On November 12, 2008, Technip's Board of Directors approved the non-audited third quarter 2008 consolidated accounts.
Thierry Pilenko, Chairman and CEO, commented: "In the third quarter, we continued to perform in line with our goals. Operating income increased 50% compared to last year, reflecting good execution on our projects, strong margins in Subsea and continuing improvement in Onshore/Offshore combined margins. We had robust activity, notably in the North Sea, Brazil and Europe, which helped to offset the impact of Hurricane Ike on our third and fourth quarter revenues this year. We end the third quarter with a balanced backlog between Subsea at 46%, and Onshore/Offshore at 54%. Key new Subsea projects won in the quarter include Angola Block 31 and a two-year charter in Brazil for the pipelay vessel Normand Progress. We end the quarter with net cash on the balance sheet of €1,555 million. Technip's cash is invested in non-speculative, short-term, liquid instruments.
"Our full year forecast is for around €7.3 billion of revenues, with a Group operating margin above 8% reflecting a Subsea margin well above our previous 18% target and an Onshore/Offshore combined operating margin on target at 3.8%.
"Looking forward it is too early to determine the effect that the rapid deterioration of the financial markets may have on our customers' 2009 and 2010 investment plans: ongoing projects which are well advanced in terms of procurement and construction are likely to proceed normally whereas future investments in new projects are more likely to be reassessed. In the Onshore market, as prices of commodities and raw materials are notably declining, our customers are looking to reduce their total costs in the new environment by delaying or slowing down projects, leading to the extension of FEED studies and to the re-definition of execution timelines. For Technip, the award of medium-to-large contracts to our Subsea business over 2007 - 2008 gives us good visibility into 2010. In Onshore and Offshore, we are continuing to focus on margin protection and enhancement actions as evidenced in our third quarter numbers.
"Longer-term, the fundamentals of the E&C industry remain robust: the rapid depletion of existing reservoirs will require continuous and significant investments, particularly upstream. Technip has first class technology, project management skills and a strong balance sheet. These attributes make us a solid partner for our customers."
IDuring the third quarter 2008, Technip’s order intake was €1,551.7 million compared to €1,930.3 million during the third quarter 2007. This is in addition to the €1,592.3 million booked during the first quarter 2008 and €1,407.6 million during the second quarter 2008. Subsea enjoyed a strong order intake in particular with the signature of the two first call-off contracts signed under the frame agreements with BP for the development of Block 31 offshore Angola and a two-year charter in Brazil for the pipelay vessel Normand Progress. Many small and medium-sized Onshore projects were awarded, whilst no major EPC lumpsum contracts were awarded during the quarter in either Onshore or Offshore. Listed in annex II (d) are the main contracts that came into force during the third quarter 2008 along with their approximate value (Technip’s share) if publicly disclosed. The breakdown of the order intake by business segment for the third quarter is as follows:
At the end of the third quarter 2008 Group backlog amounted to €7,717.0 million, compared to €9,411.3 million at the end of the third quarter 2007 and €8,053.2 million at the end of the second quarter 2008.
Technip's capex for the third quarter 2008 amounted to €108.1 million (cash impact) compared to €76.3 million for the same quarter 2007, in line with the full year expectation of roughly €400 million.
Third quarter 2008 Group revenue was €1,932.9 million, a 10.8% decrease year-on-year. At constant currency, excluding exchange rate translation impacts, revenue decreased 5.7% compared to last year. This negative foreign exchange impact of €110.3 million on Group revenue was primarily due to the 10% depreciation of the US dollar and associated currencies relative to the Euro compared to last year.
Subsea revenue was €789.3 million, up 21.8% compared to €648.2 million for the same period last year. Activity was high on projects in the North Sea and in Brazil as well as Africa with the Agbami project nearing completion. Other major contributing projects were Gimboa in Angola and Kupe in New Zealand, which are both almost completed.
