things, these are our growth vectors. And sustainable technologies is indeed one of them, and we've been working on that for some time as you'll hear today. I will add, there are quite a bit of synergies across our government and technology business relative to all of these, but particularly in sustainable technology. Clearly, governments have the mandate for more sustainable solutions as do commercial enterprises. We have great installed base and access to all of the above. Moving more towards the middle, we are positioned in attractive markets where we do offer innovative, digitally enabled solutions and increasingly so. And we serve customer critical programs and projects. Many of those programs and projects span many years. And they, therefore, offer profit and cash flow streams for many years, and that offers the business quite a bit of predictability and stability. One indicator of that is we have met our expectations from a budget and Street perspective for just about 4 years now. So that is a consequence of having this focus on attractive low-risk markets and the transformation and execution we have gone through over the years. We do have a proven track record, again, over many decades of being able to consistently deliver for our clients. We use our know-how. We use our domain expertise. And we also use quite a bit of proprietary intellectual property. And we do so in some of the world's most challenging environments like space. These clients are blue-chip clients across the board, including the U.S. Department of Defense, the U.K. Ministry of Defense, other governments and, of course, some of the most well-recognized industrial companies in the world. Finally, on the right there, our investment thesis is quite straightforward. We do serve attractive growth markets with high-end professional solutions and also technologies that offer healthy and consistent margins and cash flow, and we've demonstrated that with our performance. Our business is low capital intensity across the board. And as such, we have attractive deployable cash flow capacity. Our leverage is well in check. And so we do intend to deploy excess capital through a combination of M&A and returning capital to shareholders over time. And on the bottom right there, we are balanced across these 5 main areas of our business on the pie chart. We are primarily government focused. Those are the areas denoted in the dark blue. We view the technology business that we're talking about today as a kicker, as an additive component to this portfolio, which offers really exciting and sticky growth and is focused on the new economy and the circular economy focused on sustainability, with the same low capital intensity and low risk attributes as our government business but with higher margins and really exciting growth prospects that we'll talk about here. So with that, happy to turn it over to Doug to tell you more about these offerings and our exciting future here. Thanks.

