Investor Presentation. September 2018

Transcription

1 Investor Presentation September 2018

2 DISCLAIMER Forward-looking statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of These forward-looking statements include statements regarding our plans, objectives, goals, strategies, future events, future financial performance and backlog information and other information that is not historical information. When used in this presentation, the words estimates, expects, anticipates, projects, plans, intends, believes, forecasts or future or conditional verbs such as will, should, could, or may, and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management s expectations, beliefs, and projections will be achieved. There are numerous risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from the forward-looking statements contained in this presentation. These risks and uncertainties include, but are not limited to: current or future economic conditions; our ability to obtain and perform under contracts from existing and new customers, including the U.S. Government; exposure to cost overruns, operating cost inflation and potential liability claims and contract disputes; access to trained engineers and other skilled workers; risks relating to operating through joint ventures and partnerships; risks inherent in doing business internationally; potential tax liabilities; maritime risks; changes in the demand for our services and increased competition; protection of intellectual property rights; risks associated with possible future acquisitions; risks related to our information technology systems; impairment of goodwill and/or intangible assets; reduction or reversal of previously recorded revenues; risks relating to audits and investigations, including by governments; compliance with laws and regulations, and changes thereto, including those relating to the environment, trade, exports and bribery; our creditworthiness and ability to comply with the financial covenants in our credit agreement; and other risk factors discussed in our most recently filed Form 10-K, any subsequent Form 10-Qs and 8-Ks, and other Securities and Exchange Commission filings. All forward-looking statements attributable to us, or persons acting on our behalf, apply only as of the date made and are expressly qualified in their entirety by the cautionary statements in this presentation. Except as required by law, we undertake no obligation to revise or update forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. 2

3 Business Overview Vision A leading global provider of full lifecycle professional services, project delivery and technologies supporting the Government Services and Hydrocarbons markets, creating exceptional value for customers, employees and shareholders. 3

4 Business Overview KBR At A Glance 1H 2018 Revenue 1H 2018 GP+EE (1) HS 27% HS 29% Tech 6% $2.3 B $244 M GS 67% Tech 15% GS 56% 40+ Countries 34,000+ People Government Services Technology Hydrocarbons Services serving government customers globally, capabilities that cover the full lifecycle of defense, space, aviation and other government programs and missions proprietary technology and solutions primarily focused on the monetization of gas in ethylene and petrochemicals; ammonia, nitric acid and fertilizers; oil refining and gasification serving blue chip oil and gas clients globally, with full lifecycle solutions of capital projects, O&M services, maintenance, program management and consulting services across onshore oil and gas, LNG/GTL, oil refining, petrochemicals, chemicals and fertilizers (1) Percentages exclude NSB. 4

5 Business Overview Core Capabilities Across Verticals Government Services Hydrocarbons Services Technology Science & space Engineering Consultancy & advisory Licensed technology portfolio Proprietary equipment and catalyst Consulting & advisory Program Management Major programs e.g. Deployed operations, PFIs Major programs e.g. LNG, Petrochemicals Project Delivery Logistics / theater opening capability Platform & mission support Security solutions Logistics FEED & detailed design Differentiated EPC/EPCm Operations & Maintenance Base operations support services Facilities management integrator Satellites and prepositioned stock Plant operations and reliability Predictive & proactive maintenance Turnarounds & shutdowns 5

6 Business Overview KBR s Transformative Journey Pre-Transformation FYE 2017 Technology Technology 5% 14% Cost Reimbursable, PFI & Services Contracts 57% 43% Fixed Price Non-Strategic Gov t Services 14% 13% 69% HS Gov t Services 29% 57% HS Technology Technology 1% 6% 17% Cost Reimbursable, PFI & Services Contracts 93% 7% Fixed Price Gov t Services 61% 32% HS Gov t Services 56% 27% HS CONTRACT MIX IN BACKLOG High proportion of cost-reimbursable contracts REVENUE Increased revenue streams from Government Services Adjusted EBITDA (1) Earnings from predictable, higher margins Note: Pre-Transformation period as of FYE FYE 2017 is pro forma for SGT and Aspire acquisitions. (1) Excludes Non-Strategic Businesses and is shown prior to the impact of Corporate / Other expenses. 6

