TechnipFMC plc (FTI) Earnings Call Transcript & Summary

Yes. Well, yes, Arctic LNG 2 provides a very nice opportunity following the huge success that we've had on Yamal LNG. So it's a project that fits well our selectivity criteria. We engaged very early concept, FEED. We know the customer, we know the geography and the landscape there. So we have continuity in terms of teams as well. It's pretty much the same product team that we've translated from Yamal to Arctic 2. So we got off a great start. We were well advanced with engineering pre-FID actually, so which means that we made a very good progress in the early months of the project right up to the Chinese New Year celebrations, which unfortunately also coincided with the pandemic rising. So some of the impact has been absorbed by the fact that we were already planning for slowing down for the Chinese New Year celebration, which is normal. And -- okay, so -- but then our Chinese yards and our partners really did an excellent job at ramping up, ramping back up and keeping the project well on schedule. So in many ways, this early experience of COVID has helped us on Yamal, on Arctic 2 LNG but also beyond to learn about the dos and don'ts on how to best handle the COVID situation. But back to Arctic 2, I mean, overall, our teams are -- and our financial performance through the pandemic has been highly resilient and significantly stronger than peers, I would say. And it's best illustrated by the fact that we've been able to confirm the guidance as early as Q2 2020. And more importantly, we've not derived from that guidance. So yes, I mean, the project is progressing well and we're working around the challenges presented to us. And there are many, but I would say I'm happy to report that it's -- we are tracking well there and working well with the customer to address the challenges presented to us. So I would say it's good.

Okay, okay. And you mentioned Yamal. Obviously, Arctic 2 follows on from Yamal. Yamal, was such a huge success, I guess we're still seeing the accounting issues sort of coming from that or flowing through the P&L today. If we sort of strip Yamal out, I guess this is something that you'll be looking at going forward, the underlying margins and performance of the business through a tough period, how are sort of underlying margins holding up?

Well, I think I've answered partially to that question, Henry, earlier on when you asked me to -- when I answered about LNG being accretive to our performance. And thank you for recognizing the success of Yamal. It's important for us and for our customer for sure but for us internally as well. So yes, I think the underlying performance is the one I described earlier on, a mix. I mean, E&C being in the 5%, 6% and having LNG accretion on top of that, around 200 basis points is basically how I will answer to the question. And then comes a potential upsize to Yamal or other projects with great performance and being rewarded for great performance. So yes, that's -- I can tell you that.

Okay. And then if we sort of switch to -- maybe to a different part of the business, I think what you talk about green chemistry. And that's a market that's expected to grow very substantially, potentially triple over the next 10 years. What needs to happen for it to become material for the group?

Yes. Good question. So in sustainable chemistry, there are really 3 main areas where we're involved: biofuels, bio-based materials and circular economy. And it's interesting that you ask what needs to happen for it to be material for Technip Energies and TechnipFMC today. Well, the reality is, and it's maybe -- maybe we do a poor job at communicating on it, but the reality is it's already material. So it already is. We are currently executing an expansion project for the -- for a renewable products facility in Singapore for Neste. This project alone would -- I mean, is part of the top 10 project by size in Technip Energies' backlog, so it's already quite material. We have a long history in the development of biofuels, offering advanced solutions to meet some increasingly stringent climate targets. And we would like to nurture, develop and grow our market position there in -- both in biofuels and sustainable aviation fuels as well. We have a strong relationship with Neste, the world's largest producer of renewable diesel. And we've delivered for them and we've engaged -- we further expanded this relationship with the formation of an alliance, and we are extremely proud of being the partner of choice for Neste's future renewable diesel projects. So we are part -- we are and we will be part of their development plans. So the global event, as you said, for renewable diesel alone is projected to more than double by 2030, so we do expect that we will have more opportunities there. We have proprietary technology in sustainable aviation fuel through our Hummingbird technology. So -- which is -- actually has been selected for a FEED study for a plant just recently. So yes, I mean, from biochemicals to the Epicerol technology, et cetera, yes, and you should expect to see more announcements and more investments by Technip Energies into circular economy. So I would say stay tuned because it's -- yes, we have some very interesting conversations at the moment, which we will make public in the near term. But all this to say that green chemistry is already part of, I would say, what is material to Technip Energies. And we are a lot more than a one-trick-pony and LNG only. And renewable chemistry is one, sustainable chemistry is one and then yes, when you rank in the top 10 projects by size within Technip Energies, it's already material. It's already a big one. So -- and that's the case for the plant we're doing with Neste on renewable products in Singapore.

Okay, great. And I guess another interesting technology for you guys is probably hydrogen. You have a very high market share historically for sort of conventional hydrogen production versus your sort of steam reforming technology. What's the outlook for sort of your involvement in blue hydrogen and then potentially green hydrogen, I guess, beyond that?