Thank you very much, Mark. So I'll just dive right in. We see energy transition is really driving towards a net 0 carbon future. And so what does that mean for us? It really means that there's more and more of a focus on the hydrogen element of a 0 carbon future. And we see that market being tremendously -- tremendous growth opportunity and a market opportunity for us. Both our numbers and numbers we received from the Hydrogen Council indicate 10% or greater CAGR of between now and 2050. And so this strong momentum is really part of all of the major companies around the world strategies. We see Google. We see Microsoft. We see the global oil majors, BP, Shell and ExxonMobil, all making commitments towards net 0. And KBR ourselves, we have a commitment to net 0 carbon by 2030, and we achieved carbon neutrality by 2019. So there's a strong commitment, strong momentum in that area. So if you look at the right side of the slide on the KBR technology solution, you see that the very top hexagon has energy transition. We see this as really a fundamental market change that's far reaching and lasting. But you see the other hexagons around that, it's not just energy transition but how can some of the other capabilities within Technology Solutions support our energy transition move -- initiatives. One is digital solutions, being able to use those to decrease energy for existing units. We see new disruptive technologies, which I'll come back again. And we'll hear Ben talk about thought leadership and domain expertise in this area, really around disruptive technologies, which is part of the business that I'm most focused on. We see -- if you read our press release just last week, we announced a partnership with Mura to supply a mixed plastics recycling technology. We feel like this is a unique and differentiated technology that will make a significant impact on the plastic circular economy. We're also exploring and developing additional biofuels and carbon utilization technologies. Even in traditional markets like refining, we're looking at better bottom of the barrel solutions and technologies and rolling those out, along with our catalytic olefins technologies, which are critical to producing the petrochemicals for the products we use every day. We use -- we just deployed a solid acid alkylation technology, which allows refiners to have a more efficient and environmentally friendly and safer alternative to producing high-octane gasoline. And I think the key thing is we're focused on those new sustainable technologies. And we have a full-time dedicated team looking at the best technologies to help our clients meet their own sustainability projects through this time of energy transition. So if we move to the next slide -- I don't want to spend a lot of time on the next slide. But just to give you a flavor for the kinds of things that KBR has already been doing. We're already on this journey. I think that's the key message I really want to make. If you look at areas like blue-green ammonia, I'm going to talk about that some more here in just a few minutes. But carbon capture and storage with projects like Monolith, where we're helping them with their new 0 carbon emissions project up in Nebraska in the United States; and LanzaTech where we've got a long-term engineering support agreement for their carbon capture project. If you look at hydrogen expertise, really in our government business, extensive hydrogen expertise associated with NASA and launch operations. And we've extended that to other areas of our business. We have a tremendous expertise -- long-term expertise in cryogenics and LNG storage that directly relates to the hydrogen area. We're working with clients to decarbonize their existing assets, provide more energy-efficient solutions we're using digital tools to get the most out of their processes in the most energy-efficient way. And then circular economy, I think the best example is the Mura plastics recycling, where you can take the mixed plastics, not just polyethylene and polypropylene, which is the most common, but a wide variety of mixed plastics and produce feedstocks that go into olefins plants to produce additional plastics. So really closing the loop on the circle, which is extremely exciting to us at KBR. And we feel like it's going to really make a difference not only for KBR, but for our clients around the world. And then a focus on -- we are in a transition, and there are traditional fuels. So what can we do to introduce and help our clients with developing and designing more innovative biofuel solutions and all the way -- from startups all the way to full-scale solutions. So again, I think the key message is energy transition is -- has been going on for many, many years, and KBR has been a leader in this area. So go to the next slide, please. So if I drill down a little bit and talk about ammonia, green ammonia and what that means. And so why is ammonia important to the hydrogen economy? Well, one -- the first thing is really just fundamental chemistry. It's 1 part nitrogen to 1 part -- or excuse me, 3-part hydrogen. So 1 part nitrogen, 3-part hydrogen And so KBR has an established leadership position in this area. More than 50% of the world's ammonia is produced with KBR's technology. We continue to improve the capacity and efficiency of our plants with single largest converter, the world's most efficient -- energy-efficient ammonia plant in India, the world's most reliable ammonia plant with almost 6 years of continuous operation before they shut down with companies like Yara. So you might ask, "So what?" Well, I think the so what to that -- this information is our clients around the world in this space look to the KBR for innovation, for leadership as they make this energy transition. And so one of the things that we have is an offering called K-GreeN. It's a proprietary end-to-end solution to reach green ammonia. It's a fully integrated solution that takes water through electrolysis and then uses the back end. The ammonia synthesis is our traditional market-leading ammonia synthesis technology. So we're integrating and we have cooperation agreements with electrolysis companies. I liken electrolysis to some of the early days of the chip manufacturers where there's great developments leapfrogging each other all the time. So we want to have collaboration agreements with what we consider to be the market leaders in this area and looking for some additional technology breakthroughs going forward. And then air separation has been around for many, many years. So there's nothing unique about that. But then we can take the hydrogen and the nitrogen through our traditional ammonia process and produce a product to be able to meet needs. The key thing is electrolysis. The electricity that goes into that is from renewable electricity. So what we're looking at is as the cost of renewable electricity comes down, these solutions become more and more competitive with traditional gray ammonia and blue ammonia solutions. I might also mention that blue ammonia -- we're delivering projects like that today. Blue ammonia is just where you capture the carbon through carbon sequestration with traditional ammonia plant projects. So where do we see the growth? We see a continued growth around 2% to 3%, in the historic fertilizer and feedstock chemical processes. Where we really see high growth is in transportation fuel, power, and Ben is going to talk about that more here in a few minutes. And in hydrogen, either hydrogen fuel cells or hydrogen vehicles, we see that's where -- really where you see those 10% growth numbers that I was referring to earlier in the presentation. So the key thing that I'd like to deliver today or to mention today is we can deliver this solution today. The question is really the economics around it. So I'll pass it on to Ben next.