7 Business Overview KBR Backlog $13.2 $13.5 $1.7 $2.1 Hydrocarbons Services $10.6 $10.3 $10.3 $10.6 $0.4 $0.6 Technology $2.6 $2.1 $1.9 $1.8 $0.3 $0.3 $0.2 $0.4 $11.1 $10.8 Government Services $7.7 $7.9 $8.2 $8.4 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Note: Includes KBR share of unconsolidated JVs 90% of earnings for 2018 is secured in backlog Majority of KBR backlog is currently associated with long-term, reimbursable, PFI and/or service contracts with a lower risk profile and more predictable cash flows >70% of 1H 2018 revenues derived from lower risk, more predictable GS and Technology businesses Higher proportion of HS from services and reimbursable projects GS backlog excludes unexercised options and ID/IQ and MATOC contract values not yet under task order Current estimate of $4.3B in additional potential value as of June 30,

8 GOVERNMENT SERVICES OVERVIEW 8

9 GS Overview Business Overview Global scale through over 60 domestic and over 40 international locations Highly technical and professional services from Wyle, HTSI, and SGT Mission support and logistics from heritage KBR and HTSI 2018 Revenue Profile Critical Differentiators Diverse Customer Base Diverse Funding Streams EMEA & APAC 36% Domain expertise Mission critical services US Department of Defense UK Ministry of Defence RDT&E Operations & Maintenance 64% US Large scale & complex environments Dedicated client delivery model Australian Department of Defence NATO / NASA OCO NASA Est. $3.7 B Expected Revenues* 2018 Other government entities International *Includes KBR share of unconsolidated JVs 9

10 GS Overview GS Today Greater Balance International Pro Forma Revenue by Funding Streams (1) 34% NASA & Other US 22% 15% 15% OCO 14% RDT&E O&M DoD Double digit organic growth in 1H 2018 Well-balanced government services portfolio across domestic and international funding sources Expanded technical and professional sustaining services across NASA, RDT&E and O&M International PFIs provide stability and predictability over a long time horizon Highly technical and professional services across multiple customers, diverse and recurring funding streams, primarily through long-term reimbursable contracts that span the procurement lifecycle revenues; includes KBR share of unconsolidated JVs. Pro Forma includes Aspire and SGT in the International and NASA buckets, respectively. 10

11 GS Overview GS Capabilities Recognized leader in mission operations and logistics for the world s most challenging environments Leading maintenance provider of prepositioned stock for US Army and US Marine Corps 20+ years as a leading provider of expeditionary support services GLOBAL LOGISTICS & MISSION SUPPORT Leading Systems Engineering and Technical Assistance (SETA) provider to US Army Aviation and US Navy 35+ years of Advisory & Assistance Services to US Army Missile Defense programs and US Navy aviation platforms Largest independent flight test organization in the US Leading life sciences provider to NASA; supported every US Astronaut since years of pioneering space engineering and operations Key provider of award winning, high value civil and defense services (e.g. mission operations, science, and IT) ENGINEERING SCIENCE & SPACE UK Army largest ever UK MoD PFI contract (Aspire Defence); contract through 2041; includes Army 2020 UK RAF groundbreaking complex, 18-year PFI (MFTS) awarded in 2016; provision of 38 new training aircraft UK Army HET 23-year PFI contract including sponsored reserves; contract through 2024 COMPLEX PFI 11

12 $ Billions GS Overview Outlook: Strong Growth Strong 2018 US Government Budget Emphasis on technology innovation and space-based capabilities across civil, military, and national security programs Defense spending increase across multiple funding streams UK and Australia governments committed to increase defense spending to 2% GDP with a focus on intel, simulation, naval engineering, security and contingency operations 800 US Defense vs. Non Defense Discretionary Spending Projections $21.5 $21.0 NASA Budget 700 $ Defense Non Defense $20.0 $19.5 $19.0 $18.5 $ Target Gross Profit Margins including Equity In Earnings: Upper Single Digits % 12

13 GS Overview Segment Financial Targets Revenues 2018 thru % CAGR Revenue CAGR 5 8% Breakout GP+EE Margins Upper single digits % Segment Operating Income Margins Upper single digits % 5 8% 5 8% CAGR Target Segment Operating Cash Flow Conversion % of Net Income Revenue Synergies $300M+ annual run rate by 2020 Target reflects stable and consistent base business 2018 Breakout Growth Drivers 2019 thru 2021 Increased global deployment tempo driving OCO spend Humanitarian or disaster relief support needs Secure LOGCAP V 13

