Technip Energies N.V. (TE) Earnings Call Transcript & Summary

Good afternoon, everybody, and thank you for attending. It's my great pleasure to welcome Arnaud Pieton, CEO of Technip Energies today to help through this fireside chat. We're scheduled for about 45 minutes, so we'll go through a bit of fireside chat and leave a bit of time for Q&A at the end, if that's okay, with anybody. [Operator Instructions] So thank you, Arnaud, for coming today. It's great to see you.

Thank you, Mick, and good afternoon, everyone, and thank you for, well, Mick, yourself and the Barclays team for the opportunity to spend this time with you guys after this morning. There's a lot of positive momentum at Technip Energies and I really look forward to the 45 minutes that we'll be spending together. So again, thank you very much for putting this together for us.

Yes, hopefully, I could touch on it. Obviously, you're just back from Qatar after another big sign. So we'll get into that on a couple of joint ventures on the hydrogen sites and new move from there. So hopefully, plenty to talk to. So let's just fly ahead. And I just think it's been a fascinating 12 months. Obviously, a year ago, we also talked about the loss of the Russian business about this time a year ago. Investors have been talking about the Yamal cliff. I think that turned into the Arctic ledge. People worried about margins collapsing. You've been pretty resilient. So can you just talk about your portfolio and what's enabled you to handle what's been a major challenge so well?

Yes. Indeed, same time last year, we -- the world was -- it was a very different story for us because everybody was very concerned about our position in Russia. So what 2022 has allowed us to actually reveal is that Technip Energies is more than one a lot more than a pure LNG play in Russia, in particular. And it's really -- we've been able to put on the forefront the benefit of our very distinct model, a combination of a hybrid model between what is long cycle, our project delivery portfolio, that was in Russia, no longer is in Russia, but also in all parts of the world and which is resisting really well through the cycles. During COVID, we haven't had any project cancellation, for example. Those large projects, they are very strategic. So I would say, only, unfortunately, but it takes a war to put them in question. Other than that, they resist through the cycles. And this combined with our short cycle TPS or technology, products and services, which is part of our strategic growth agenda. Since creating Technip Energies, I together with the team, really put the emphasis on growing a part of 10 or exercising a series of muscles that were a little bit in a sleepy mode, if I may say, around technology, product and services, which will complement and is starting to complement more and more the long-cycle business that project delivery represents. So we've seen in TPS a rapid growth in order intake and therefore, in revenue because it's a shorter cycle. And we will continue because it's part of our strategic agenda to grow TDS to a level and we'll come back to that a bit later, but to be at EUR 2 billion as a minimum, if not more, actually, and we should reach more, but I'll come back to that. So it's -- and what we -- the other part of the model that is interesting for me to put forward is the asset-light nature of our business. It's allowing us to resist the temptation to jump into a contract in order to pass it easy. It's allowing us to pivot towards the, I would say, the new domains or the new energy market through the angles of technology and equipment. So we can convert from without carrying the burden of mega or heavy assets that might not be suited to the future. In this case, we don't have that go. So really, it's a combination of things, but we've been through a few stress tests as a young company and really delighted, first of all, by the response of the team but also the demonstration of the resilience of the portfolio and the model, the long and the short and the hybrid model.

Okay. And then I look at the macro picture, I think, looking at E&C companies since Technip turned up in my space in 2001. And this is as excited as I think I've seen them. And a year ago, you called it the golden era of engineering. Some of your peers have super cycle, some of the other day said it is the biggest investment cycle in the industry's history. So how good is this market? And how tight is it? Obviously, you've got some major contracts on the books already.