Doug, thank you. Very kind of you. So conscious of time, I've got a couple of slides really talking to where we are from an advisory perspective. The advisory team being -- some describe as the pointy end of the spear in terms of getting into new markets that KBR are working within. So what we've seen really is that COVID has accelerated significantly the fall in fossil fuel demand. It's precipitated policymaking. And the hydrogen economy is, as we all know, widely reported to be a market that's in growth phase, and that's why it's interesting to us. Hydrogen Council, as you saw earlier in the first or second slide, $130 billion to $2.5 trillion market by 2050. Interestingly, the majority of hydrogen, present-day, is retained in the industrial markets, not traded and really is not seen as an energy vector. So to really get hold of that $2.5 trillion market, we really are looking at how do you develop the supply chains. How do you get involved with stable governments and drive project development? We're seeing that in many, many countries. And we recognize that probably the reality is that despite best efforts to get to the pure green future, capital costs right now of a green future are probably a long way away, 5, 10 years. And so we've got to go through a transition, and that's really where we're working with governments, investors and B2B, G2B and G2G. That's really what we're doing. So what have we done in this space? Well, we've secured a number of strategic consulting opportunities. We're working in Singapore. We're working in Japan, Australia and the U.K. These are all really proactive hydrogen proponents. You can see this from the map on the slide. They're interesting markets. They're different markets from maybe what you might have considered to be KBR heritage business, certainly energy business. We're working with government. We're working with defense, both with a C and an S. We're working with industrial markets. Interestingly, we're working in financial and obviously energy customers. We've put a pragmatic plan together as kind of #2 in terms of how the transition works from blue to turquoise to green. And that we published, and we're working with a number of governments around the world in terms of what their net 0 2050 looks like. And as you've just heard from Doug, we've launched K-GreeN, and that is probably the most exciting thing we've got in terms of where -- from an advisory perspective and KBR perspective, our clients are really embracing. And I guess the last thing on this point is to say that we're attracting really top talent from major strategy consulting firms, such as McKinsey, Bain and Boston, PwC, to name but a few. And that really supports our vision and our strategy in respect of what we're seeing here. What I've got on the next slide, if you just move forward is really food for thought for our Q&A. And this is Singapore. This is our master planning advisory consulting work. We've been engaged with the Prime Minister of Singapore through the PMO office for about 12 months on a master plan for energy transition and net 0 2050. The focus, a piece of work on hydrogen as an energy carrier and other energy carriers as well. The scope of work that I'm sure the Q&A will probably bring up is really going to focus on net 0 2050, but really looking at the low-carbon supply chain to identify suitable imports into Singapore. We've also looked at indigenous low-carbon hydrogen production facilities to decarbonize domestic use. And really, it's -- all on this call will know that Singapore is a natural resource disadvantaged country. So limited capability to supply renewable energy and energy. It's also a trading hub. So all of this plays to a post-COVID stimulus package aspect of development. We -- through this work, we've developed hydrogen deployment pathways. We've looked at hydrogen adoption in many sectors, including downstream, effectively putting together a financial model that allows the government to assess different scenarios for their development as they go to 2050, including CapEx, given different levels of hydrogen adoption and also cost of abatement. So this is a dynamic model. The work is largely complete. I guess we probably look to position our advisory position into the next phases of their road map, and that's ongoing work. But we can't really speak in too much depth right now. We're also strongly embedded into the industrial heartland of the likes of Jurong Island, as a result of this work and other work as well. So we're doing deep dives into energy efficiencies across some of the largest industrial facilities operating on Jurong Island. And the point -- the last point here really that I want to make is that as we outlined on the previous slide, we are engaged with many, many other governments and government agencies around the world at different levels of maturity. And we're working on that kind of engagement across many different advisory-based engagements to secure a net 0 '50 for those countries, for those business-to-businesses and for those supply chains. Can you just go to the next slide, please? So bringing this short overview to a close and before we open things up, we would like to really reiterate that, for us, this is a significant part of our strategy globally. We're working with some of the most successful countries in the world, leading edge of investment decision-making, energy transition and master planning with a great -- I mean, really great mature client base, mature governmental, industrial, commercial clients that we're working with in their drive to future net 0. Our technology portfolio is sustainability focused. We're the world leader in ammonia technology and green ammonia as well. And we're also attracting top talent globally from major strategy and management consulting houses attracted to us to deliver this, really selling the blank space that exists between heritage engineering consultancy and the likes of McKinsey. The outlook is excellent. We've seen growing demand across sustainability base markets that supports double-digit top line growth, clear margin expansion, opportunities across our Technology Solutions business and indeed KBR and, of course, our installed client base. With that, I'm going to hand back to Jerry and Michele for Q&A, and thank you very much for your time.

Okay. Great. Thank you so much, team. To kick off the Q&A session. Let me have Michele start. Michele, please go ahead.

Perfect. Thank you so much for the presentation. You clearly are very, very involved in providing consulting services across the hydrogen transition. You've done it in Japan. You've done it in Singapore. I'm wondering, from your experience, what are the best ways for government to kickstart a successful clean hydrogen economy, which will become so important to their aim to become net 0 by 2050?

Should I take that?

Yes, Ben.

Yes. Go ahead, Ben.

