Technip anticipates an even more challenging environment in oil & gas: Launches restructuring plan and accelerates its cost reduction to reinforce the Group through and beyond the downturn.
- Total targeted savings of approximately €830 million, of which €700 million to be delivered in 2016 and the balance in 2017.
- One-off charges of €650 million that cover all the different aspects of today’s announcement.
- Restructuring plan will involve a reduction of the global workforce by approx. 6000 and further optimisation of its asset base.
- Onshore/Offshore adjusted underlying operating income from recurring activities to improve in the second half, consistent with previous objectives; Subsea continues to execute well and the outlook for full year adjusted operating income from recurring activities is confirmed.
Technip has announced, in anticipation of an even more challenging environment in oil and gas, that it will accelerate its cost reduction and efficiency efforts worldwide through a restructuring plan in response to the downturn in the oil and gas market.
As noted in the first quarter of 2015, the sharp fall in oil prices has had a substantial impact on clients’ behaviour, national and international oil companies alike: new projects continue to be deferred as clients assess their investment priorities in a durably changed oil price environment; on occasion there appears to be irrational behaviour in bidding on some of the projects that are being sanctioned; negotiations have been protracted on contract changes and variations, in particular on Onshore/Offshore projects, where some discussions are now even stopped and will find their resolution through a legal process. We conclude that these trends have not improved and, in some cases, have actually worsened over the last two months.
Accordingly, Technip has decided to go substantially further in reducing its direct and indirect cost base whilst maintaining its strategic direction. The restructuring plan targets savings of €830 million, of which €700 million to be delivered in 2016 and the balance in 2017. There are one-off charges of €650 million to cover all the different aspects of today’s announcement.
The Group will reduce its global workforce by approximately 6000 and will pursue the streamlining of its activities started last year to focus on its core assets and activities. Employees will be informed and employee representatives consulted in due time on a local basis.
- A significant part of the restructuring plan covers the Onshore/Offshore segment and addresses its recent unsatisfactory performance. The one-off cost includes all the direct and indirect consequences of the restructuring plan.
- Reduction (including through sales or closures) of its presence in some Onshore/Offshore markets where profitable business is unlikely even in the medium-term, including selected countries in Europe, Asia and Latin America including Brazil. The one-off cost covers for example asset impairments, lease overhangs and also additional amounts on ongoing projects impacted by this restructuring plan.
- Technip has furthermore put aside appropriate amounts on projects where there is a dispute with clients on changes and variations. The Group expects that it will take time to resolve claims on these including for example two refinery projects in Brazil and Algeria (Technip confirms that its involvement has now come to an end on this last project).
- In parallel, the Group will reinforce its investment in key geographic and technology areas where for example it has first mover advantage, such as FLNG.
As a result of the above actions, the Group therefore expects Onshore/Offshore will be significantly more profitable in the second half of the year compared to the first half of 2015, with adjusted underlying operating income from recurring activities between €140 million and €160 million.
- Operational performance continues to be solid and the Group confirms the outperformance of this segment in 2015 so far compared to initial expectations.
- Cost reduction will be in those markets where new project awards are under pressure (for example the North Sea).
- Technip will also further reduce its fleet. The originally planned reductions in the fleet would have reduced it by two vessels this year and now the Group intends to take out a further two vessels, one fully-owned and one leased, taking the fleet down to 23 vessels from 36 at the end of 2013. The one-off cost includes the associated impairment costs.
Thierry Pilenko, Chairman and CEO, commented “The slowdown in the oil and gas industry is prolonged and harsh. Therefore we have decided to accelerate our cost reduction and efficiency measures – which I know will have tough consequences for employees across the Group. Technip has built its leadership on sustained investment in key technologies and assets, to create a business with a breadth of skills and know-how. The launch of the plan today, together with our recent initiatives, such as our Forsys Subsea Joint Venture, shows our determination to maintain this strategy which is based on a long-term vision of how Technip can be best positioned to deliver our industry’s needs, to reduce project costs and continue to create value.”
Full results for the second quarter will be published on Thursday, July 30th and will include the majority of the one-off costs announced today, with some of the restructuring costs taken in later periods in accordance with IFRS. For the second quarter and the rest of the year, excluding the one-off charges announced today, the Group expects:
Second quarter 2015
- Onshore/Offshore: adjusted underlying operating income from recurring activities at around €50 million.
- Subsea: adjusted operating income from recurring activities above €240 million.
Full year 2015
- Onshore/Offshore: adjusted revenue around €6 billion, unchanged.
- Subsea: adjusted revenue between €5.2 billion and €5.5 billion, unchanged.
- Onshore/Offshore: adjusted underlying2 operating income from recurring activities of between €210 to €230 million.
- Subsea: adjusted operating income from recurring activities at around €840 million.
- The Group expects to have a strong and liquid balance sheet at the end of second quarter 2015.
Adapted from a press release by David Bizley