Yes. So I mean, we believe we are well positioned for a wave, so to speak, of blue hydrogen opportunities. Although the development of this market will also -- I mean, depend, sorry, on the local legislations, okay? So we do intend to build on our strong leadership position in the conventional hydrogen, and you've mentioned the existing technology. We have 100% in-house capacity -- I mean, capability and technology to design and deliver hydrogen plants on an EPC basis. So we don't need third-party technology, et cetera, for, I would say, the traditional hydrogen. Now we also have, with all the strategic alliance with our products, which is business building focused and execution alliance, which is exclusively for a hydrogen manufacturer. And we continue to develop to build on R&D and develop IP there. So you're right. We are a leader, 270 plants around the world are actually from -- originally from TechnipFMC. They are green hydrogen so traditional, using the steam as a reforming technology. What is unknown by many is that 50 of those plants are actually equipped with carbon capture technology. And so therefore, that would qualify for blue hydrogen in the sense, except that they are not -- what's missing is the sequestration to those 50 plants. But for carbon capture and storage, TechnipFMC and Shell have a strategic alliance to globally market our EPC expertise and share CO2 capture technology, the console of technology, it's an alliance. And we are out there together to promote it. The good thing is this technology is retrofittable to existing facilities. So we can go out there and retrofit that technology on existing plants and/or it can be a grass root new plant. And the technology lowers carbon intensity but also meets -- helps meet greenhouse gas emissions reduction target with -- it also lowers SO2 and NOx emission, which we sometimes forget about and that's really very real. So to date, again, we have about 50 references with CO2 capture on hydrogen plants. And we have prospects and that are CO2 capture ready. And so expect that, yes, in the same way that we've been part of hydrogen in the past, I expect that we are going to be part of hydrogen in the future. So we have 10 to 20 CO2 capture units to be retrofitted as -- if you think about the pipeline of opportunities and 1 to 5 of grass root blue hydrogen plants opportunity at the moment. But we have a very big role to play in blue as well as in green. And I -- for the audience, I think it's important for people to remember that if you think hydrogen, one should think really Technip Energies because of our market share, which we don't intend to give up on. If you say about 35%, 40% market share at the moment with the traditional technology, but don't expect that we will give up on that market share for blue or through blue hydrogen or green. So our ambition is intact for blue and through green going forward.

Great. And I guess you have a partnership or agreement with McPhy that you announced recently. What -- so that's focused on electrolysis, I believe, rather than blue hydrogen so straight to green. What do you aim for from this partnership? And what are the sort of time frames? Is this still very much R&D or are you hoping to be able to sign some contracts with it in the coming quarters or years, yes?

Yes. So it's actually beyond R&D and that's the reason why we've embarked with McPhy, okay? It was -- I'll come back in a minute on what are the hopes for this partnership. But the reason -- the very reason why we teamed up with -- we invested into McPhy, it is specifically because their electrolyzer, which is the pressurized kind, their technology is mature, is marketable and we can introduce it on the market today. And that was -- it's important for us to -- for me to say that today. So I mean, the ultimate goal for this partnership with McPhy on this investment is to position Technip Energies as a leader on large-scale green hydrogen market through a low capital intensive and right deal. We will, together with McPhy, we will jointly address the commercial opportunities and work on integrating their respective -- I mean, our respective offering and work on R&D and hydrogen technology for the future. So they are partnering with a Tier 1 -- I mean, we are partnering with a Tier 1 electrolyzer supplier. It is indeed of the -- it's the alkaline technology, if I may say, so it's not a proton exchange membrane or it's not solid oxide but it's the most mature technology. And this is why we've decided to invest into it. It ensures access to electrolysis technology now. Again, it's a pressurized alkaline electrolyzer. It's the most advanced one. It's very mature. And we didn't want to have to wait for the PM and the SOEC technologies that are out there to be mature. We wanted to be critical today and pave the road to our positioning for our market going forward in green hydrogen. So we do have prospects which we are entertaining at the moment jointly with McPhy, real prospects. So we're bidding at the moment. And we hope that they will contribute from our EPC capabilities and our international footprint, et cetera, and our integration capability. And also, it's not because we've teamed up with McPhy through the alkaline technology that we're giving up on the other technologies. For us, it's planting a seed early where we know real commercial opportunities can grow. But we are also planting seeds on the other technologies. So we're not giving up on the rest, but it was important for us to be able to harvest fully -- a bit early on green hydrogen by selecting a mature technology. So that's what I believe we've been able to do.

Great. And just to check, is that -- is the carbon capture technology that you use in your existing or the existing plants, is that proprietary to Technip? Or are you sort of sourcing that in and you have partners on the carbon capture side?

Both. It's actually a mix of both, but we do -- I would say, we do more partnering than we have in-house technology and carbon capture. But -- and that is not necessarily a disadvantage. When you look at LNG, it's the same story. I mean, our strength is through the integration of all that. And that's where we bring value. So the fact that Shell has accepted to, I mean, actually consulted and reached out to us in order to partner on their console technology, it's great. And yes, so it's giving -- it's probably a good opportunity set.

Absolutely. Okay, great. And to switch gears a little bit, I mean, I think one of the other things that you've talked about is the opportunity that digital can bring to the company. How do you see it impacting your offering and your offering to clients over the coming few years? So is it primarily helping you maintain lower costs? Or are you bringing additional services to your clients and enhancing your offering on that side as well?