Thank you. So for me, and this is really learning from the Singapore, the Japanese and the Australian examples, it is about policy and it's understanding how policy can apply the necessary pressures to the free market and the free market and the supply chain economies. But without understanding the full scope of the supply chain, you will not -- in our opinion anyway, you'll not become successful in meeting your net 0 '50 and being part of that journey. So again, looking at the likes of Singapore, where we've been engaged, is really looking at how that -- really a very integrated supply chain speaks to one another, works with one another. I'm sure Doug will have some comments around the likes of electrolyzers and air separation units. They are one part of the energy transition, which is so important. But without a project and a mega project, you do not really have the wherewithal and the ability to really accelerate your supply chain and, therefore, meet your ambitions. You need the offtake. As Doug said, you also need the cheap electrons to convert to something within that supply chain. From our point of view, if you do not have a complete project, and that is certainly where we sit on an integration point of view, integrating the upstream all the way through to the offtake, you do not really have the ambition to bring the overall project together. I don't know, Doug, what do you think? I mean the electrolysis and the air separation units are clearly a key component to some of the work we're involved with.

They absolutely are. And that's why we've got what I would call cooperation agreements with 2 -- currently with 2 different electrolyzer providers. And there's some opportunity, some studies that we've already been doing this year -- this past year. And we see a tremendous focus on this market. We expect to do numerous studies for the upcoming year to really look at the viability of projects from a cost standpoint. I see one of the questions is really the competitiveness of green ammonia versus gray ammonia and blue ammonia in the questions that have been typed in. And really, the renewable electricity is coming down. The electrolyzers are becoming more efficient. But today, it's still a lot more expensive to do a full commercial scale project. Even though we can deliver K-GreeN today, it's not economically viable in most situations. So it still requires government subsidy. It still requires and/or some investments. So what we see in the way we're helping companies like Yara and others is they have traditional ammonia plants, and so they also want to be seen as being green. So we're putting smaller scale plants and studying -- putting smaller scale plants alongside major ammonia facilities so that it's partially green. So again, it's a transition. We're helping people work through the technology, become comfortable with it in order for them to -- as prices become better on electricity -- renewable electricity and as electrolyzers develop and become more viable, these side plants become more and more mainstream.

Can I ask just 2 quick -- go ahead, Ben.

I'm going to put literally a sentence in there. What I would add is with the work with Yara, and they have publicized this, they are really looking at becoming an energy company in the future. So their viewpoint is really that ammonia is an energy vector. And they're embracing that so that they have both the fertilizer world and the energy world. And that's certainly something that we find very, very exciting.

And I just wanted to ask a follow-up to Michele's question on the engagements that you have with Singapore, Japan, Australia, U.K. Can you talk about what the revenue opportunity from those consulting engagements is to KBR? What it could be over the life of the opportunity? And what parts of KBR are you folks pulling into, the range of consulting services that you're providing?

I think it's hard on this forum to talk about exact numbers, and I'm sure Mark would probably concern that. But what I would say is that from a KBR perspective, we are drawing on one KBR. It's a mantra that we absolutely embrace. So the Singaporean opportunity there really was -- as I alluded to in the presentation, it's filling the blank space between engineering and the likes of McKinsey or Bain or Boston or what have you. And it's really applying that technology expertise. So for example, with Singapore, we drew on our government solutions expertise from the NASA perspective, where we were, I believe, the first to flow liquid hydrogen in the U.S.A. for -- in 1969 or 1970 in terms of heavy lift rockets. So the objective from a kind of hydrogen containment and refrigeration cryogenics and handling perspective was second to none. So we are drawing on every possible facets of KBR really to deliver something that is differentiated and world class, very, very different from, again, including that space. We are not [ cookie-cutting ]. We are repeating, and we have the capability from the works that we've undertaken in Singapore and on those other countries that we've discussed really to go around a number of developed nations in the world, which are embracing hydrogen as a road map and cook and repeat. So I do see this as a major part certainly of advisory and being a pathfinder for the rest of KBR. Doug, I don't know if you've got anything to add to that -- or sorry, Mark, if I didn't answer the financial question, I wasn't really prepared to answer that.

I will add to that, Jerry and team. Ben's right, the consulting revenues will depend on the size of the project undertaken. But I can at least say this, which I imagine will come up in any event, we have some really exciting growth areas across KBR when you talk about military space, you talk about trusted microelectronics, you talk about defense modernization. But we clearly believe that this specific area within sustainable technology and overall sustainability technology and the business that Doug runs is definitely among our top growth prospects for KBR in the foreseeable future. To give you a sense of that, we did guide The Street that the Technology Solutions business will do circa $1 billion in revenue in 2021 at double-digit EBITDA margin. We see prospects of revenue growth and margin expansion over the following years to deliver the potential to double the EBITDA in the Tech Solutions business over the next 5 years. And we certainly were going to energy transition both consulting and projects and sustainable technologies as leading the way and driving that growth of double-digit top line and margin improvement in the Tech Solutions business. And so we're really excited about it. The overall energy transition slice of Tech Solutions today is between $150 million and $200 million for 2021. So that's the starting point that the team has built over the past 2 years coming into this discussion. And again, great growth prospects that are driving hopefully to double this business in terms of EBITDA over the next several years.

