Technip Energies N.V. (OTCPK:THNPY) Q3 2022 Earnings Conference Call October 20, 2022 7:00 AM ET
Company Participants
Phillip Lindsay – Head of IR
Arnaud Pieton – CEO
Bruno Vibert – CFO
Conference Call Participants
Kate O’Sullivan – Citi
Jean-Luc Romain – CIC Market Solutions
Mick Pickup – Barclays
James Winchester – Bank of America
James Thompson – JPMorgan
Oystein Vaagen – Fearnley Securities.
Operator
Good afternoon. This is the conference operator. Welcome and thank you for joining the Technip Energies Third Quarter 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Phillip Lindsay, Head of Investor Relations. Please go ahead, sir.
Phillip Lindsay
Thank you, Judith. Hello to everyone, and welcome to Technip Energies’ financial results for the first-nine months of 2022. On the call today our CEO Arnaud Pieton; and our CFO, Bruno Vibert will present our business and financial highlights, as well as the outlook. And this will be followed by Q&A.
Before we start, I would like you to take notes of the forward-looking statements on Slide 2.
I will now pass the call over to Arnaud.
Arnaud Pieton
Thank you, Phil. And welcome everyone to our financial results presentation for the first-nine months of 2022. Before I discuss the highlights, let me begin with a few words on the very positive market outlook for Technip Energies. The world requires an energy system that balances affordability, availability and sustainability.
As such, there is an urgent need for increased investment and accelerated project development, with particular emphasis on natural gas, LNG and low-to-zero carbon solutions. And let’s not forget the critical need to decarbonize traditional industries, the theme we highlighted on our first half results call, alongside key awards in carbon capture.
For Technip Energies, this market reality is evidenced by two key trends. First, we see strong TPS order intake in Q3, driving a 60% — 60% step change in segment backlog year-over-year with notable awards in renewable fuels and ethylene. This reinforces the revenue growth trajectory of our highest margin segment.
And second, there has been a material growth in our commercial pipeline for Project Delivery since we presented our full year outlook in March, with substantial early engagement in energy transition prospects, including LNG, as well as decarbonizing traditional markets. Therefore, we expect a significant improvement in order intake trends over the next 12 to 18 month for our longer cycle segment.
Turning now to the highlights. Third quarter revenues and EBIT were robust, further strengthening the year-to-date performance. Revenues for the underlying business, excluding Arctic LNG 2, grew by more than 20% year-over-year. On a full company basis, revenues at EUR4.9 billion were essentially flat with a decline in contribution from Arctic LNG 2, almost fully offset by activity growth on other ongoing projects.
We posted strong EBIT margins of 6.9%, which are in line with the medium-term trajectory we set for the company at inception. At this stage of the year and in the context of our orderly exit from Arctic LNG 2, it is now appropriate that we return to full company guidance, which Bruno will discuss later.
Finally, nine-month of our orders of EUR2.7 billion are 55% weighted to TPS, reflecting the very strong momentum for this segment. In contrast, we see a strong recovery of Project Delivery orders ahead of us.
Now, I would like to update you on Arctic LNG 2. Our orderly exit is progressing and we have demobilized all operational personnel from the project. We have signed an Exit Framework Agreement with our customer, which we are currently implementing and we anticipate completing this process within the first half of 2023.
In light of this, the remaining backlog on the project has been slightly reassessed in the quarter and stood at EUR890 million at the end of Q3. We reconfirm that we do not expect any negative net financial exposure as a result of our exit from Arctic LNG 2.
Turning to the operational highlights. Our teams continued to demonstrate robust business execution. And I would like to express my gratitude for their performance and dedication in difficult circumstances. We have continued to make strong progress across the portfolio, delivering project milestones and activity outside of Russia increased as planned over the quarter.
The strength in margins demonstrates the quality of the underlying portfolio and improving mix, including growth in TPS, and sustained excellence in Project Delivery. Overall, our performance year-to-date and improved visibility underpins our full year outlook.
Now let’s take a look at key recent awards and how we continue to position the company for an increase in order intake across strategic markets. In ethylene, we booked a large proprietary equipment order for Project 1 for INEOS in Belgium. This award follows our early engagement work including the selection and licensing of our proprietary technology earlier this year.
The cracker design utilizes our latest technology enhancements to achieve a CO2 footprint at least 50%, — 50%, lower than the best existing facilities, and the furnaces are modularized and designed to transition to 100% hydrogen firing in the future, in addition to the plant being carbon capture ready. I will revisit the exciting market potential for ethylene in my outlook section later.
