Material price increases and delivery delays hit Technip
Posted: 01 May 2006
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Describing the entire oil and gas chain as “overheating”, Technip told its shareholders that many of its contracts have been hit by raw material price increases and equipment delivery delays.
“The overheating of the oil and gas chain is a mixed blessing for contractors: on the one hand it generates a high level of activity and leads to better contract terms and conditions. On the other hand, it has led to a continuing increase of raw material and equipment prices, stretched construction and installation capacities and longer equipment delivery lead times. This should make 2006 a year of growing uncertainties,” the company said.
Technip said: “The expected significant increase of the company’s revenues should negatively impact the improvement of the Group’s annual operating margin ratio as the Group’s cautious margin recognition policy translates into little or no margin recognised on projects during their early phases of execution.
“Furthermore, many of the contracts being completed in 2006, especially in the Onshore Downstream segment, have been hit by raw material price increases and equipment delivery delays. Finally, contract closure negotiations with clients are becoming more difficult in the face of large project cost increases.”
For the first quarter of 2006, the Group expects that, on a year-on-year basis, revenues will be up approximately 30% and operating income will be down due to the Onshore Downstream segment. Order intake should reach approximately
EUR 1.6 billion, mainly due to the Qatargas III and IV contract which came into force. As a result, the backlog at March 31, 2006 should again be close to EUR 11 billion. The Group’s net cash position at the end of March should be about EUR 1.3 billion following the conversion of convertible bonds into shares.
Daniel Valot, Chairman and CEO, said: "Market conditions in our business remain positive, with high growth expected in business segments where Technip is well positioned: deep offshore, LNG, GTL, monetization of heavy oils, refining and petrochemicals. Paradoxically, these global conditions are also generating cost pressures and equipment delivery delays as well as straining construction sub-contractors capacities, all of which are combining to significantly increase contract execution risk.”
Posted by Editor Pipeline Magazine
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