Yes, that's very clear. And Michele, please go ahead.

Please, so if I could go back to your comments in terms of the cost competitiveness of clean hydrogen. In our carbonomics study, we believe that clean hydrogen needs to become between effective 10% and 20% of the global energy industry to reach net 0. But to get there in an affordable way, costs do need to come down substantially. From your experience, where do you see the biggest opportunities for cost deflation in the hydrogen value chain? And can -- do you think we can reiterate the success story like solar and wind of bringing costs down 70%, 80%? And within that context, do you think blue or green hydrogen have the best opportunity of continuing to move lower on that cost curve?

Yes, go ahead, Ben. You start and I'll finish. Sorry.

Okay. Okay, fine. So it's a journey, and we're going blue, turquoise, green. There's no way that we're going to go green tomorrow. And I -- we believe that the journey is about CCS to start with CCUS and then probably a [ drip ] feed of green into that process to ensure that the mega projects and the supply chain start to look a little bit more relevant economically, not dissimilar to the LNG story from so many years ago. The supply chain has changed, and we absolutely do see the cost of things like electrolyzers -- I mean, that's probably a good place to mention and either start or finish on and hand over to Doug. So electrolyzers, when I started looking at this for a very large project in Western Australia, it was 20-odd gigawatt project looking at green ammonia and green hydrogen. The electrolyzer cost then, and it was only 2 years ago, it was over $1 million a megawatt. It's now, depending who you talk to and what type of technology, it's anything between $150,000 and $300,000 or $400,000. So yes, a huge variation, but a massive, massive drop. And those drops are really driven by the scale. So I think we are -- if your question is really, is this following a similar trajectory as solar and wind? I think we're there. And I think we're probably in a steeper curve personally than we thought we might be. And maybe COVID has accelerated that. But I do absolutely believe that the speed of supply chain maturity is upon us. And once we can develop that -- and we've seen projects around the world, there's plenty of them, green hydrogen, green ammonia projects. Once we start to get those into a position where they start to become a reality and get passed concept into feasibility and feed stages, that market will only increase. It's choosing the horse though, and it's choosing the right type of electrolyzer or the right type of technology to ensure that works. Doug, yours.

Yes, I'll take a little bit different angle on there. Good points. The other thing that I would add to that, though, Ben, is that when I'm talking to clients about green ammonia, they really break it down into capital costs and operating costs. And so what we see is the capital cost because of the reduction in prices that for electrolyzers that Ben mentioned, the capital cost for a green ammonia plant is not that different than a traditional ammonia plant. The challenge has been operating cost. So there have to be breakthroughs in the renewable electricity supplied for the electrolyzer and electrolyzer efficiencies. But you mentioned solar and wind and the decreases that have happened there, decreases in costs. These are all interrelated. So as renewable energy from -- electricity, excuse me, from solar and wind and other sources decreases, and it is on a decreasing cost curve, the operating cost for green ammonia becomes increasingly better. So it really is a transition. How quickly that happens is anybody's guess. But it's heading in the right direction to be able to make hydrogen -- excuse me, green hydrogen -- excuse me, green ammonia more cost effective.

Sorry, Jerry, 1 quick follow-up. So you clearly have talked a lot about ammonia, which is a very interesting market because it's already a major hydrogen market today. But for a net 0 scenario, we will need to also create new markets for hydrogen, decarbonizing steel, in decarbonizing heating potentially for heavy transport. Do you see any of these markets starting to become material in the coming years? Or you think that's perhaps for later in the decade?