14 TECHNOLOGY OVERVIEW 14

15 Technology Overview Business Overview Global business providing technologies, equipment, catalyst supply and knowledge-based services ~35 Technologies in the current portfolio Serving refining, petrochemicals, specialty chemicals, gasification, ammonia and fertilizer markets Expand Technology Portfolio Increase Scope Offerings Expand Geographically Catalyst 2018 Revenue Profile 9% Alkylation Isomerization Polycarbonate Brownfields & revamps PEQ, catalysts and solvents Advanced automation and Prioritize sales efforts in growth markets (Russia, China, Middle East) Proprietary Equipment 27% 64% License & Engineering Mega Nitric Acid Mega Ammonia GVA digitalization Technical services Expand consulting presence in Middle East and Asia Est. $0.3 B Expected Revenues

16 Technology Overview Capabilities Broad Range of Technologies and solutions from Wellhead to Specialty Chemicals All markets Refining ROSE VCC FCC, MAXOFIN, MAXDIESEL Hydroprocessing Advanced Distillation K-SAAT MAX-ISOM Aromatics Extraction Olefins SCORE K-COT Chemicals Phenol/Acetone BPA Polycarbonate PVC Acetic Acid Vinyl Acetate Monomer NExOCTANE, NExETHERS Ammonia and Syngas Ammonia Weatherly Nitric Acid Weatherly Ammonium Nitrate, UAN Syngas, Coal Gasification Inorganics Ecoplanning Evaporation & Crystallization Purified Phosphoric Acid Fly Ash Crystallization Metal Sulfates recovery Plinke Acid Treatment High concentration separation and recovery Nitration of Benzene Proprietary Equipment & Catalysts Internals Specialized service Proprietary design Proprietary catalysts Automation and Process Technologies InSite Performance Monitoring OTS, OMS Technical Services Proprietary Technologies 16

17 Technology Overview Outlook: Strong Growth Increased demand for petrochemical technologies in feedstock advantaged territories (i.e. North America, Russia & Middle East) and in strong consumer markets (China & India) Increasing demand for niche refining technologies with changing maritime fuel specifications and regulations Strong demand for new & revamp projects in response to improving market fundamentals Poised to deliver consistent growth and high earnings Target Gross Profit Margins: Mid Twenties % 17

18 Technology Overview Segment Financial Targets 2018 thru 2021 Revenue CAGR GP+EE Margins Segment Operating Income Margins Segment Operating Cash Flow Conversion 7 10% Mid 20s % High teens % of Net Income Technology delivers growth and balance in earnings at relatively low risk with potential for selective HS pull-through 18

19 HYDROCARBONS SERVICES OVERVIEW 19

20 HS Overview Business Overview 2018 Revenue Profile One of the world s largest and most comprehensive providers of professional services and projects to the Hydrocarbons industry Other 14% 10% Upstream Premier project management and major project delivery contractor Complete maintenance and industrial services through the Brown & Root brand Downstream 42% 34% LNG Diverse customer base Tier 1s Predominantly gas facing including a leading position in Olefins, Ammonia, LNG, Petrochemicals & Chemicals Est. $2.3B Expected Revenues* 2018 *Includes KBR share of unconsolidated JVs 20

21 HS Overview HS Today More Services, More Predictable Revenue Distribution by Contract Type (1) Backlog by Contract Type (1) 44% Lump Sum EPC 74% Services 56% 26% Project Delivery Services, Maintenance and Reimbursable EPC Contracts Growing proportion of contracts in professional services through cost-reimbursable and long-term contracts providing stability in revenues and consistency of earnings Revenues and Backlog; includes KBR share of unconsolidated JVs 21

22 HS Overview HS Capabilities UPSTREAM LNG DOWNSTREAM INDUSTRIAL SERVICES Fixed Platforms Liquefaction Refining Maintenance Floating Platforms Regasification Petrochemicals Modifications Hulls, Moorings & Risers FLNG Chemicals & Specialty Chemicals Asset Integrity SURF FSRU Ammonia & Fertilizers Specialty Welding Onshore Turnarounds & Shutdowns Shale Scaffolding Leading provider of know-how, services and projects for the world s most challenging oil & gas environments Recognized leader in LNG with over 50 years of continuous experience with access to all the leading LNG technologies Delivered world-class solutions in downstream including more than 65 grassroots refineries, 35% of world s Ammonia plants and 20% of world s Olefins Full service capability in North America, Europe, Russia and the Middle East with an average tenure of over 18 years and tenure on some sites of more than 40 years 22