Yes. So the macro trend is clearly positive. The world needs more energy, not less. So it's more energy, less emissions. Other people have said it. We need to solve for the trilemma, the availability, affordability and sustainability of it. And in order to do so, well, you need more resources in the traditional space. For us, it's gas and LNG in particular and downstream as well. But certainly, there's a bit of a super cycle around LNG. And if I may, for some and I was discussing last week on the matter as it was challenged on LNG and the compatibility of LNG in the low energy transition scheme and agenda. Well, I think we need to stop considering LNG as the LNG is analyzed in the whole transition. Some people we call it the transition fuel or maybe a destination fuel. End of the day, regardless, it is an ally in role energy transition because it's relatively low carbon when compared to coal, et cetera. So this LNG agenda is high and we are taking advantage of it because at the end of the day, clients are spending and we'll come back to that. Government policies are aligning towards lower carbon solutions and there's a big need for industries in general to go towards lower carbon solutions. It's needed. It's clearly a business opportunity for them. I hope that it will become a differentiator that customers will want and ask for carbon products. And in that framework, yes, I spoke about the golden age for engineering because there are a lot of solutions to be developed and deployed at scale. And I'm very optimistic because you can ask an engineer of Technip Energies to work on an LNG or a gas molecule, but is equally as pertinent to exercise and work on carbon capture solutions. And at the end of the day, it's base chemistry and the base chemistry is useful in the current core, but what is also useful in what will constitute the future core. So yes, I certainly believe that there is a golden age for engineering and for what Technip Energies ask to offer in the LNG in the downstream but now in the decarbonization and the low carbon agenda. It's really urgent, it's essential and like I said, I think it need to be a differentiator for the products. Now how tight is the market. Clearly, the project market is quite tight. The number of players out there that are capable of delivering the large infrastructure LNG or else is, I would say, tightening in a sense that some of them have left, for example, the LNG club. They are now fewer players capable of delivering proper LNG infrastructure. Technip Energies is clearly one of them, but there are less and less pretty good players to deliver that and we believe and we hope -- I sure hope that I would say the mistakes of the past won't be repeated, which should play in our favor in the sense of we want to be selective when we go after a large project. We want to -- we have -- I hope that we are basically that a more disciplined industry. E&C industry is emerging as a result of the mistakes from the past. I see more and more people adhering to Technip Energies' model that is to say, yes, if I've done the FEED, then I'm okay to run the EPC, if I haven't seen, if I am not the one defining the project, if I'm not the architect of the project, then I don't engage into the EPC scope. I think it's a very responsible attitude to take for any E&C company. So it's tighter on the project side, in particular. Now we have a responsibility as an E&C company. We can try to milk the cow, but there's a limit and it is our duty as an E&C company also to find solutions that are differentiated and that are such that our clients can take an easy FID. If they don't take FID, we've seen some in Russia and others with and recycling the project. Well, that's not good for nobody. And that's why we must be at all time, a responsible party. Our duty is, of course, to return to our shareholders but our duty is also to find solutions for the projects to fly in the conventional space or in new spaces, the clean fuels, the carbon capture, the carbon utilization and the rest. So we never forget about that mission, that is a very critical mission, including when the -- I would say, the market is getting tighter. It's a matter of responsibility and I would say, a matter of sustainability because it's about preparing the future. And it's our duty to find a solution for a competitive project.

And obviously, you talked about a couple of things there. So on finding solutions and I like to think our TPS as part of that, you split that out at it is growing very strongly. What are the key drivers in TPS at the moment? I know you mentioned going to EUR 3 billion of revenues, but how do you see that business progressing? Because it seems to be quite aggressively growing at the moment.

Yes. So I would say, catalyst to the acceleration in TPS. So technology, products and services. So a few things. If I take the services part first, there is a growing demand for what we have to offer in terms of master plans towards decarbonization, thinking about the energy infrastructure of the future. And so the number of FEEDs really sort of front-end engineering and design studies for which we are being contracted and for which our clients are paying us, it continues to grow on the back of the low carbon agenda. So clearly, on the services part, it's -- we continue to see a positive momentum. In terms of the technology side of things, a few things. So the technology we have in the portfolio, they are on high demand, for example, around -- we have a leading position in the ethylene. The ethylene wave is not over at all. It continues to grow. It formed part of a very positive agenda in terms of order intake last year. The very positive thing around ethylene is that we have the choice. We can just license the technology or we can license the technology and sell the proprietary products, the furnaces that we have, or we can do technology, products and decide to engage into the projects like we did for Borouge, which we signed late in 2021. But last year, you may have noticed that we decided not to engage into the projects directly and we tackled the ethylene wave through the technology and the products only. And that's -- it's a luxury of this choice. And -- so we are putting Technip Energies on the path, whereby we want to replicate its very successful model in the domain of carbon capture. And today, we've released a platform dedicated to carbon capture, which is named Capture.Now, and it's going to be gradually populated with solutions, modularized solutions, standardized products around the capture of CO2 and the utilization of CO2. So it's -- stay tuned. There's more to come there. It's already on the website. The Capture.Now platform was released today. In the domain of Green H2, same story. This is why we formed Rely the purpose of it. It's a strong technology platform. It's about standardizing the Green H2 infrastructure and it's also about developing a range of products, I would say, on the outcome of the electrolyzer, separators and everything that will constitute the balance of plants so that we get to sell the projects when we want, but sometimes, I would say, a blueprint with the equipment. And that's I would say, one of the key contributor to the growth of CPS, it's obviously a commercial workforce that we have to actually concentrate in CPS, so they redirected some of their efforts towards that. They also understand that there is a life beyond the large PC. We like the larger PCs because they bring volume but for as long as they are qualitative, but there's a life beyond that. And we -- well, they are demonstrating their versatility by being capable of shifting their mindset towards selling large projects to smaller ones and products as well. So -- and I will also conclude by saying that this pipeline of technology and solutions will be fed by the things like Rely, the things like Capture.Now, but also the acquisition of the continued investment in R&D and the acquisition of more technologies. And when we release the full year earnings back in February, I remember there was one slide in which I said, well, this is how we are going to actively deploy our 2023 strategy. There was one bullet around expanding our lab network. So we are actively contemplating at the labs to our existing ones. We have currently one in Boston and one in Germany but clearly, we have an ambition to grow it. And adding labs equals increasing the section of the pipeline in terms of the technologies that we get to see very early and the larger the section, the larger number of early technologies, and therefore, we can scout and detect earlier what could be of interest for us down the road. So we will increase that section by increasing the lab network by adding 1 or 2 labs in our portfolio because they act as magnet for early and young technologies that we can then help grow an industrialize. So yes, many reasons for the momentum behind TPS.