So I'll start with that, if you don't mind. Yes, I'll kick off. Yes. No, it depends, obviously, your viewpoint of how many years and which year, but we are advisory consulting. We're involved in those discussions. We're involved in those discussions in Europe, certainly in the U.K. as well. Not wishing to separate Europe and the U.K., but has been done. And certainly through the work that we've done in Singapore, that was part and parcel of our PMO study there. So yes, decarbonizing steel, decarbonizing the scope 3 emissions that go part and parcel with all CO2 abatement processes is absolutely what we can see. And I can see that the carbon capture sequestration, CCUS as well in terms of the modularized approach being something that will start to realize itself. What's going to drive that? Well, it's public sentiment and it's also carbon pricing as well. And if you start to look at the carbon pricing that's being discussed in Southeast Asia in terms of what sort of carbon pricing is required to really stimulate this new market, you can start to financially analyze them. And I'm not quite sure that everybody on this call has got to grips with those changes, really, as to quite how quickly things like CCS and CCUS on smaller facilities could come about.

Thank you, Ben. I might add to that, that if you look at the different uses that I mentioned in one of the slides, with marine transportation, with power, with hydrogen for vehicles, I think probably the earliest to make an impact will be the marine fuels. But the others are coming, I think, fairly quickly. There's lots of projects being announced in this area. For example, if you noticed this morning, SK hydrogen, the announcement where KBR is providing technical support for SK's plan to build a 3 -- or excuse me, 30,000 metric ton per year liquefied hydrogen facility really to supply different areas in South Korea. And I think the initial phase of that project is really looking at different licensor technologies. So we're clearly participating in this space. And the approach that we're using is there's multiple avenues and so we want to have an iron in the fire for all of the different potential high-growth areas.

And on that note, we actually have a related question from the webcast. What's the unit economics for you folks on projects like SK hydrogen, Mura, LanzaTech? So what share of total CapEx on those projects is addressable for KBR?

Ben, do you want to take that?

I was going to hand back to you, Doug.

Yes. So because we take our confidentiality with our clients very seriously, so we don't really want to disclose specific project economics. But if you link back to what Mark mentioned before, we factored in not only our work under contract, but our future projects and our forecast and our expected work into the growth numbers that Mark mentioned before. So it's a very significant and growing part of our business, relatively small now but will become increasingly more relevant as we go forward.

And certainly, the SK project is not the first of those. It was obviously announced this morning, but we've got very similar projects with the likes of JX Nippon, which is underway, which is one of the CO2 richest gas fields in the world could potentially be the largest hydrogen production facility. So this is not one. This is one of many.

Okay. And then we have a question on the webcast where -- regarding the green ammonia production, asking you to comment on the barriers to entry. So with all the consortium announcing green hydrogen ammonia production to industrial gas companies like Air Products have an edge to serve the transport market or fertilizer companies like Yara, and energy majors could come in as well.

Yes. I think that from a barrier-to-entry standpoint, the barriers are not that high from a technology standpoint, other than to say there are incredible efficiencies to having an integrator that understands all of the areas involved. So you're basically combining electrolyzers. You're combining air separation units. And you've got -- in order to be successful from the operating cost that I was talking about before, you have to have an optimal way of integrating that with existing synthesizers to be able to create the ammonia. So I think that while there aren't barriers to entry, just if you want to do a green ammonia project, the pieces exist. It's really -- and I think that's why on that 1 slide that I talked about, why are people coming to KBR? Why are we differentiated in that space -- in this space? And it's because of our history of innovation and optimization. Our clients have seen how we've optimized existing facilities. And they trust us by reputation and by experience to be able to put together a very efficient and market-leading solution, an integrated solution for them to be able to move forward. Ben, you want to add something to that?

Yes. No. Really just to emphasize what you just said, it's about integrating. It's about being the integrator. No single technology, in its own right, owns a project. So yes, air separation is very important. Electrolysis is very important. The overall control systems, incredibly important. The understanding the integrated nature of these projects, as we do with LNG projects and as we now do with energy transition projects, is critical to the survival and really the success of those projects. So what's the offtake, what's the supply and how do you create everything in between, particularly when the wind and the sun does not blow and shine all the time. It's making sure that all component parts work together.

And in terms of the opportunity for green ammonia, can you just talk about how you're seeing the competitive landscape developing. We have a webcast question: from competitors like Haldor Topsøe with the project in Saudi Arabia, how do you see the competitive landscape should -- is now for green ammonia specifically compared to what's obviously been a really dominant position for KBR in the traditional ammonia market?

Yes. It's clear for the reasons that we mentioned earlier in the presentation that the market is huge. The growth potential is huge, and everyone wants to have a play in the space right now. All the traditional ammonia synthesizers companies, obviously, the air separation companies, everyone wants to have a part. And there's lots of projects. There's lots of publicity right now. What I would -- and I don't know all of the details and specifics around all those projects. I make some assumptions based on the people that I know at those companies and what I read in the news. But I do know from a KBR standpoint that we're talking about real projects that are viable projects that are maybe small in scale now but increasing in size with vision, that we're helping companies really lay out this transition. And it is an energy transition. We are where we are today, but we want to be better in the future. And I say that KBR is allowing us -- or we're working with our clients to establish real tangible steps towards achieving that energy transition.