23 HS Overview Outlook: Positioned for CapEx Recovery Strong market fundamentals in North America, Russia and Middle East producing increased opportunities in greenfield and brownfield projects Continued focus on brownfield expansion and maintenance services Mid-term LNG supply / demand rebalancing indicates recovery in LNG bidding and front end engineering; oil price stability signals possible inflection point Brent Crude Prices Global LNG Supply / Demand Target Gross Profit Margins including Equity In Earnings: Mid to Upper Single Digits % 23

24 HS Overview Segment Financial Targets Revenues Revenue CAGR 2018 Down 5% to Flat 2019 thru % % CAGR Breakout GP + EE Margins Segment Operating Income Margins Segment Operating Cash Flow Conversion Mid to upper single digits % Mid to upper single digits % % of Net Income 10 15% CAGR Target Growing base business, breakout growth opportunities represent significant upside potential thru 2021 Breakout Growth Drivers Second North American downstream wave (embryonic) Feedstock advantage driving LNG export in North America (ongoing) National government requirements for program management for complex projects (US and Middle East infrastructure) Middle East increased spending driven by socio economics Quicker CapEx spending recovery 24

25 FINANCE STRATEGY, TARGETS AND CAPITAL ALLOCATION 25

26 Financial Overview Financial Strategy Grow Profits Strengthen Business Acumen Emphasize Financial Discipline Promote growth and scale Lean back office and heavy BD Evolve to higher margin work Commercial discipline & selectivity in Hydrocarbons Cash is King mindset Maintain low cap intensity Cash flow-focused contracts Incentives & accountability 1 Invest in growth markets 1 Attractive regular dividend 1 Maintain targeted leverage 2 2 Synergistic, accretive M&A 3 Buybacks with excess cash Near term Focus to De-Lever 26

27 Financial Overview Targets & Potential Long-Term Targets Breakout Potential thru thru 2021 Revenue 1 Growth Rate 3 5% 5 10% CAGR Revenue 1 Growth Rate 3 5% % CAGR Net Income Growth Rate % % CAGR Net Income Growth Rate % % CAGR Operating Cash Flow Conversion ratio % % Operating Cash Flow Conversion ratio % % 1. GAAP revenues 2. Legacy legal costs excluded 3. Growth over 2017 after adjusting for PEMEX gain in Conversion ratio defined by Operating Cash Flow divided by Net Income attributable to KBR 27

28 Financial Overview Target Operating Cash Flow In $M In $M Annual $ M / year growing to $ M / year -- 1,400 1, A Target Range Cumulative 1, A ~$800M to 1B+ Deployable Operating Cash Flow $50 100M of CapEx 28

29 Financial Overview 2018 Earnings Guidance Increased Adjusted EPS guidance in 2Q2018 Good market fundamentals across the hydrocarbons and government sectors Adjusted EPS (1) Excludes Estimated Legacy Legal fees $0.07 Acquisition & Integration related expense $0.05 Amortization related to Aspire acquisition $0.07 Aspire gain on consolidation ($0.67) Full Year Guidance $ $1.50 Healthy backlog of lower risk projects allow greater selectivity on new projects Effective Tax Rate 22% - 24% Operating Cash Flow $125M - $175M (1) See Appendix for reconciliation from GAAP 29

30 APPENDIX 30

31 APPENDIX Reconciliations ($ in millions) 1H 2018 Net Income Attributable To KBR $ 180 Add Back: Interest Expense, Net $ 23 Provision (Benefit) for Income Taxes $ 52 Other Non-Operating Expense (Income) $ 3 Depreciation & Amortization $ 30 Consolidated EBITDA $ 288 Guidance FY 2018 EPS (diluted) $ $1.98 Add Back: Legacy legal fees $ 0.07 Acquisition & integration related expenses $ 0.05 Amortization related to Aspire acquisition $ 0.07 Aspire gain on consolidation ($0.67) Adjusted EPS $ $1.50 Add Back: Legacy legal fees $ 5 Acquisition & integration related expenses $ 4 Aspire gain on consolidation ($115) Adjusted EBITDA $ 182 Add Back: Non-strategic Business $ 2 Corporate $ 44 Adjusted Business EBITDA $