Philip K. Asherman - Chief Executive Officer, President and Supervisory Director
Chicago Bridge & Iron Company (CBI) Analyst and Investor Day Conference December 11, 2013 8:00 AM ET
Good morning. I would like to welcome everyone to CB&I's Investor Analyst Day. Before beginning today's presentation, the company would like to caution you regarding forward-looking statements. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding the company's future plans and expected performance, are forward-looking statements that are based on assumptions the company believes are reasonable but are subject to a range of uncertainties and risks that are summarized in the company's press release and the SEC filing. Though our forward-looking statements represent management's best current judgment as to what may occur in the future, the actual outcome or results may differ materially from what is expressed or implied in any such statements.
Now, I would like to turn the presentation over to Mr. Philip Asherman, President and Chief Executive Officer of CB&I.
Philip K. Asherman
Thank you. Let's give a hand to the Safe Harbor guy, that was the most elegant Safe Harbor statement we've ever had. I was afraid I was going to sound like Gomer Pyle after this guy, but that was great. But anyway, thank you for coming. We appreciate you being here this morning. And for those of you who came in the reception last night, I hope you enjoyed the presentation and the company.
I think we've got a great day for you today. It's going to be the same format, you get to meet the talent in the company. But before we get to all that, just want to share a few updates with you, a few facts and what we see for next year.
So certainly, with the combined companies, current market cap is bumping somewhere north of $8 billion. I think, as of yesterday, we were around $8.5 billion for a little while. Backlog, $24.5 billion, started the year around $25 billion. I think we certainly with the awards that we saw over the last week, we're probably going to be pretty heavy backlog going into next year. The characteristic of that backlog has been kind of interesting change as you know. When the company is much smaller, we've probably expend about 65% of our backlog every year. We've been moving towards more 50%. I think this year, we're probably going to run in the 35%, 40% of our backlog. So the characteristics of that backlog has changed.
Surely, the mix is quite different. We started around a 50-50 mix between international work and U.S. work, of course, with the big export work and some of the petrochemical work that we're seeing. That mix is going to be predominantly U.S., but still a pretty good balance between international work and U.S. work.
And of course, our risk profile, 50-50 seems to work well for us. Of course some of these bigger export jobs have a lot of fixed components to that. But generally, 50-50 is what we're going to see in our risk profile going forward.
50,000 employees worldwide. Again, 12,000 of those are staying in Peru and in Colombia right now, a lot of direct labor is involved in that. But those are all of our employees, we probably have 6,000 -- 7,000 to 8,000 people that are involved in engineering, almost home office activities. That also includes all our fabrication shop people as well as our construction employees. But again 50,000 people, if that's a metric that you follow, is probably a good sizing for us going forward.
And 125 years of experience next year. I've probably look like I've been around for most of those years, but I haven't. But next year is 125 years and really quite proud of that.
Safety, just a great result this year. 2012 with 0.01 on lost time accidents. This year, we're going to expand probably close to 135 million hours with lost time accident rates that are just incrementally higher than we saw in 2012. So as far as integration of the company, I think safety is one of the best metrics that we have this year. So hats off to all the people that you're going to meet with this afternoon.
Okay. No surprises here. When we look at the combined companies and the mix of work we had, certainly one of the strategic rationales is that we wanted a company that was certainly, of like industries, of like services, but very different in terms of commercial characteristics and attributes and, certainly, earnings potential. Although our Engineering and Construction business comprise about 73% of our backlog, it's about 35% of earnings. So that means we got 70% to 75% of our earnings coming from fairly predictable, fairly recurring, fairly lower risk types work going forward than just Engineering and Construction. But certainly, it's majority of our backlog. And for those of you on the webcast and who don't know our company, we're organized and we consolidate under these 4 groupings.
Of course, as a company, we pride ourselves in being able to provide virtually services from conceptual to technology. From FEED engineering, procurement, fabrication, construction, commissioning, decommissioning, certainly, are neutral jobs. I think the important thing here is that when you look at the capital market and the capital expenditures around the world, we have an opportunity to work on virtually every projects in the world, providing technology, providing pipe, providing tanks, providing EPC. So while we may not be a prime contract to the major job, chances are, we've provided something or have an opportunity to provide something to that work.
Our dream, however, is a little out of date, because what this does, it's a great illustration on our EPC work. Whether you talk about P&G or the gas condition in Papua Guinea, whether you talk about nuclear plants in Georgia, South Carolina and China, whether you talk about offshore work, FPSOs, it certainly covers that. What it really doesn't illustrate very well is the billions of dollars work that we do in our fabrication shops in our Steel Plate Structures. So we got to figure out some way to do this. I don't know how you show technology because we got so many capital projects that we're involved with all around the world that wouldn't be moving forward if it wasn't for our technology. But it's a good illustration just to show you the kind of broad diversity we have in our company, and you're going to hear about that today.
