Technip: 2008 Full Year Results

Regulatory News:

Technip (Paris:TEC) (ISIN:FR0000131708):

On February 18, 2009, Technip’s Board of Directors approved the audited full year 2008 consolidated accounts. Thierry Pilenko, Chairman and CEO, commented: "2008 was a year of significant progress on our key objectives: improve profitability and project execution, re-establish leadership in the Subsea business and re-balance the risk profile of our project portfolio. Overall our financial performance was above the targets set at the beginning of 2008 as a result of good project execution in all segments. Major Subsea project achievements in 2008 include Agbami in Nigeria, Canapu in Brazil and MA-D6 in India. In Offshore, the Perdido Spar was delivered in the Gulf of Mexico and the P-51 platform was completed in Brazil. In Onshore, progress included the handover of the first LNG train in Qatar, the successful start-up of the Ethylene plant in Kuwait and the completion of several legacy projects. Our teams have been efficient, both onshore and offshore, and the utilization of our marine and manufacturing assets has been globally very good. Backlog stands at €7.2 billion, including €3.5 billion for the Subsea segment, including long-term large projects such as Pazflor and Block 31 in Angola and Cascade Chinook in the Gulf of Mexico. The backlog in Onshore and Offshore includes major projects in Saudi Arabia and Qatar but also many smaller projects rich in engineering man-hours, and overall constitutes a balanced and lower risk portfolio.

Looking forward, the recent decrease in energy demand coupled with uncertain, albeit falling, commodity prices and therefore project costs, is affecting the entire supply chain. Projects which are in the procurement or construction phase continue to advance, but some new projects or those that are at an early stage are being deferred. Significant delays have occurred in unconventional hydrocarbon exploitation (such as the Canadian tar sands), the refining sector in the USA and the petrochemical industries. Large scale grass-root projects are being re-evaluated and re-scheduled to try to take advantage of the lower cost environment. The current inertia in the decision process is likely to continue until hydrocarbon demand and costs stabilize – a time frame difficult to forecast in the current economic downturn. Consequently our customers’ reaction is highly dependent on the strength of their balance sheets: some small or highly leveraged companies are reducing their investments while those with more robust financial resources continue to invest.

However challenging, this environment will give Technip opportunities to differentiate itself: first we are well-diversified in terms of clients, activity and geography and our regional structure is empowered to adapt itself to the local needs; second our vertical integration in Subsea gives us more control of our supply chain and cost structure; thirdly, our continuous investments in R&D are enabling us to develop cost effective and cutting-edge solutions; last, we have a track record of large project execution and a robust balance sheet, two key differentiators in a period when oil and gas companies are looking for technically and financially solid partners to execute multi-year and highly complex projects.

In the medium term, we believe that the current delays in investments combined with natural production declines from existing reservoirs will create the conditions for a strong rebound in activity. This is why, whilst we will be closely monitoring the evolution of our backlog and reducing our costs, we will at the same time continue our key investments in R&D and in our major Capex program to strengthen our technology leadership and expand our fleet and manufacturing capacity.

Our backlog provides us with good visibility going into 2009. Further-out, market conditions have increased the uncertainty of our order intake, but our balance sheet is robust, enabling us to invest to take advantage of longer-term opportunities. In 2009 we target Group revenue of €6.1 - 6.4 billion at current exchange rates with flat to moderate revenue growth in the Subsea segment with a Subsea operating margin range of 16% to 18%, consistent with our investment program. We target further improvement in the combined Onshore/Offshore operating margin.

Confident in our capacity to create long-term shareholder value in a challenging environment, the Board of Directors recommends to maintain our 2008 dividend per share at €1.20.”

I. FOURTH QUARTER 2008 REPORT

1. Operational Highlights

The Subsea business segment project execution remained good. Main events were:

• High vessel utilization rate of 78% during the fourth quarter 2008,
• Flexible pipe production units continue to have a strong activity,
• Offshore operations on Agbami, Nigeria, were successfully completed,
• Engineering for Pazflor, Angola, progressed well and procurement is ongoing,
• Azurite, Congo, and Gimboa, Angola, were successfully completed,
• Technip’s first pipe-in-pipe gas project was successfully completed on Canapu, Brazil,
• White Rose North Amethyst, Canada, progressed well.