Our broad offering in clean hydrogen markets achieved notable successes this quarter. This includes the first license sale for our proprietary Blue H2 by T.EN solution to decarbonize the petrochemical plant in South Korea. And in Australia, a green hydrogen project for Yuri, which consists of a 10 megawatt electrolysis plant for Phase 0. This will generate green hydrogen, which will be used to produce green ammonia.
In addition, recent announcements indicate our involvement in green hydrogen project of industrial scale in excess of 100 megawatt of capacity each. Elsewhere in the portfolio, we have secured access to other opportunities through front end engagement with key studies in a number of markets, including LNG and floating offshore wind.
And finally, we continue to invest and strengthen our position in technologies and the markets of the future. During Q3, our partnership with Swiss sports brand On, LanzaTech and Borealis announced CleanCloud, the first ever shoe that uses carbon emissions as raw material. The process included the application of our Hummingbird technology to produce bioethylene and we look forward to working with the R&D team to scale up and industrialize this solution.
And in line with our strategy to expand our plastic circularity portfolio, we entered into a cooperation agreement with APChemi for advanced plastic Waste-to-Olefins technology. Here, we will contribute our ethylene expertise and proprietary purification technologies to commercialize a process for the chemical recycling of plastic waste.
So in summary, a very positive quarter for orders, notably in TPS where our Q3 book-to-bill was 2.8, and several promising seeds planted for the future.
I will now pass over to Bruno to discuss the financial highlights.
Bruno Vibert
Thanks, Arnaud, and good afternoon, everyone. So turning to the highlights of our financial performance for the first-nine months. Adjusted revenues were flat year-over-year at EUR4.9 billion. This included around EUR1 billion from Arctic LNG 2. Revenues excluding Arctic LNG 2 increased by 23% year-over-year and TPS growth year-to-date is 6%.
Adjusted recurring EBIT was EUR336 million, equating to a margin of 6.9%, a 60 basis point increase versus the first-nine months of 2021. This was due to strong project execution and margin expansion in TPS. I will come back to that in more detail on the next slides.
Bottom line is very strong with adjusted net profit 40% higher than the prior year at EUR223 million, benefiting from the growth in EBIT, lower net financial expenses and the absence of transaction costs that impacted last year’s results.
Adjusted order intake was EUR2.7 billion with EUR1.1 billion booked in Q3. Book-to-bill on a trailing 12 months basis has trended up versus mid-year and is expected to improve further in the coming quarters. Net cash at period end was EUR3.3 billion, again up versus H1 position. In summary, despite the challenging external environment, the collective performance of our teams is continuing to yield strong results.
Turning to guidance. With three quarters of the year behind us and improved visibility on our exit from Arctic LNG 2, it is appropriate to return to full company guidance for 2022. We expect full year revenues in the range of EURR6.2 billion to EUR6.5 billion, clearly supported by backlog scheduled for the fourth quarter. We see adjusted recurring EBIT margins of between 6.7% and 6.9%. This is broadly in line with the year-to-date performance and is above the 6.5% achieved in 2021.
Our expectations for effective tax rate remained at 28% to 32%. And I should point out that this guidance is consistent with the prior financial framework, which as a reminder, excluded the contribution from Arctic LNG 2. While it’s obviously too early to provide any firm financial guidance for 2023, there are several building blocks to consider when estimating our top line. We have EUR4.5 billion in hand for 2023 as per the backlog schedule.
Future orders in both segments will also contribute to the top line, and as we implement our exit from Arctic LNG 2, there will be some residual revenue contribution from there. On margins, as we have previously mentioned, sustained margins will be delivered through effective cost based management, strong project execution and the growth from TPS activities. All this is supported by the execution and materialization of our strategy.
Turning to our segment reporting, and starting with Project Delivery, where our first-nine months’ performance demonstrates robust business execution. Revenues were modestly down year-over-year, with a significant decline in contribution from Arctic LNG 2, largely offset by 30% growth in the underlying portfolio, as major LNG and downstream projects ramp up.
Segment-adjusted EBIT was EUR280 million, equating to a margin of 7.2%, up 80 basis points year-on-year. Margins benefited from a strong contribution from LNG and downstream projects in the latter stages of completion. Excluding Arctic LNG 2, the margin was in line with the overall performance at 7.3%. This demonstrates the quality of our underlying portfolio, the maturing mix and strength in execution.
It also underpins our confidence in the outlook for the remainder of the year and beyond. Trailing 12 months book-to-bill was 0.4, reflecting the absence of large awards in the period, but it is worth noting that this calculation includes significant revenues from Arctic LNG 2 over this period.
Backlog has declined 24% year-over-year to EUR11.7 billion, impacted primarily by the majority removal of Arctic LNG 2. Excluding this project, backlog is nearly flat, benefiting somewhat from favorable FX movements. While Arnaud will provide details in the outlook section shortly, we are confident that book-to-bill trends for Project Delivery will improve significantly in the coming quarters.