Yes. You also mentioned Hail and Ghasha being recycled. I think earlier this year, you've got that early engagement from Hail and Ghasha, which all look like an acceleration of work. We have one in Qatar, which has come through on time, but now Hail and Ghasha is being recycled back in, it almost is a message everything needs to be accelerated and we're now -- and we're pushing really aggressively, but we're not. So can you just talk about what you're thinking around there? Just think it's a bit confusing if I am being drunk.

It can be a bit confusing for us as well, but because we were actively engaged in Hail and Ghasha. Hail and Ghasha just as a reminder, never was part of our order book, okay? So it's not part of the backlog. I think it's important for me to remind everyone of that. Hail and Ghasha was a sole-source situation. So -- and sole-source sometimes is good, but sometimes it's actually not that favorable because you end up competing against your clients' perception of what the price would be, right? So -- and there's no one you're not competing against someone else and therefore, you're not more competitive than someone else. So just competing with the perception. So we did all we could, honestly, on Hail and Ghasha to bring the project to a price point that would be acceptable to of note. Now bear in mind that Hail and Ghasha, we only were caring for 1 of the 3 packages. And so there are 2 other packages, and it's really for us not to say, which ones were almost there, and which ones were not quite there in terms of the budget. But it's a clear reminder again that it's not back because the market decides that clients are going to jump at first at all costs, not true and they need to be mindful, not every barrel equivalent is a good barrel of oil or gas equivalent to be exploited. So we have to be finding ways to differentiate and to bring the price points at the level where it's easy for the clients to make FID. I repeat that. It's part of -- we do exist through our client projects. And so it's our duty also to make them fly. At this point, the FID has not been reached. Okay, there's -- the supply chain is also -- part of the supply chain is normalizing some. There are clear signs of inflation because some of the products are on high demand, for example, turbines and other products, which are sometimes derivative from the aviation industry. You have a very booming aviation industry. So for rotary equipment, well, guess what, it's a common base. And so there's a natural inflation because it's really on high demand. So rotating equipment, electrical equipment, electrification is a high thing for everyone around the world. So they are in high demand. And yes, we see a big inflation. Now it's normalizing elsewhere and that's why we can actually reach FID like we did in Qatar -- like achieving deal in Qatar. So it's -- there are ways and there are solutions, but Hail and Ghasha, just a good reminder. Now unfortunately, I'm not in the secret of everything that I have not seen, but yes, but I'm sure that there's more energy to come in the UAE. There's lot -- there are other commitments probably. Let's move in to -- these are pointed. It's easier for me to say on the back of returning from Qatar and signing NFS, but those projects are long cycle projects. So they don't show up this year. They will show up in '24, '25. And from Tecnhip Energies standpoint, it's actually even better in terms of the fact that it's -- we're spreading across multi-years rather than having a concentration of awards in a single year, which from our standpoint is probably more favorable.

Perfect. And obviously, you signed NFS now and that's a major, major LNG project. We really excited about LNG a year ago. It takes time to come through. What's the state of it now? What else can you win in LNG? What key for you going forward from here?