The Offshore business segment has several projects completed or nearing completion:

• Akpo FPSO hook-up of subsea lines and commissioning progressed well,
• First oil produced with P-51 in Brazil; P-56 execution is ongoing,
• Diversification of the Pori yard in Finland continued

In the Onshore business segment:

• QatarGas II first train, number 4, has been handed over to the client. Discussions on QatarGas III & IV have advanced significantly, while the ethylene project is ongoing,
• LNG Project in Yemen progressed,
• Ethylene plant in Shuaiba, Kuwait, was delivered to the client in third quarter. Successful start-up of the plant during fourth quarter. Contractual specifications reached in record time,
• Saudi Arabian Khursaniyah first train advanced according to plan,
• Commissioning is under progress on the Yansab, Saudia Arabia, and preparing for "Ready for Start-up”,
• Many units of Dung Quat Refinery, Vietnam, have reached mechanical completion,
• Numerous other projects progressed well:
  • Gdansk refinery for Grupa Lotos, Poland
  • OAG modules are being installed on Das Island, United Arab Emirates
  • Biodiesel plants for Neste Oil, Rotterdam and Singapore

2. Order intake and Backlog

During the fourth quarter 2008, Technip’s order intake was €1,203.1 million compared to €2,101.6 million during the fourth quarter 2007. This is in addition to the €1,592.3 million booked during the first quarter 2008, €1,407.6 million during the second quarter 2008 and €1,551.7 million during the third quarter 2008. Subsea enjoyed in particular the signature of the second phase of the MA-D6 project following the successful completion of phase 1. Many small and medium-sized projects were awarded and some variation orders signed. 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 fourth quarter 2008 along with their approximate value (Technip’s share) if publicly disclosed. The breakdown of the order intake by business segment for the fourth quarter is as follows:

At the end of the fourth quarter 2008 Group backlog amounted to €7,208.4 million, compared to €9,389.5 million at the end of the fourth quarter 2007 and €7,717.0 million at the end of the third quarter 2008. The backlog breakdown by business segment is as follows:

⁽¹⁾ Concerning long term frame agreement for offshore inspection repair and maintenance, Technip books in its backlog the estimated expected value of these activities for the current year only.

3. Capex

Technip’s capex for the fourth quarter 2008 amounted to €145.4 million compared to €119.7 million for the same quarter 2007.

II. FOURTH QUARTER 2008 FINANCIAL RESULTS

1. Revenue

Fourth quarter 2008 Group revenue was €1,908.0 million, a 9.2% decrease year-on-year. At constant currency, excluding exchange rate translation impacts, revenue decreased 6.8% compared to last year. There is a negative foreign exchange impact of €50.5 million on Group revenue.

• Subsea revenue was €747.5 million, up 15.4% compared to €647.7 million for the same period last year. Activity was high on projects in the North Sea as well as in Africa where offshore operations on the Agbami and Azurite in Congo projects were completed during the quarter. Other major contributing projects were the Canapu project in Brazil which was also completed during the quarter, and the ongoing White Rose North Amethyst project in Canada.
• Offshore revenue was €193.8 million, up 12.5% compared to the same period last year, with a strong contribution from the Akpo FPSO in Nigeria and P-56 in Brazil.
• Onshore revenue was €966.7 million, down 24.5% compared to €1,281.2 million for the same period last year. Main contributors were the three LNG projects in Qatar, the three large ethylene steam-cracker projects in Qatar, Kuwait and Saudi Arabia as well as the Offshore Associated Gas (OAG) project in United Arab Emirates and a refinery, paraxilene complex and diesel oil hydrodesulphurization unit in Poland.

2. Operating Income from Recurring Activities

Fourth quarter 2008 Group operating income from recurring activities was €183.5 million compared to a loss of €108.0 million in the fourth quarter 2007. Foreign exchange has a negative impact of €11.3 million compare to the fourth quarter 2007.

• Subsea operating income from recurring activities was €145.2 million during the fourth quarter 2008, up 20.9% compared to the same period a year ago. EBITDA margin was strong at 24.4% versus 26.0% for the same quarter last year. Operating margin from recurring activities reached 19.4%, compared to 18.5% during the fourth quarter 2007, thanks to good project execution and successful closeout of certain projects.
• Offshore operating income from recurring activities was €11.5 million, compared to €5.9 million during the fourth quarter 2007. The associated margin was 5.9% during the fourth quarter compared to 3.4% a year ago.
• Onshore operating income from recurring activities during the fourth quarter 2008 was €45.1 million, compared to a loss of €227.6 million a year ago, which included a €200 million charge for the LNG projects in Qatar. The margin was 4.7% during the fourth quarter 2008.
  