Turning to Technology, Products and Services. TPS continues to deliver strong financials with revenue growth of 6% year-over-year and EBIT improving by 13%. This growth was driven by higher PMC and engineering services activity, especially in the Middle East, and strong activity in renewable fuels and process technology, including licensing and competitive equipment, notably for ethylene and for PBAT, a biodegradable polymer.
EBIT margins improved by 60 basis points to 9.2%, benefiting from higher activity levels overall and a favorable mix, including process technology and advisory services. And this expansion has been achieved despite higher selling and tendering expenses to deliver our ambitions in future growth markets. TPS backlog, which has seen a huge 60% expansion year-over-year.
While Arnaud will discuss this in more detail later, we have benefited from sizable recent wins in renewable fuels and ethylene, as well as the strengthening of smaller awards in the third quarter. As such, trailing 12 months book-to-bill has improved to 1.4 from 0.9 last quarter, with a clear acceleration in this third quarter.
Turning to the other key performance items across our financial statements, and beginning with the income statement. R&D at EUR34.5 million is materially higher versus last year and consistent with our strategy for targeted investments to enhance our energy transition positioning.
Net financial expense at EUR7.2 million is down versus the H1 position. As I discussed last quarter, the rising interest rate environment around the world will benefit us, thanks to the large cash position on our balance sheet, and we see this in Q3 with higher interest income on our deposits. Finally, the balance sheet is largely unchanged versus the first half and remains very strong.
Let me conclude my part of the presentation by discussing cash flows. While the first-nine months performance shows continued strong free cash flow conversion, free cash flow at EUR122 million, included EUR153 million working capital outflow.
Net of working capital, free cash flow was EUR275 million and consistently strong, as we executed across our portfolio. Cash conversion from EBIT ex-working capital remains high and we continue to expect to deliver consistently high free cash conversion, net of working capital, in the 70% plus range in the medium to long term.
Regarding the potential impact from Arctic LNG 2, as we progress further on our orderly exit, we will experience some working capital and cash outflows as we close out purchase orders and subcontracts. But as previously mentioned, no net negative financial exposure is expected.
Below free cash flow, the key items include our maiden dividend of EUR0.45 a share, which was approved and paid in May for a cash outflow of EUR79 million, and EUR54 million related to share buyback. We ended the period with EUR4 billion of cash and cash equivalents.
I will now turn the call back to Arnaud for the outlook.
Arnaud Pieton
Thank you, Bruno. Turning now to the outlook, where our TPS portfolio is strengthening and our energy transition pipeline is expanding. Let’s first focus on TPS, which achieved significant backlog expansion of 60% year-over-year to EUR1.8 billion. The third quarter was notable for key awards in renewable fuels with the Rotterdam expansion services award for Neste and the ethylene proprietary equipment award for INEOS.
These two awards had a longer cycle dimension to the TPS backlog. In addition to this, TPS benefited from a well above average quarterly run rate of smaller technology and services awards that are shorter cycles and more booking term in nature.
As I’ve said previously, TPS is a strategic growth segment for Technip Energies and we continue to enhance our position in the value chain. Beyond ethylene, markets are supported, notably in decarbonization, clean hydrogen, and many other energy transition themes. Our increased R&D spend is focused on enhancing our technology portfolio and we continue to actively scout the market for suitable technology bolt-ons.
Turning to Project Delivery, where we see a further improvement in macro outlook and strengthening of the commercial pipeline. The energy sector is now entering a multi-year expansion phase, which is necessary to address energy availability and affordability. This is further supported by governments around the world, creating conditions for capital to be deployed in the pursuit of net zero goals, such as the Inflation Reduction Act in the U.S. and the REPowerEU plan for Europe. Against this backdrop, our energy transition commercial pipeline has expanded by 50% compared to the position at full year 2021 results.
Two main factors are driving this. LNG, where prospects are being reactivated at a pace rarely seen previously, and energy transition opportunities, excluding LNG, which are accelerating with a near doubling of the commercial pipeline since the start of the year. These trends fit very well with our strategy and are supportive of a sustained improvement in orders over the next two years. In summary, a very positive commercial outlook across the majority of our markets which is enabling us to deliver on our purpose, to engineer a sustainable future.
Turning now to ethylene. The market which is historically GDP-led has been — has seen a reduction in major new capital projects over the last three to four years due to new capacity coming online and recent economic uncertainties. But we are now seeing recovery in near-term market prospects, as well as structural drivers that will support the market through a recession scenario, and over the long-term. This includes regulation, such as the EU Packaging Directive, national and political economic agendas and refiners strategically expanding into petrochemical production.
