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Module 4-Forecasting

Module 4-Forecasting. Drew Williams. Basic Facts. Energy technology, project management, and maintenance (97% from oil and gas) Headquarted in Paris, France Revenue = 8.2 Billion Euros 11.5 Billion in Assets Employ 38,000 people in 48 countries 2 Major Segments Onshore/Offshore

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Module 4-Forecasting

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  1. Module 4-Forecasting Drew Williams

  2. Basic Facts • Energy technology, project management, and maintenance (97% from oil and gas) • Headquarted in Paris, France • Revenue = 8.2 Billion Euros • 11.5 Billion in Assets • Employ 38,000 people in 48 countries • 2 Major Segments • Onshore/Offshore • Subsea—niche area

  3. Customers

  4. Financial Goals and Operating Priorities 6-8% margins on Onshore/Offshore projects ~15% margins on all subsea projects Continue to be the leader in tough climate and subsea contacts Keep a consist and robust order backlog Continue to innovate through extensive investment in R&D Focus on high growth areas i.e. Asia, Middle East, Brazil

  5. Products

  6. Major Acquisitions • Global Industries Ltd. • December 2011 • 100% Ownership • Sub-Sea know-how • Further entry into US and Mexican waters • $1.262 Billion Purchase • Issues • Did not produce 2011 Financials • Solution: Use 2010 financials + Extrapolate 2011 Quarterly Income Numbers

  7. Major Acquisitions • Stone & Webster Process Technologies • Purchase segment from The Shaw Group • Refining and Petroleum Chemicals—diversify • Further enter US Market • $295.3 Million Purchase • Isssues • No Financials for this Segment within Shaw • Purchased a segment of a segment • Different Fiscal Year (August 31 Year End) • The Shaw Group purchased in Feb 2013 • Solution: Input=0, cite as flaw in calculation, rely on group members more heavily

  8. Combined Balance Sheet • Potential Issues: • GAAP vs. IFRS • Synergies • Currency Translation Changes • Different Account Classifications • Does not include a major acquisition

  9. Combined I/S • Potential Issues: • GAAP vs. IFRS • Synergies • Currency Translation Changes • Different Account Classifications • Does not include a major acquisition • Extrapolation of 2011 numbers

  10. Forecasting Step 1: Forecast revenues from estimated sales growth rate Step 2: Forecast EPAT via EPM forecasts Step 3: Forecast NEA via forecasts of EATO

  11. Technip Revenue • Analysis: • Extremely volatile revenue growth • Acquisitions call into questions the validity of the growth numbers • Economic Crisis hit industry hard • Taking average would not help • Conclusion: Not particularly helpful *Assumed 2013 growth rate

  12. Industry Revenue Growth • Analysis: • Difficult to come to a consistent growth value • Different firms have vastly different growth rates in the same year • Firms are far from perfect comparables • Firms much more mature than Technip

  13. Other information sources • Analysts and Market Update from Technip • Analysts predict between 4-13% growth • A lot of revenue for 2014 (60-65%) and 2015 (40-45%) are already contracted • 2013 is predicted to be between 9.2-9.4 Billion • 2014 predicted to be between 10.2-10.4 Billion

  14. Revenue Growth Decision • Growth Rate = 9% • Analysts anticipate at least this amount of growth in the next 2 years • Subsequent years are not as clear • Depends on ability to maintain strong backlog of orders • Revenue easy to forecast in short term

  15. Technip EPM • Analysis • Trending upwards • Trend heavily reliant upon Subsea segment (~15% operating margin vs. ~6-7% for On/Offshore) • Opening new manufacturing facility with expected 15% margins

  16. Industry EPM • Analysis: • Variation amongst firms • SLB most steady • Decline in 2012

  17. Technip Market Update • December 17, 2013 • Increase revenue in Onshore/Offshore and slight increase in margin • Subsea Margins will contract for Q1 2014 • Down to as low as 5% vs. expected 15% • Expected to increase in subsequent quarters • Management explanation: we don’t recognize profit on projects in early stages, lots of projects in early stages • Every question except 1 was about this issue • Management’s Belief: Margins will rise to 15-17% in 2015 due to contract timing and better contracts • Analysts = skeptical, price decreases ~13% upon announcement

  18. EPM Decision • EPM = 7.5% • Upward trending • Will continue if Management is correct • Analysts are very skeptical • Recovery of margins is far from certain • New Manufacturing plant and better contracts should give some recovery

  19. Technip EATO • Analysis • Trending down • Larger they become, less EATO • Recovering this in margins • Capital intensive construction • Increased Investment

  20. Industry EATO • Larger firms have smaller EATO • Technip’s likely to decrease as revenues increase

  21. EATO Decision • EATO = 2.0 • Downward trending • Larger firms have lower EATO • Difficulty keeping this high if expansion continues • More capital investments needed, huge ships needed for subsea growth • Getting more into manufacturing--Brazil

  22. Forecast • Still have questions about Revenue growth (may taper off) • EATO may decline further in future • EPM could increase further if management is correct

  23. Questions ?

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