And Michele alluded to this in his question earlier. It seems like ammonia use in transportation applications, there's a really good case to be made that shorter duration and some of the heating and other areas that we spoke about on this call. I'm wondering if you could talk about how big of a ramp do you see in the use of ammonia for transportation applications over the next 3 to 5 years based on what you see coming down the pipe globally?

Ben, do you want to take that one first? I can add to it?

Yes. Yes. Sorry. I was on mute. So absolutely -- so ammonia as a transportation fuel and as an energy vector is -- as I alluded to, is pretty key to how you move hydrogen in the world. So we do see that as a huge growth market. And in fact, I was on an MoD of U.K. Defense session this morning, where we were specifically talking about ammonia as a marine fuel. So I do see that as a growth market. I can't see it -- I can't really see it going away. It's transportable globally of near ambient temperature, a bit of pressure, and you can move it around; whereas hydrogen, as we all know -- I think we should probably all know that it's a very bit of a slippery molecule and it escapes. So if you can turn it into ammonia, it makes a bit of sense. There are other hydrogen vectors as well. So I see it as a growth market and the Ammonia Energy Association absolutely see it in that format, as do the Hydrogen Council, as do many players we've just discussed, with the likes of Yara looking at it as an energy vector as well.

Yes. I might add to that, Ben. What I've seen from marine transportation is, especially with the increased regulations on fuel oil -- marine fuel oil, the shift towards ammonia as an alternative fuel, at least co-produced fuel, at least is already taking place in the shipping industry. And I see more of that taking place going forward.

Yes. And I guess the other aspect here is, okay, so growth in ammonia in terms of transportation fuel, you can definitely see it in marine. We can definitely see it in military applications, heavy goods vehicles. The area that's really quite interesting that is taking off and is really what was driving some of the conversations in Western Australia is with the Japanese and their offtake potential. So the Japanese are really looking as part of their Paris Accord to decarbonize their energy production facilities across the country. Obviously, nuclear facilities are not on at the moment. And what's really driving that is how do you co-fire something that's clean and green with coal? And the answer is ammonia. So you can put about 20%, 25%, maybe even 30% ammonia into your coal-firing facilities. And if the ammonia is produced from green sources, i.e., green hydrogen or blue hydrogen and you've sequestered the carbon, you then have the ability to meet your Paris Accord numbers, which is exactly what they're doing. Now why is that interesting? So in terms of volume, the volumes that you're talking about with Japan in terms of just that 20-odd percent into coal-power stations is the equivalent, in fact, slightly more than the equivalent of the globally traded ammonia on the global market. So the demand that they would have just for 20-odd percent into their power plant is the same as the amount that's traded on the global market. So it's a massive market for us. And if we can make it green, all the better. But if we can make it blue, that's a step in the right direction.

And hydrogen storage, we spoke about, Doug, a slippery molecule as you framed it. Can you talk about the opportunity that you folks have from applying what you've done with NASA and elsewhere, LNG, cryogenic capability? What's KBR's opportunity set as a result from hydrogen storage outside of ammonia?

Ben, you want that one first?

Yes, I'll start. I mean, I touched on it earlier. So I think we're fairly deeply involved with NASA. There was an engine firing over the weekend for the latest rocket lifts and rocket tests for next trips to the moon. We have been involved with, as I said earlier, the whole hydrogen piece of NASA. So you don't really get much better in terms of safety record, credibility of hydrogen storage and hydrogen management than that. And that's certainly -- and I'm speaking very much from an advisory consulting perspective here. That's certainly something that has really added to the credibility, unique differentiated credibility of KBR when we've been discussing with our clients, whether they be industrialists, energy companies or financiers or governments on quite what liquid hydrogen looks like. The JX Nippon project, again, is testament to our capability to understand how to store the product, how to manage it, how to manage the off-gaps, how to manage the safety record as well. So I don't know if that specifically answers the question. I'll be more than happy to take another question, but that's really where we're driving it, and that's really what -- conversations we're having with our customers.

Thank you, Ben. I got to add a little bit to that is that there's also experience that we have in LNG and the cryogenics around LNG storage, market leaders in that area. And that also applies to the cryogenics required for hydrogen storage. So as NASA is a relatively small scale, but as you get more broad scale, as the numbers we're talking about in this presentation, hydrogen being more forefront, there's going to have to be larger-scale facilities, larger-scale storage. And we have the people and the expertise and the experience to really be able to address that problem as well.

