Engineering companies braced for slight improvement

London – Engineering companies are picking up some encouraging signals from across the process sector, but going on their latest financial statements very few of the major players are betting on a significant upturn over the next 12 months.

Setting the trend, Foster Wheeler AG reported first-quarter earnings (EBITDA ), excluding special items, of $110.5 million, compared with $107.3m in Q1/09. Both of FW’s business groups showed “commercial and operating excellence” during the quarter, according to Raymond Milchovich, chairman and CEO.

FW’s Global Engineering and Construction Group reported a “very sound” level of new orders – driven in part by a large EPC contract in South Africa – a continued substantial level of scope backlog and a robust margin. New orders, however, were below 2009 levels.

The Global Power Group (GPG), meanwhile, reported a sharp improvement in booking and backlog figures, posting its best scope booking quarter since Q1/08 and its highest scope backlog level since Q4/08. New orders booked in Q1/10 were well above the prior year quarter, including three significant boiler orders.

“We are encouraged by signs of potentially improving markets,” Milchovich said. “In GPG, we are clearly seeing movement on certain prospects that have continuing interest in our highly valued CFB boiler technology - as evidenced by the sharp upturn in scope new orders in the first quarter.

“With this in mind, we believe that GPG is extremely well positioned to exit the year with an increase in backlog relative to the end of 2009. In our Global E&C Group, increased proposal activity suggests potential improvement in market conditions, particularly in Asia and Central/South America.”

In its plant construction business, Linde noticed a slight increase in demand in the first quarter of 2010 in the four major product segments: olefin plants, natural gas plants, air separation plants, hydrogen and synthesis gas plants. Incoming orders at EUR 502m, were nearly double the figure achieved in the prior-year period of Euro285m. Order backlog at 31 March was Euro4.281bn, exceeding a “very high” equivalent figure at 31 Dec 2009 of Euro4.215 bn.

Looking ahead, Linde expected growth in investment in the international construction of large-scale plants to come primarily from China, India and the Middle East during the remaining part of 2010. However, it added, given the continuing economic uncertainty, some project awards are likely to be postponed.

“It looks as if the worst is behind us. Towards the end of the first quarter in particular, we noticed a marked revival in demand,” said Wolfgang Reitzle, CEO of Linde AG – commenting on the performance of the industrial gasses and engineering group as a whole.

Technip’s chairman and CEO Thierry Pilenko, meanwhile, reported a “solid” order intake of nearly €1,340m. Orders, he said, included larger contracts - such as PMP in the Middle East - complemented by a wide range of small and medium-sized projects. Pilenko also noted activity increases in Canada and Brazil, while the FLNG pre-FEED work for Shell awarded last year was followed by a FEED contract for Shell’s Prelude field.

Looking forward, Pilenko said: “Competition remains intense in all regions but the volume of new business for later execution continues to show signs of picking up, including in the North Sea and Africa. Our clients seem determined to press ahead with projects whilst they continue to look for ways to reduce their project costs.”

For its part, Jacobs Engineering Group posted net earnings of $77.5m on revenues of $2.6bn for its second quarter of fiscal 2010 ended 2 April – compared to prior year equivalent figures of $109.3m and $3.0bn. Order backlog was $14.7bn, including a technical professional services component of $8.3bn, was slightly down on prior year levels ($16.6bn, and $8.1bn).

Craig Martin, Jacobs president and CEO, explained, “Our second quarter results are indicative of the slight improvement we see in many of our markets … While there remain significant uncertainties in the market, we are well positioned to capture early gains as the global economy continues to recover.”

Alongside the EPC sector, equipment supplier Atlas Copco reported significant order growth and a good operating margin in the first quarter of 2010, as demand increased from most customer segments and in all regions. Orders received reached new record levels in Asia and South America.

“We have seen a clear recovery in orders, both sequentially and compared to the low level 12 months ago, much as a result of our broad geographical exposure,” says Ronnie Leten, president and CEO. “The upturn was most pronounced for mining equipment, but demand for industrial and construction equipment also improved and we recorded double-digit order growth in all business areas.

“The general demand development was encouraging in North America and especially good in markets such as India, China, and Brazil, while Europe remains weak.”

Back in the engineering sector, CB&I reported first quarter net income of $42.2m on revenues of $869.3m. New awards totalled $560.2m for the quarter, representing a diverse portfolio in terms of size, project type and location. As of March 31, CB&I’s total backlog was $6.9bn and cash.

“We are pleased with first quarter results, particularly with our backlog performance, project mix, and strong margins,” said Philip Asherman, president and CEO. “Beyond our financials, we are also proud to have completed several major projects during the quarter including the Shell ethylene cracker in Singapore and the South Hook LNG terminal for ExxonMobil and Qatar Petroleum.”