UPDATE 1-Technip expects weaker profitability at subsea business

Tue Dec 17, 2013 1:00pm EST

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PARIS Dec 17 (Reuters) - French oil services company Technip said on Tuesday it expected profitability at its subsea unit to fall next year, blaming delays in vessel maintenance and the start-up of a flexible pipe factory in Brazil.

Technip said it expected a subsea operating margin of at least 12 percent in 2014, down from around 14 percent in 2013, before picking up in 2015.

The group, which supplies pipes, platforms and equipment to energy producers, said it expected 2014 subsea revenue of between 4.35 billion and 4.75 billion euros, while sales in its onshore/offshore unit were seen at up to 5.7 billion euros.

"Before a substantial improvement from the second quarter onwards, subsea operating margins will be exceptionally low in the first quarter 2014 at around 5 percent," the group said in a statement. "This enables us to set as a floor an operating margin of at least 12 percent for the year as a whole."

The forecast is likely to deepen concerns among investors that slowing investment by oil majors is making life harder for equipment and service suppliers.

Shares in European oil services firms sank on Tuesday after French seismic surveyor CGG cut its profit target, citing customers pushing back major orders.

Technip shares closed down 4.5 percent before its announcement, underperforming a 1.2 percent decline in the French CAC 40 index of blue-chips.

A Paris-based trader said the expectations for Technip's subsea division looked very poor.

"The margin is seen at at least 12 percent, while the consensus was for 15 percent, which will have to be cut now," the trader said. "After CGG today, you can expect another hit in oil services tomorrow."

For 2015, Technip expects an overall margin - operating profit as a percentage of sales - of between 15 and 17 percent in its subsea unit, on revenue "well above" 5 billion euros.

At its onshore/offshore unit, Technip said it saw revenue of 5.4-5.7 billion euros next year and modest growth in 2015, with operating margins of about 6-7 percent in the next two years.

Analysts have on average expected full-year 2014 sales of 10.5 billion euros and an EBIT margin of 9.9 percent, according to a Thomson Reuters I/B/E/S estimate.

Oil industry investors concerned about poor returns and costly projects have urged executives from big oil companies to return cash to shareholders and scale back investments, potentially hitting profits at their suppliers. (Reporting by Michel Rose; additional reporting by Blaise Robinson; editing by Tom Pfeiffer)

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