Offshore revenue was €155.4 million, down 3.5% compared to the same period last year, with a good contribution from the Akpo FPSO in Nigeria and P-56 in Brazil.
Onshore revenue was €988.3 million, down 27.2% compared to €1,356.9 million for the same period last year. Main contributors were the Khursaniyah project in Saudi Arabia, the three LNG projects in Qatar, the three large ethylene steam-cracker projects in Qatar, Kuwait and Saudi Arabia as well as the Dung Quat refinery in Vietnam.
Operating Income from Recurring Activities
Third quarter 2008 Group operating income from recurring activities was €179.0 million, up 50.4% compared to €119.0 million in the third quarter 2007. Excluding foreign exchange translation impact, operating income year-over-year was up 56.4%. Operating margin from recurring activities continues to improve at 9.3% compared to 5.5% for the same quarter a year ago.
Subsea operating income from recurring activities was €161.2 million during the third quarter 2008, up 45.6% compared to the same period a year ago. EBITDA margin was strong at 27.4% versus 21.6% for the same quarter last year. Operating margin from recurring activities reached 20.4%, compared to 17.1% during the third quarter 2007, thanks to good project execution and successful closeout of certain projects, offset by an accelerated depreciation of assets now scheduled for refit as part of the capex program.
Offshore operating income from recurring activities was flat at €8.5 million, compared to €8.6 million during the third quarter 2007. The associated margin was 5.5% during the third quarter 2008 with a good contribution from the Perdido Spar project compared to 5.3% a year ago.
Onshore operating income from recurring activities during the third quarter 2008 was €39.3 million, compared to €4.6 million a year ago, which included a €50 million charge for a petrochemical project in Saudi Arabia. The margin was 4.0% during the third quarter 2008 compared to 0.3% a year ago.
The combined operating margin for Onshore/Offshore was 4.2%.
Financial income on projects accounted as revenue amounted to €20.4 million during the third quarter 2008 (third quarter 2007: €23.0 million), of which €14.1 million for Onshore (third quarter 2007: €16.9 million).
Accordingly third quarter 2008 Group operating income amounted to €179.0 million, up 42.9% compared to €125.3 million recorded a year ago. Corporate operating income was a loss of €30 million compared to a loss of €4.9 million a year ago. The decision to choose a new Enterprise Resource Planning (ERP) system requiring less customization and lower maintenance costs resulted in a €20 million non-cash charge against prior investments.
Net financial charges for the quarter were €1.5 million including a €1.7 million positive impact of foreign currency exchange rate variations.
Income tax was €55.8 million. The effective tax rate in the quarter was 31.4% compared to 29.2% one year ago reflecting inter alia higher profit in higher effective tax rate areas.
Net income was up 59.1% at €121.1 million, compared to €76.1 million during the third quarter 2007.
Diluted EPS was €1.15 in the third quarter 2008, an increase of 59.5%, compared to €0.72 one year ago.
Average number of shares during the period on a diluted basis is calculated as per IFRS. For the third quarter 2008 this number of shares stood at 105,515,406 versus 105,749,881 shares for the third quarter 2007.
Cash and Balance Sheet
At the end of September 2008, the Group's net cash position increased to €1,554.9 million compared to €1,465.9 million as of June 30, 2008.
During the first nine months of 2008, cash generated from operations amounted to €451.6 million a 68% increase compared to the same period a year ago. Working capital declined by €208.0 million in line with the progress of the main projects. Capital expenditures for the first nine months of 2008 amounted to €255.9 million compared to €142.1 million for the same period a year ago.
Cash generated from operations increased 184.6% during third quarter 2008 to €182.7 million and during the same period, working capital declined by €35.7 million inline with the progress of the main projects. Capital expenditure amounted to €108.1 million.
Shareholders' equity, excluding minority interests, as of September 30, 2008 was €2,341.6 million compared to €2,178.4 million as of December 31, 2007.
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