And as I said earlier, Jerry and team, this is Mark, some people criticized us for the duality of a government business and an industrial commercial business under 1 roof. But here's a great example of the synergy opportunity that we not only have in the future, but we're already tapping today on this and other dimensions. And that's a big part of the KBR story that could be better understood. I do want to take a moment to just clarify something I said earlier, if you don't mind, Jerry. It was correct, but it could be clearer, which is the Technology Solutions business is expected to have double-digit EBITDA margins, but more specifically in the mid-teens. And someone dinged us on a clarifying question there. So that's still the expectation of mid-teens for the Tech Solutions business, of which energy transition is certainly contributing. But furthermore, we also have guided, we expect those margins to increase 1 to 2 percentage points per year into the upper teens in the years ahead as a result of scale improvement and the success that we expect out of the business we're talking about today.

I appreciate the color and clarification. And the reason for the hydrogen storage question is because in LNG, obviously, really expensive to store. And so you folks had a really large addressable market in LNG with the storage capability relative to overall project CapEx. And I'm just wondering, as we think about longer-term story, hydrogen is -- the addressable market in hydrogen storage is significant relative to overall project CapEx as what we've seen in an analogy that I drew.

And I would say it's about variability. I'm not entirely sure that it's all about liquid hydrogen, and hence, our interest in things like ammonia. I'm not altogether convinced that hydrogen -- liquid hydrogen is purely the way forward. There are many, many different factors. Sorry, Doug, go ahead.

No. No, you're -- you said exactly what I was about to say. The cost of storage and transportation of hydrogen versus the cost of storage and transportation of ammonia is significantly in favor of ammonia. So that's why we think that is the way hydrogen will be moved in the future.

But we're not discounting that liquid hydrogen will be one of the vectors that are moved around the world. So we're attaching ourselves to both and others.

And Mark, earlier in the conversation, you mentioned there are targets for Technology Solutions to double in EBITDA over the next 5 years. I'm wondering if you can comment directionally out of that improvement in earnings power, what proportion of that do you expect to be generated from these hydrogen and ammonia-related businesses that we're covering today. It sounds like you expect one of the strongest growth profiles across the business, but I'm wondering if you might be willing to put a finer point on that. What's the top line potential of this business if we're thinking 5 years out, relative to that doubling that you mentioned for the segment as a whole?

I would tell you that I would expect this business to perform at or better than the overall Tech Solutions result because of everything we've talked about today. So I think it will contribute or more than contribute to the overall growth we expect in the target of doubling EBITDA for Tech Solutions over the next 5 years, granted from a smaller base, but the growth rate here is quite exciting.

Okay. And in terms of -- we do have a few outstanding questions from the webcast here. So we have a clarification. So you folks are looking for ammonia to be used straight with power and shipping without cracking it first as the primary green hydrogen use was a clarifying question we got on the webcast. So can you just confirm that?

The answer is yes. We see that today. It's not to say there wouldn't be, in the future, direct hydrogen for shipping. But right now we're seeing ammonia being used in marine shipping.

And that cracking technology was the -- is and will be a specific part of our advisory review work going forward, so as part of the Singapore work as well.

Yes.

Okay. And then in terms of the ammonia synloop processor facility you're building for Monolith, there's a question of whether -- can you describe that process, where the nitrogen comes from? And how are the existing assets leveraged in a project like that, if you don't want to comment on the project specifically?

Yes. The project is a new process. So I know mainly the scope. This is one I might have to take the name and get back with you on the specifics of the details of the project. I know we're supplying basically that ammonia synloop piece to a new process that Monolith is deploying around carbon black. I see that there's a question on the grades of carbon black produced. I'm sorry, I don't have the details on the overall project. I'd have to get back to -- I guess it's [ Avi ] who is asking that question. So please allow me to investigate details, and I'll get back with you.

Okay. Terrific. Well, we're at the top of the hour. Thank you so much to the KBR executive team, and thank you, everyone, for joining us. We did have a few outstanding questions from the webcast in the queue. So we will do our best to follow up on those offline. Thank you so much, everyone, for joining our call and be -- on behalf of Michele, Ashok and the Goldman Sachs team, KBR management team, all our attendees, thank you.

And on behalf of our 30,000 folks across KBR, we're delighted you're interested in us and our exciting story. So thank you. Stay safe, and we'll talk soon.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.