In addition, we should not underestimate the drive for decarbonization, both to optimize the new infrastructure and to future proof existing production capacity. Our market position is very strong, Reinforced through the Stone & Webster acquisition back in 2012 and continuous investment in R&D programs, we have a robust technology position with more than 40% market share of licensing. This leadership position gives us a seat at the table for a high proportion of prospects and provides us with an early engagement tool to evaluate and select the right models. Sometimes these can be through pure licensing.
Alternatively, we can license and supply proprietary equipment, such as furnaces, as was the case for the recent INEOS award, where we can license technology, supply of products and secure the projects EPC, like we did for Borouge IV. Over the next decade or so, we see the market adding nearly 80 — 80 million ton per annum of ethylene capacity. With several prospects currently being assessed, we remain well positioned for additional awards in the coming quarters.
Finally, we are making substantial improvements to decarbonize the production of ethylene, including integrating CCS technology, firing hydrogen as a fuel, electrification and through circularity using feed from recycled plastics and we’re not done. Our sustainability drive continues through further R&D and open collaboration with partners as we develop the ethylene of the future.
In closing, we have delivered a robust performance for the first-nine months of the year. With these and improved visibility regarding our exit from Arctic LNG 2, we return to full company guidance for 2022. TPS orders in Q3 drove a step change in segment backlog, bolstering the growth potential in our highest margin segments, while the commercial pipeline for Project Delivery had expanded through higher energy transition and LNG opportunities.
T.EN’s business strategy is fully aligned to an improving energy market outlook. Supported by our strong balance sheet and commitment to further invest in technologies, we are well positioned to enable solutions for affordable, available, and sustainable energy. And we remain resolutely focused on generating value for our shareholders through effective capital allocation and sustained excellence and execution.
With that, let’s open the call for questions.
Question-and-Answer Session
Operator
Thank you. This is the conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Kate O’Sullivan with Citi. Please go ahead.
Kate O’Sullivan
Hello. Hi, there, Arnaud, Bruno, and Phil. Thanks for taking my questions. The first question is around Arctic LNG 2. You mentioned it really affected the backlog in the quarter, obviously increased by about EUR40 million, despite revenues. Could you provide some further color on the moving parts here? I’m looking for is, how we expect the Arctic LNG 2 backlog and revenues to move through the first half of ‘23 before you exit fully?
And then secondly, you talked about the — I can come back to my second question too.
Arnaud Pieton
Okay. Thank you, Kate. Actually, I will — yes, I will hand over to Bruno for the backlog question which is very interesting one. Thank you for asking.
Bruno Vibert
Yes. Hi, Kate. So in terms of backlog for the moving parts for Arctic LNG 2, as you know, we’ve entered discussions with the clients about our exit and we reassessed the scope of work which was being done there, and this led to some reduction in Q2. And obviously, as we continued our discussions, we slightly updated basically during the third quarter. This will be further adjusted as required based ongoing discussion with the client that will continue.
And just as we close out any projects, basically, we have a team mobilized, we will incur costs as we close out some contracts, we close out POs (ph), we transfer POs. And this cost of completion will also then in turn generate revenue that of the backlogs. So we will continue and make reestimates (ph). Some or part of this backlog mix will translate to revenue, but this will be further adjusted as we get along the process. As we said in this quarter’s release, we expect to be fully completed by the first half of 2023.
Kate O’Sullivan
Okay. Thank you, Bruno. And just second question, if I may, you’ve talked about the expanded energy transition opportunity set, but specifically on LNG and the North Field South Expansion in Qatar, could you provide any color on that bid process and timeline? I believe it’s a competitive tender but you obviously are the incumbent on [indiscernible]. Thank you.
Bruno Vibert
Yeah. Sure. Thank you. And indeed, we believe that there is significant investment that is still required for the years to come to ensure natural gas and LNG in particular as a key part of the energy transition. The NFS expansion of the project in Qatar is one we are competing for. So while we are the incumbent, you’re right to say that it’s a — it remains a competitive landscape. The calendar and the timing is unchanged in terms of the technical submission, which has taken place.
And in terms of the commercial submission, which will take place before — in all likelihood before year-end. And after that it’s really within Qatar Energy’s hands to decide on the FID. But the process is progressing and the study is ongoing, including the preparation of the future infrastructure and its, I would say, potential improvement in terms of the low carbon solutions, which we are very excited about because we have a major role to play in terms of the solution we can contribute. So I would say it’s a live process, which is pursuing its course, I would say, as planned.
Kate O’Sullivan
Thank you.
Operator
The next question is from Jean-Luc Romain with CIC Market Solutions. Please go ahead.