  The combined operating margin for Onshore/Offshore was 4.9%.

Financial income on projects accounted as revenue amounted to €3.2 million during the fourth quarter 2008, of which €1.4 million for Onshore (fourth quarter 2007: €17.3 million, of which €10.5 million for Onshore).

3. Income from Sale of Activities

There was no income from the sale of activities in the fourth quarter 2008. During the fourth quarter 2007, income from the sale of activities amounted to a loss of €0.8 million.

4. Operating Income

Accordingly fourth quarter 2008 Group operating income amounted to €183.5 million, compared to a loss of €108.8 million recorded a year ago.

5. Net Result

Net financial profits for the quarter were €12.8 million including a €26.5 million positive impact of foreign currency exchange rate variations.

Income tax was €59.0 million. The effective tax rate in the quarter was 30.0% reflecting inter alia higher profit in higher effective tax rate areas. Income tax for the fourth quarter 2007 was a credit of €20.5 million as a consequence of recorded deferred tax assets.

Net income was at €134.0 million, compared to a loss of €97.5 million during the fourth quarter 2007.

Diluted EPS was €1.26 in the fourth quarter 2008, compared to a loss of €0.92 one year ago.

The average number of shares during the period on a diluted basis is calculated as per IFRS. For the fourth quarter 2008 this number of shares stood at 106,028,855 versus 105,608,009 shares for the fourth quarter 2007.

6. Cash and Balance Sheet

At the end of December 2008, the Group’s net cash position was €1,644.6 million compared to €1,704.3 million as of December 31, 2007.

During the year 2008, cash generated from operations amounted to €681.7 million compared to €192.2 for the year 2007. Working capital declined by €227.0 million in line with the progress of the main projects. Capital expenditures for the year 2008 amounted to €401.3 million compared to €261.8 million a year ago.

Cash generated from operations during the fourth quarter 2008 was €230.1 million, compared to negative €76.6 million in 2007. During the fourth quarter 2008 working capital declined by €19.0 million in-line with the progress of the main projects. Capital expenditure for the fourth quarter amounted to €145.4 million.

Shareholders’ equity, excluding minority interests, as of December 31, 2008 was €2,473.4 million compared to €2,178.4 million as of December 31, 2007.

III. FULL YEAR 2008 FINANCIAL RESULTS

1. Revenue

Full year 2008 Group revenue was €7,481.4 million, a 5.1% decrease year-on-year. At constant currency, excluding exchange rate translation impacts, revenue decreased 1.0% compared to last year. This negative foreign exchange impact of €325.5 million on Group revenue was primarily due to the 7% depreciation of the US Dollar and associated currencies relative to the Euro compared to last year.

• Subsea revenue was €2,689.0 million, up 8.5% compared to €2,478.2 million for last year.
• Offshore revenue was €695.2 million, down 5.9% compared to last year.
• Onshore revenue was €4,097.2 million, down 12.3% compared to €4,669.5 million in 2007.

2. Operating Income from Recurring Activities

Full Year 2008 Group operating income from recurring activities was €656.9 million compared to €247.0 million a year ago. Foreign exchange has a negative impact of €32.0 million compare to the full year 2007.

• Subsea operating income from recurring activities was €523.2 million in 2008, up 33.8% compared to full year 2007. EBITDA margin was strong at 25.1% versus 21.3% last year. The operating margin from recurring activities reached 19.5%, compared to 15.8% in 2007.
• Offshore operating income from recurring activities was €38.6 million, up 9.7% compared to €35.2 million in 2007, a margin of 5.6% in 2008 compared to 4.8% a year ago.
• Onshore operating income from recurring activities in 2008 was €153.7 million, compared to a loss of €157.3 million a year ago (2007 included a €320 million charge for LNG projects in Qatar, as well as two projects in Asia Pacific and one in North America). The 2008 associated margin was 3.8% in 2008.
  
  The combined operating margin for Onshore/Offshore in 2008 was 4.0%.

Financial income on projects accounted as revenue amounted to €45.8 million in 2008, of which €27.1 million for Onshore (full year 2007: €90.9 million, of which €63.6 million for Onshore).

3. Income from Sale of Activities

There was no income from the sale of activities in 2008 compared to €19.9 million in 2007.