Somebody is doing the slides for me, thank you very much. Our key strategies, again, focus on continuing to capitalize on our global positioning in capabilities. We've always had a very strong international portfolio and certainly, the work in the U.S. has just been a great development for us with the acquisition.
Stability, I think we've always talked about a bandwidth of opportunity and operating margins for the characteristics of each company. I think going forward, those bandwidths still apply in terms of what we expect our technology, Engineering and Construction, Fabrication Services and certainly, Government Solutions. Where it really gets interesting is that going on this OxyChem work that we just announced last week where we blend all those things. Right? Where we blend technology, where we've got Fabrication Services. Because when you look at project profitability, then it's far more interesting. It's not just about the margin you get on EPC work, it's where you start looking at all those bands of profitable opportunities there. It becomes a project, then becomes just the vehicle in which to deliver profit to the company and to the shareholders. So we'll talk more about that as we go forward, because I think that's a very important concept to remember as we talk about projects, it's not just about engineering and construction for us.
Turning to growth, we've had a good track record with using acquisitions as our growth vehicle. I think you're going to see what the markets and our position, that we're going to see a lot of organic growth over the next few years and certainly, we'll take advantage of that. And again, we -- we're bottom line focused, we expect to deliver better margins than you'll see in the rest of our peer group because of our diversification, our structure.
Okay. I think in February, Ron talked to you about the 5-year capital allocation plan. Nothing's changed with that. Certainly, we have significant bank facility capacity. We have very manageable debt. We've got good term loans. We've got, certainly, great interest rates, we don't see any necessarily any need to prepay any of our debt on the acquisition. We need our capital to support strategic growth initiatives. As it says, we talk about needing to carry about $300 million, $400 million for operating cost. We're going to look for more opportunities to return it immediately to the shareholders if we have an opportunity as we go through this year in terms of repurchasing or other -- or dividends or other ways. So we'll be working on that. Deliver value to shareholders between our flexibility through share repurchase and certainly our quarterly cash dividends, which I know the yield is a little out of whack, so we're going to try to fix that, so you'll understand that. But certainly share repurchase, I think, is going to get more robust as we go through this year.
Ah, our guidance. We got to that pretty quick. All right, everybody bow your head, get your device out. So 2000, we're going hit the ranges, we'll come up with, but this is going to be a good year and so we're going to be with our range, 2013. 2014, certainly with backlog growth, our margins, our project mix, our tax rate, probably our tax rate is going to be a little higher this year, we've been averaging anywhere from the low side to 26, the high side of 32, it's probably going to be on the high side of that, because of the concentration of U.S. work going forward.
Our SG&A is really performing well. I think we're somewhere south of 4, we're probably looking at 3.5%, 3.7% going forward, which is I think pretty good. I think if you look at our pro forma there, on our proxy when we did the acquisition, I think we're doing better by about $100 million than what we've put in our proxy on Boston [ph], certainly double-digit growth, even at the low-end of the range, we're going to show significant growth in earnings.
And for the 2014 guidance, for revenue, we're going to guide revenue and EPS this year. Revenue, we're seeing $12.6 billion to $13.2 billion in revenue, and a little broader range for $4.80 to $5.65 on the high end. So, and of course, the accountants would tell you that I have to put that qualifier on there about adjusted earnings, excluding anticipated acquisition cost. But that's a good range.
I think the sensitivity in that range has to do with some things like noncontrolling interest, which you may need to look at because we've got so many joint ventures and different collaborations, but amortization is a little bit higher than last year, but I think that's a good plan, we've done our preliminary planning for next year, so I think that's a pretty good range.
So we're going to let Andy do the -- then I can trade in questions, Andy. We'll let Andy do the new award and guidance for us in the future, but -- no, we're not -- we're going to discontinue guiding for new awards for the year. We'll talk about it through the year. Yes, Andy is asking if backlog is going to grow. Obviously, as we get to those EPS numbers and you're going to have to grow backlog, so we certainly anticipate that.
Right, we're going to take your questions, save your questions for the wrap-up. I think all -- most of you have been here on previous years, so you know the drill. You've got A, B, C, D groups, we'd ask you to follow that trail, if you will, and try no to hang around for 2 sessions and then we're going to reconvene in here, I'm going to have a panel of all the people that you met and so, all the questions that you didn't get the chance to ask either this morning or during the breakout sessions, we'll do it -- we'll answer those at lunch time.
So Christi, did I leave anything out? All right. So with that, we'll adjourn and we'll let you get to the first session. Thank you for your attention.
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