Jean-Luc Romain
Good afternoon. My question relates to LNG as well. We have seen the situation this year with lots of energy required. So far this year, finally, very few new FIDs in LNG. We are expecting NFS for next year and a couple of moment. How would you explain it’s so slow finally with the current prices which should maybe get the acceleration to be faster than that?
Arnaud Pieton
Yes, Jean-Luc. Good afternoon. And so, as you know about LNG, this is more of a long-cycle business and it can be sometimes challenging to truly compress FIDs and project durations. Now it’s not, for us, the lack of interest for new LNG projects. I think the landscape or part of the landscape may be shifting in favor of established LNG players, and this is why you are seeing the likes of Qatar Energy progressing with NFS and really why there is no massive acceleration.
I can tell you that there is indeed a higher pace to this prospect, but they are absolutely keeping the right course and they are on track for their FID decisions whenever they will decide. And it’s the same for other players in the UAE. We’ve seen, and you are aware of the fact that we signed the pre-FID agreements with a couple of developers in the U.S. So this — I mean we have seen no change of course in terms of our engagement with those players, and I think what we’re observing is a market that is now being driven by a strong interest for solutions that can be providing a faster-to-market opportunities, i.e., the modular designs.
And you know, we are well positioned when it comes to modular designs for LNG through the productization of the LNG infrastructure, through modularization. And I think what we’ve been observing is an acceleration of the interest for faster-to-market modular design that will particularly advantage those we will select this solution in the coming year. So there is no anxiety on our end in terms of the pace of new award.
You may recall that should 2022 had been a normal year without a war in Ukraine, we would have booked, in all likelihood, more orders in LNG for our clients in Russia. Obviously, this has not happened, it takes a little bit of time for the pipeline for us to — not replenish really, but for the remaining opportunities to convert or materialize, but it’s coming. So no anxiety from our end. And on the contrary, I would say a lot of optimism on the back of the faster-to-market modular designs that we are promoting.
Jean-Luc Romain
If I may ask an incremental question. On the other side of liquefaction change, there is re-gas and we all know that onshore re-gas plants may be secured, then you would have to use the gas for power plants. Would there be a way kind of to — re-gas to power, to accelerate the process for making electricity and maybe not being onshore?
Arnaud Pieton
You are talking about gas to power offshore solutions?
Jean-Luc Romain
Yes. For re-gas to power, for instance, I don’t know if there is research on that or whatever.
Arnaud Pieton
Yeah. We have actually teams who are working on a solution like the one you’re mentioning. And it’s an interesting theme, which has been going on for some time between us and our clients in the industry. I don’t have — we don’t have at this stage a clear line of sight of an opportunity that could convert in the future.
It is about differentiation and bringing the price tag at the right level for probably the kilowatt hour. So it’s work that is ongoing and we have teams mobilized working on some of these solutions, but too early to say if and when any of that could convert into real business opportunity. But indeed, it is a thing that is attracting interest.
Jean-Luc Romain
Thank you.
Bruno Vibert
If I may, what is the bulk of this may be further down the chain. Further, our business opportunities would be decarbonization of the gas to power plants. You remember we’ve been notified that Celsio waste-to-power, we are working on the concerned technology. So at the back of more projects from gas to power, we have the technology, we have the solutions for decarbonization. So almost more opportunities for us in the decarbonization agenda and on top coming up — obviously on top of the, basically, facility to re-gas.
Jean-Luc Romain
Thank you.
Operator
The next question is from Mick Pickup with Barclays. Please go ahead.
Mick Pickup
Good afternoon, everyone. A couple of questions if I may. Firstly for Bruno. Can I just check in the quarter? Obviously, it looks like you’ve had a very strong profitability quarter. Is that just because you know where the end of the project is now and you could hit milestones on that? That’s the first question.
Bruno Vibert
So, obviously — thanks, Mick. Obviously, Arctic was contributing, based on the discussions. And as I said earlier to Kate’s question, we will continue to work on our exit, executing the Exit Framework Agreements, and this will generate cost and revenues. Now, as you know, the project’s recent performance is not necessarily indicative of what its future contribution could be. Of course, it impacts the outcome of derisking, milestones, commercial close-out or project completion. So the Arctic close-out and exit will be just the same as every project.
So from our point of view, obviously, what’s important, Arctic is one project within our portfolio. It’s important not to consider just one single project in isolation. The project always will be driven by a portfolio approach. So a bit more Arctic, for instance, this quarter Yamal was significantly down in Q3 versus H1 highlight. So for Q3, Yamal’s contribution to the gross margin of Technip Energies was really quite low, quite immaterial.
