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Technip predicts industry challenges

LNG Industry,

Technip has recently announced that it anticipates a challenging environment in the oil and gas market which will accelerate its cost reduction and efficiency efforts worldwide.

Restructuring plan and reducing costs

In response to the downturn, The Group has launched a new restructuring plan and has begun to execute strategies aimed at reducing costs, in order to support itself through and beyond a possible downturn.

Technip hopes to save approximately €830 million, of which €700 million to be delivered in 2016 and the rest in 2017. This will, surface from its restructuring plan which will involve workforce reduction of approximately 6000 jobs, globally.

Trends have not improved

As noted in 1Q15, the sharp fall in oil prices has had a substantial impact on behaviour of Technip’s national and international clients. As these clients reassess their investment priorities due to the oil price environment, new projects will continue to be deferred. Furthermore, negotiations have and will be extended on contract changes and variations. According to Technip, trends, including the above, have not improved and, in some cases, have in fact worsened over the last two months.

Consequently, Technip has chosen to reduce 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 several different aspects.

Alongside reducing its workforce by approximately 6000, Technip will pursue the streamlining of its activities to focus on its core assets and activities.

Restructuring plan for onshore and offshore

A significant part of the restructuring plan addresses the recent unsatisfactory performance of Technip’s onshore/offshore segment. Reduction of its presence in some onshore and offshore markets, through sales or closures where profitable business is unlikely in Europe, Asia and Latin America will allow costs to be reduced in this area.

Technip has set aside appropriate sums for projects where disputes with clients regarding changes and variations, have occurred.

Furthermore, the Group will reinforce its investment in key geographic and technology areas where, for example, it has first mover advantage, such as FLNG.

Due to the above, Technip expects onshore/offshore to be more profitable in the 2H15, with adjusted underlying operating income from recurring activities reaching between €140 million and €160 million.

Restructuring plan for Subsea

Subsea operational performance continues to be solid and the Group has confirmed that this segment has outperformed initial expectations. Therefore, subsea cost reduction will be in those markets where new project awards are under pressure, for example the North Sea.

Original plans for fleet reduction would see two vessels sold this year, however, Technip will reduce its fleet further. The Group intends to take out a further two vessels, thereby reducing its fleet down to 23 vessels from 36 at the end of 2013.

Financial outlook for 2Q15

Full results for 2Q15 will be published on 30 July and will include the majority of the one-off costs mentioned above and some of the restructuring costs. In the 2Q15 publication, the Group expects adjusted underlying operating income from recurring activities onshore and offshore to be around €50 million whilst adjusted operating income from recurring activities in subsea work at over €240 million.

Comment from Technip

Thierry Pilenko, Chairman and CEO, commented: “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.”

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