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TechnipFMC subsea segment orders climb in Q3 as company prepares to split

The plan for TechnipFMC PLC to separate its operating segments into two diversified pure-play companies remains on track for the first half of 2020 even as the company suffered major losses in the third quarter.

Doug Pferdehirt, chairman and CEO of the oilfield services company, said the move to create two companies from Technip's three operating segments Subsea, Onshore/Offshore, and Surface Technologies, would be "transformational." Both companies will benefit from dedicated management focus, resources and capital, and will offer differentiated investment appeal, the CEO said during an Oct. 24 earnings call.

Despite disappointing third-quarter earnings released after the market close Oct. 23 that outlined an adjusted net loss of 61.1% and included after-tax charges and credits totaling $32.6 million of expenses, $53.2 million of foreign exchange losses and $99.1 million of increased liabilities to joint venture partners, the company remains on track to split its subsea and surface businesses into into one company: Houston-based RemainCo, according to CFO Maryann Mannen.

For RemainCo, 89% of the trailing 12-month revenue mix has been driven by subsea projects and surface technologies outside North America, Pferdehirt said during the call. The international markets provide the best opportunities for growth, he said; the Middle East is expected to lead international growth in surface technologies while growth in subsea will be driven in part by emerging markets such as Mozambique and Guyana.

Subsea orders in the third quarter reflected continued strength driven by Technip's iEPCI integrated model. Technip inbounded several new iEPCI projects in the period. "The value of integrated project awards in 2019 has increased by more than 90% from the levels we reported through the first nine months of 2018," Pferdehirt said. Growth in the quarter reflected increased installation, asset refurbishment and well intervention activities.

"iEPCI looking forward, quite frankly, it's becoming more about ... more than 50% of our business today in terms of inbound level. So it's really becoming the norm," Pferdehirt said.

Subsea services remains on track for double-digit growth for the full year, the CEO said. In the third quarter despite a lack of announced awards, the segment delivered a book to bill of 1.1. The market will likely move forward within the next 24 months on a number of projects that suggest a positive change in value for subsea, Pferdehirt said.

The CEO said the company is in the early stages of seeing the impact from its Subsea 2.0 technology and has a clear vision that goes far beyond Subsea 2.0. "Subsea 2.0 was just the beginning," Pferdehirt said. "So now with the increased scope of Subsea activity, meaning including umbilical risers, float lines and installation, it is baffling how much we'll be able to do beyond Subsea 2.0," he said. There are 14 discrete engineering programs underway that support what could be the building blocks for Subsea 3.0 and beyond, the CEO said.

For the other part of its business, surface technology, a slump in the North American market dented revenues and earnings in the third quarter but 50% of business resides outside of the U.S., where the company is "very well positioned" and seeing an improvement in activity and the early stages of improvement in pricing, Pferdehirt said.

Looking at North America, he said, "we are all waking up to a new market reality. We certainly had a different expectation at this time last year for the North American market in 2019. Unfortunately, that did not transpire. That has led to us having to revise our margin guidance."

Full-year revenue guidance for the segment was revised lower to a range of $1.6 billion to $1.7 billion, Mannen said. "We are trending towards the low end of this range as a result of the weakness in North America," she said.

TechnipFMC's onshore/offshore segment to be rolled into the new spinoff SpinCo reported "robust" third-quarter earnings, with revenue up 4.2% at $1.6 billion.

About 56% of the company's total backlog of $18 billion, which currently equates to triple the revenue projected for 2019, relates to future work on LNG products including Yamal LNG, Prelude FLNG, Coral FLNG and Arctic LNG 2. The recently announced Rovuma LNG award is not included in these figures.