So in other words, high Arctic, this multi — the current questions on Yamal LNG, kind of low Yamal. So Q3 is almost at the point where we invented a post-Yamal world. So what you will see unfolding in future quarters is, yes, some contribution from Arctic in revenues and bottom line, depending on some of the close-outs and of course, the ramp-up of the project and the project delivery, which will come into play for next year.
Mick Pickup
Okay. Thank you. And then, can I ask a question about last August (ph) press release with Shell CANSOLV, obviously you’ve been together for many, many years. What’s just prompted the closer collaboration and what exactly is it that you are putting together?
Arnaud Pieton
Yeah. Thanks, Mick. What prompted the communication? And I think that Shell have themselves communicated on the matter more recently, is basically the conversion of this collaboration into real commercial success and a long lead of prospects that we are currently pursuing and we are promoting and fronting, I would say this on behalf of Shell.
And we made the announcement because we basically strengthened the relationship, so — and formalize it in a way that it’s — the roots are going deeper in our respective organization in terms of collaboration and future commercial arrangements of who is getting what when deploying and promoting the CANSOLV solution for carbon capture at scale. So it is about officializing what the teams have been putting together and the traction we are experiencing around the world for the solutions that we will be deploying together.
Mick Pickup
Okay. Thank you. Cheers.
Operator
The next question is from James Winchester from Bank of America. Please go ahead.
James Winchester
Good afternoon, guys. Thanks for taking my call. So the first question is regarding the backlog cover, because last year if you kind of take the midpoint of guidance, you had about 93% coverage, if you kind of take the same time last year. Is there anything operationally which would mean this would be lower for 2023?
And then secondly, my final question, could you provide a bit of color on what project was the main driver for the accruals on completed contracts? I’ve noticed that it has increased from EUR50 million at year end ’20 to about EUR250 million at the end of the first half of ’22. And have you seen this unwind this quarter? Thank you.
Bruno Vibert
Hi, James. So thanks for your question. So if I take the first one on the backlog and the backlog cover, as I’d mentioned in my prepared remarks and for the buildup, obviously, we are today at EUR4.5 billion of backlog, which is scheduled for execution next year. Any project — it’s difficult to draw mere conclusions, historically, because you have moving parts. For instance, yes, we have a larger TPS award, which is slightly shorter cycle. Historically, we never had less TPS cycle. We also have more growth in PMC, where we don’t recognize the full benefits of the backlog and we basically inbound and make heavy news when we have firm service orders.
So it is difficult to draw on a conclusion at any point of time. But as you point out, the kind of the dynamic remains, the building blocks are the same. So, first, you start with the backlog which is in hand, EUR4.5 billion. There is obviously new orders to come in projects, in services in TPS in Q4, which will contribute to next year. There will be contribution also from new orders in 2023 for future execution already in 2023. Of course, the later we go into 2023, the later the contribution.
And on top of that, as mentioned earlier, we will have some contribution there from the remainder of the original component of Arctic LNG 2 as we perform the Exit Framework Agreement, which will generate some (ph) contribution. So these are the building blocks which I was trying to summarize in my prepared remarks and that will constitute basically the building blocks for 2022 revenues, which obviously will be integrated when we release guidance.
For your second part of your question related to completed contracts, that’s a technicality. So for some projects which are being completed — closed or continue to be as completed, some in the downstream, but also partly Yamal where we’ve had — basically we transferred then from when we completed the project from a technical operation from NCL to other liabilities, and as we have cost on us, they are released.
James Winchester
Okay. Thank you. So just to confirm, when they are released, would that be a cash impact or just kind of P&L?
Bruno Vibert
Can be cash or P&L, can be both depending on the outcome.
James Winchester
Okay. Thank you. Very clear. Thanks very much, guys.
Arnaud Pieton
James, I will — I think I’m going to stress something that Bruno mentioned a bit earlier about the way to consider Technip Energies and its portfolio. It is very important to continue to not look at a particular project in isolation from the rest of the portfolio. We are — and the performance of the Group is that of the result of these projects altogether. And we have at any point in time, Bruno said it, over 100 projects being executed, some in early phase, some in close-out phase, et cetera.
So we’re not going to make it, I would say, an official communication to describe what’s super-late and closing out et cetera, et cetera. It’s the portfolio performance that matters. And the same applies to Arctic, which is actually in a way entering into some form of a close-out phase. That’s what we’re signaling through the Exit Framework Agreement.
And at the end of the day, our shareholders will recognize EPS on a full company basis. And any dividend we will propose will be on the basis of the full company results performance, and not in isolation, looking at one or a group of projects away from the rest. And I think it’s a very important message that I wanted to convey on this call. And so, thank you for giving me the opportunity through your question.