Yes. Look, so first, congratulations to our teams because NFS, it's 2 years of effort. It's a FEED and then a commercial competition against a competitive consortium next to us. So we're in front of us facing us. So congratulations to the team. Now yes, the LNG agenda isn't over. There will be more to come in Qatar in the Middle East. In the short term, we've heard and we know that ENI are contemplating and what could be done on the back of the successful delivery of the floating LNG Coral South and is there an opportunity for reputate, which would be a fantastic news for the industry, fantastic news for us, obviously, but for the industry in general because it's worth -- the industry has had a habit of reinventing and redesigning, et cetera, underestimating the benefit of going forward . So that could be an opportunity. I went -- they went public about it that they were contemplating it. There are opportunities in North America, South America as well. So we have about 10 seats ongoing still dedicated to LNG for FIDs '23, '24, '25. So there are another 24 months of, I would say, very positive momentum around LNG, all marked by, I would say, LNG, yes, but LNG plus carbon capture or LNG through electrification of the train. So there is a low carbon agenda that is now clearly defining the LNG infrastructure that we're working on. So -- and I think that's very positive to at least tackle and play the role we can play in decarbonizing upstream of the users, but play a role and do our bit where we come. And so yes, there's at least another 24 months of positive momentum for FID in LNG.

Got it. And that leaves us nicely on when you spun out, you described yourself as the transition engineer. And obviously, that world is evolving quite quickly. You've touched on a bit and I'll just move on because you've mentioned hydrogen and carbon capture. Obviously, hydrogen was a hot topic 2 years ago, still is there and feel carbon capture is taken over for news flow at the moment. So you've done a couple of things, if I may, recently on the hydrogen from we start on that, you've had a couple of collaborations. So one was on ATI tech with Casale. Obviously, you're a leader in gray hydrogen to my knowledge to recognize, you've now moved into a different path. Now you are leader, I'm going into a different path. So I wonder if you could just talk to me about that on hydrogen from first and foremost.

Yes. So -- we were -- we are a leader -- we are a global leader for hydrogen because we are delivering a full suite of solutions for gray and blue hydrogen. We have about 35% of the market share, 275-plus references around the world, 50 of them are already equipped with carbon capture, okay, except that the CO2 is used in the refinery. So it's not for us to design and to deploy and to erect low-carbon hydrogen infrastructure is not the complete novelty. There's just a higher agenda around it at the moment. And the -- our objective is really to once again have a suite of solutions that are suitable in terms of their differentiation and therefore, their cost competitiveness. We have historically, where we are an SMR provider. So that's our bread and better in terms of the gray or blue hydrogen. Now the SMR has a limitation in terms of the size, it can be suboptimal for the largest hydrogen infrastructure. So hydrogen from gas, so when we think about blue hydrogen, which is taking off and there's no question about is hydrogen taking off. Yes, it is first and foremost, to decarbonize existing infrastructure, such as large refineries, et cetera. Take the example of Exxon Baytown with a very large commitment towards blue hydrogen. There's no question about where is the demand. They are their own off-takers. And it is the sole purpose of the generation of this blue hydrogen at large scale is indeed to decarbonize an existing infrastructure. So probably to be -- to put some of their infrastructure on track for a net zero 2030. So in other -- for us, we were missing a bridge in the -- if you do a 3 x 3 metrics in terms of where we are good at and there was an anti-space and this empty space was the ATR, so the auto-thermal reforming technology. And we were dependent on others to provide that technology. Therefore, to take a bit of an analogy in the ATR space. It was like we are starting a race on the starting line with others. And there is little differentiation. So same handicap, same everything. So I don't like that too much for them. And I like that we present ourselves on the starting line with an edge at least in terms of the thing we have to -- we can propose. That's why we went to Casale. We discussed with one other for over a year and we signed this agreement, very proud of it. In order to have our feel, I would say, the box that was not filled in terms of our solutions. So now we have it all from ATR to SMR to proprietary equipment to Technip Energies to decarbonize further blue H2. So we can actually decarbonize blue hydrogen all the way to north of 99%. Then you need to sequestrate the CO2, but in terms of the capture rate and low carbon, we are easy north of 99% decarbonization. And I think that ATR was missing in order to be more cost efficient for super large-scale blue H2. Okay. The SMR was adopted for blue H2 by BP in Australia. So very pertinent for a certain scale. For the mega-scale, the ATR is better and that's -- that's why we wanted to complete the picture basically.