4. Operating Income

Full year 2008 Group operating income amounted to €656.9 million, compared to €266.9 million recorded a year ago.

5. Net Result

Net financial charges for 2008 were €11.0 million including a €21.3 million positive impact of foreign currency exchange rate variations.

Income tax was €193.8 million. The effective tax rate for the year was 29.9% reflecting inter alia higher profit in higher effective tax rate areas. Effective income tax rate for 2007 was 37.3% with the record of deferred tax assets during 2007.

Net income was at €448.0 million, compared to €126.3 million during 2007.

Diluted EPS was €4.25 in 2008, compared to €1.20 one year ago.

Average number of shares during 2008 on a diluted basis is calculated as per IFRS was 105,325,760 versus 104,996,104 shares in 2007.

IV. 2009 FULL YEAR OUTLOOK

Revenue

• Group revenue of €6.1 - 6.4 billion, at current exchange rates
• Subsea revenue stable to moderate growth

Operating margin

• Further improvement of the Onshore/Offshore combined operating margin
• Subsea operating margin of 16% - 18%

Cautionary note regarding forward-looking statements

This presentation contains both historical and forward-looking statements. These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events and generally may be identified by the use of forward-looking words such as "believe”, "aim”, "expect”, "anticipate”, "intend”, "foresee”, "likely”, "should”, "planned”, "may”, "estimates”, "potential” or other similar words. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by these forward-looking statements. Risks that could cause actual results to differ materially from the results anticipated in the forward-looking statements include, among other things: our ability to successfully continue to originate and execute large services contracts, and construction and project risks generally; the level of production-related capital expenditure in the oil and gas industry as well as other industries; currency fluctuations; interest rate fluctuations; raw material (especially steel) as well as maritime freight price fluctuations; the timing of development of energy resources; armed conflict or political instability in the Arabian-Persian Gulf, Africa or other regions; the strength of competition; control of costs and expenses; the reduced availability of government-sponsored export financing; losses in one or more of our large contracts; U.S. legislation relating to investments in Iran or elsewhere where we seek to do business; changes in tax legislation, rules, regulation or enforcement; intensified price pressure by our competitors; severe weather conditions; our ability to successfully keep pace with technology changes; our ability to attract and retain qualified personnel; the evolution, interpretation and uniform application and enforcement of International Financial Reporting Standards (IFRS), according to which we prepare our financial statements as of January 1, 2005; political and social stability in developing countries; competition; supply chain bottlenecks; the ability of our subcontractors to attract skilled labor; the fact that our operations may cause the discharge of hazardous substances, leading to significant environmental remediation costs; our ability to manage and mitigate logistical challenges due to underdeveloped infrastructure in some countries where are performing projects.

Some of these risk factors are set forth and discussed in more detail in our Annual Report. Should one of these known or unknown risks materialize, or should our underlying assumptions prove incorrect, our future results could be adversely affected, causing these results to differ materially from those expressed in our forward-looking statements. These factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. The forward-looking statements included in this release are made only as of the date of this release. We cannot assure you that projected results or events will be achieved. We do not intend, and do not assume any obligation to update any industry information or forward looking information set forth in this release to reflect subsequent events or circumstances.

This presentation does not constitute an offer or invitation to purchase any securities of Technip in the United States or any other jurisdiction. Securities may not be offered or sold in the United States absent registration or an exemption from registration. The information contained in this presentation may not be relied upon in deciding whether or not to acquire Technip securities.

This presentation is being furnished to you solely for your information, and it may not be reproduced, redistributed or published, directly or indirectly, in whole or in part, to any other person. Non-compliance with these restrictions may result in the violation of legal restrictions of the United States or of other jurisdictions.

Technip is a world leader in the fields of project management, engineering and construction for the oil & gas industry, offering a comprehensive portfolio of innovative solutions and technologies.

With 23,000 employees around the world, integrated capabilities and proven expertise in underwater infrastructures (Subsea), offshore facilities (Offshore) and large processing units and plants on land (Onshore), Technip is a key contributor to the development of sustainable solutions for the energy challenges of the 21st century.

Present in 46 countries, Technip has operating centers and industrial assets (manufacturing plants, spoolbases, construction yard) on five continents, and operates its own fleet of specialized vessels for pipeline installation and subsea construction.

The Technip share is listed on Euronext Paris exchange and over the counter (OTC) in the USA.