James Winchester
Brilliant. Now that’s very clear. Thank you.
Operator
The next question is from James Thompson with JPMorgan. Please go ahead.
James Thompson
Great. Thank you very much for taking my questions. Just wanted to talk a little bit about TPS if that’s right. Obviously, a big pickup in the order book through the third quarter. I guess we’ve thought about this business as a sort of revenues being kind of 1.1, 1.2 times the order book at any one point in time. Should we expect that to continue at this kind of growth pretty quickly, or should we think about it as a sort of slightly longer-cycle business, as some of the projects in TPS or some of the workflows, I should say, in TPS get more significant in nature?
Arnaud Pieton
Hey, James. Good afternoon. So thank you for pointing out the strength of the backlog — of the strengthening backlog in TPS. The more we will enrich the portfolio of Technip Energies through productization, the more indeed there will be somewhat of a longer cycle. I’m not going to call it a long cycle because I don’t want to put TPS at par with Project Delivery, that would be a mistake.
It’s going to remain shorter cycle than Project Delivery, but there will be an element of longer cycle added to the short-cycle nature of the TPS business. So as you’ve observed and we’ve communicated this quarter, there is a very rich pipeline of opportunity that has materialized in the domain of ethylene in this Q in particular.
And in ethylene, we are coming with not only man-hours and capabilities of engineering or technologies and licensing, we are also coming with equipment, and that’s adding proprietary equipment, the furnaces, to name them. So this is adding, indeed, the long-cycle components to this — or the longer cycle component to this short-cycle business in nature.
The investments and where we are spending our money in R&D and in development — in the development of solutions for Technip Energies is indeed into more technology and more license, but also more technologies in order to generate more proprietary products. And this is a trend that you should expect for Technip Energies going forward.
And I will expect — I do expect that into 2023, we will communicate on more portfolio products now hitting the market and a different type of offering, and new solutions in the domains of green hydrogen, in the domains of carbon capture, which itself when you think about what we have — we are developing with — we shared on the CANSOLV technology and the joint promotion and marketing of it, there is an element of that that is going to turn to, I would say, a productization of the solution.
So that actually there is a faster time to market for who wants to decarbonize. So the more we continue to invest the way we are through technologies, in order to generate more proprietary technologies and equipment that we can sell alongside the engineering hours and the licenses, the more you will see, indeed, some of the longer-cycle color — painting or coloring, sorry, the TPS backlog. So it will remain a mix, but yes, indeed, probably a bit more products for the future.
And thanks to that, I think we can maintain, at least for the foreseeable future, somewhat the trajectory for the type of book-to-bill that we will be demonstrating in the future for TPS. It has been experiencing some growth. We’ve told you all that we wanted to continue investing for this growth and this will materialize in growing backlog, or in the backlog that is — that we believe can be sustained at the type of level that we’ve reached in the Q.
James Thompson
Okay. Thanks. And you’ve previously spoken about ambition to kind of take that business to a double-digit type EBIT margin. The types of work you are targeting here, will that get you there? Can you give us a view on when you might be able to get to that sort of level?
Bruno Vibert
I think, James, maybe I can start and then Arnaud can follow up. Obviously, it was too early for me to provide guidance for the full company. Let’s continue a bit — even earlier to provide guidance for, let’s say, segment split. But as you point out, and as Arnaud mentioned, we have the capacity to invest. We are trying to differentiate through technology more LNG.
We have the cash and sometimes it’s a recurring question, the cash balance, the available cash. What I can say with confidence is that we are very comfortably net cash positive, in the multi-hundreds. It will be growing, it will sustain, it will continue to grow, because as I said earlier, we have a very good EBIT to free cash flow conversion.
So what this means is beyond the dividend, beyond the deleveraging, if we want, this cash now and for the future can be put to good use for increased investments, I mean, accelerating the pace in investment, in R&D, in investment that we will make. And as we said earlier or previously, this investment will obviously target the TPS segment’s more solutions, more technology, that will be to sustain the growth, and as we sustain at 9.2, we have a double-digit in sight. How we get there and when I think it’s too early to tell.
James Thompson
Okay. Fair enough, Bruno. Just finally from me, obviously, last quarter you talked about winning EUR1 billion of pure energy transition work in 2022. How far along are you now and are you still confident of getting to that level by the year-end?
Arnaud Pieton
Hey James. We are — we’ve continued making our way into the EUR1 billion that we communicated last quarter, and we are at this time of the year, exceeding the EUR800 million mark — well, we’re well above EUR800 million. And so I think the EUR1billion mark or around EUR1 billion, that was something we communicated last quarter is well on the horizon. And we continue to book new projects, new studies and that’s always — I know we haven’t discussed that recently, but the quality and the quantity of earlier engagements basically drives the quality and the quantity of projects in the future.