Probably like many, it's actually a bit of both. So to try to enforce now digital is having a positive impact on our business today, we've capitalized on reference IT software availability in the market to develop internal data platform that brings enormous benefits to our efficiency and our project execution and also the way we interact with our customers. So in effect, those platforms, they do consolidate and connect the information that would have been previously available by multiple platforms. So imagine that when we think LNG plants, it enables us to really align between 1D and 4D representation. So we can now request information about an object in 1D, but we're also able to visualize it in 2D, 3D. And our project execution recipes, I would say, and protocols now integrate the fourth dimension. So what if that object is missing down the road in the project? What's the impact on how to erect the plan, resequencing and all that? So the fourth dimension is already there in our project management protocols, and we are able to, on that basis, a very, I would say, collaboratively communicate in a different fashion with our customers when it comes to erecting a project and the plant. And then you've got front-end. And in our Genesis organization, we have an ultra front-end suite, which is a digital toolbox that enables a greater level of collaboration with our customers. And as they evaluate their assets, well, we can play with them by leveraging this cloud computing technology. It allows our engineers to focus on identifying previously undiscovered scenarios and it helps with our customers, and we can unlock more value usually for our customers' development. So really, that is an online interface that allows us to share study information with customers in real-time and mature -- and as it matures, it allows us to adapt and revise the scenarios. And combined with that, that ultra front-end suite of solutions comes something we're very proud of. It's an industry-leading carbon assessment tool. We call it Gen-CAT. And it provides an assessment of direct and indirect emissions from procurement to asset construction through the operations of the plant. So using digital through early engagement, like we are doing through the Genesis ultra front-end with carbon assessment, et cetera, all this naturally drive towards our ability to do a better job at delivering a digital twin. And you assess the growth opportunity for us in digital. Well, it's probably through delivering very mature and smart digital twins to our customers in a way they would like it to be, okay? What they are looking for is certainty of success in terms of the results, the outcome, the model. In order to get certainty of success, you need prediction and to get to better prediction, you need data. And we are super well positioned to have -- to gather all that data. I mean, we have loads of data and, at the moment, probably undervalued but I would say that is probably going to be part of my job, together with the team at Technip Energies, to convert now and better define and convert this digital thread from ultra front-end to servicing the plant. That is certainly part of our ambition. And we will define a thread as we create Technip Energies, we're already working on it. But we are an integrator. We have access to an immense amount of data. Therefore, that should drive a good level of predictability and prediction models and therefore, certainty of success and representability of the twin for our customers. So that's really, in short or maybe long, and really my answer on digital, which, yes, it contributes to us being more efficient but also it's converting into business opportunities, not major at the moment but definitely, it's changing the landscape. So yes.

Perfect. And just lastly and quickly before we head off, I guess we've been through several downturns in the industry through time. Is -- are the -- when you're having negotiations and discussions with customers, are they still looking to squeeze on pricing or terms at this point in time, given low oil prices? Or given that we really have only just come off the back of the last downturn in a sense, is there more of a sort of collaborative approach that you see with your clients?

Well, I will say that we see both. Now a very important word I mentioned earlier, I used earlier, is selectivity, right? There is no must-win for us and we will continue to be selective. And there are some key attributes to Technip Energies and the prospects we follow actively, which are: do we know the landscape? Yes or no. Do we have the technology? Yes or no. Have we been involved early, the concept study and the FEED? Yes or no. Are we the incumbent? Yes or no. And from that, we can decide on our appetite for risk and -- but we want to believe that we bring differentiation. So it's not -- it's about having the lowest cost, not necessarily the lowest price can -- lowest cost can convert into lowest price for the customer, sometimes. But being a cost leader doesn't mean necessarily being the cheapest all the time. And we want to believe that we are differentiated in other ways than simply through price. And -- yes. So -- but now I will be honest with you. The good thing is, more and more of our customers, and I want to recognize them for that, when you look at -- you take a project Rovuma for example, LNG for Exxon, yes, they have a target to reduce the cost of their development. But it's not happening through, a, TechnipFMC and partner just slash their prices. It's about engaging collaboratively into a value enhancement plan or study for the project. Therefore, they sit alongside with us and we study opportunities for cost reduction. And we propose, they validate and when they validate, of course, the costs come out. But it's a very collaborative and interactive approach at this stage. And that is not to the detriment of the partners or the contractor because it's about, okay, what less can we do? It's not about cutting margins at this stage. It's really constructive. And I would say there's a -- I'm pleased to see that there is more and more this type of collaboration happening. It's very mature. It's a lot healthier as well. And therefore, we feel a lot better. So it fits nicely our selectivity road map. So it's good to be in that space.

Perfect. Well, great. With that, I think that's a good place to end. So Arnaud, thank you so much for taking the time. We really appreciate it. And yes, good luck with the next 12 months.

Super. Thank you, Henry, and thank you.

Thank you very much. Thank you.

Thank you. Bye-bye.