And in energy transition, we’ve seen a very big acceleration — continuous acceleration in 2022 through studies, but also real sizable awards. The momentum has not slowed and that’s why we are talking today and we are well north of EUR800 million at this time of the year. So yes, we will — we should land around the EUR1 billion as we indicated at the end of the first half.
James Thompson
Right. Thank you very much. I’ll hand over.
Operator
[Operator Instructions] The next question is from Oystein Vaagen with Fearnley Securities. Please go ahead.
Oystein Vaagen
Hi. Thank you. I just have two questions. The first one is. if you looked at the 2023 backlog, you now have EUR4.5 billion scheduled. How much of this is coming out of the EUR1.8 billion TPS backlog? And second question is, if you kind of go back in time, if you look at the first quarter of 2021, you had around EUR17.8 billion backlog and you had contract liability of around 17% of that.
Now you have backlog of EUR13.5 billion and contract liabilities of EUR3.4 billion, which basically means that contract liabilities has gone from 17% to 25% of the backlog when the backlog has been, so-called, decreasing. Can you just explain some of the fair elements?
Arnaud Pieton
Sure. All right. Okay. You go, Bruno.
Bruno Vibert
Thanks, Oystein. So first, to cover your backlog question, as Arnaud was mentioning earlier for TPS, we have significant step-up, 60% backlog increase and that’s including a mix of things, including services, but also ethylene, which are somewhat with production with a bit of a longer cycle. So not splitting today, but yes, part of this one point — the step up in backlog for TPS will be included in 2022 revenues, not all of them, some will go, let’s say, beyond 2023.
What it means that the trajectory, what we said historically, is we wanted to target for TPS high-single digit, low double-digit growth. I think the materialization, the step-up in order intake and backlog is totally consistent with this trajectory. So you should have some comfort of this trajectory we’ve had. It won’t be done 100% next year, because it has, for some part of it, a bit of a longer cycle over that. So they will contribute. And, of course, new projects, new awards will further contribute as I mentioned earlier.
For your questions on the percentage, and maybe the balance sheet structure, which basically comes back to cash flows and our structure derived from the project. So if I take a step back and if I walk you through this kind of S-trajectory, as anticipated, we had some negative working capital movement in Q3 within the year.
And as we close out Arctic and the normal evolution of projects, you should expect also to see some small negative in Q4. If I take a further step back and if you take ’21 and ’22 view, obviously, you will still be in a very positive contribution. And as I said, more importantly, then going forward the EBIT to free cash conversion being high, we have — we should be at the 70% level.
Then for your structure, the balance sheet structure should not change drastically over the future and we feel it’s sustainable. So 2023 and beyond, and it’s not obviously a working capital guidance that I’m giving now, but the way you could look at it or you should look at it is, yes, projects in the later phase of completion, of close-out, do generate some slightly negative working capital impact and outflows.
And, of course, they are offset — partly offset, more than offset by the new streams of projects that are coming in. So as Arnaud was outlining, from a TPS perspective, from a project delivery perspective, we’ve had an increase in the amount of opportunities which will generate an increase in the book-to-bill and the order intake for projects. So as this come, basically, this will also replenish basically the working capital and the net contract liabilities.
So you should not expect to see a very significant and structural change to our balance sheet, which is the outcome of our discipline on cash flow — positive cash flow from projects, our disciplined contingencies (ph), non-linear marginal recognition, where we keep provisions for the risk as we — and we can release them as we derisk or execute the projects. So these things remain and the balance sheet structure of the company should remain.
Arnaud Pieton
Oystein, and thank you, Bruno, there is — when I think about the backlog for Project Delivery, complemented by the backlog situation on TPS, it’s basically giving you a very high percentage of secured revenue for 2023 because of the nature of the respective businesses, and it’s extremely comforting to be entering or to be ending soon 2022, knowing that we can rely on this very predictable and high level of known percentage of known projects and revenue stream, both in Project Delivery, but also in TPS.
And as Bruno has mentioned, for TPS, which is shorter cycle, there are more — I mean there are orders every week. So there is a natural short-term replenishment of the backlog at a high base because of the nature of the short-cycle business.
Oystein Vaagen
Understood. Many thanks.
Arnaud Pieton
Thank you.
Operator
Gentlemen, there are no more questions registered at this time, Mr. Arnaud Pieton, I turn the conference back to you for the closing remarks.
Phillip Lindsay
I’ll take that one, Ana. That concludes today’s call. Please contact the IR team with any follow-up questions. Thank you very much, and goodbye.
Operator
Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect.
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