KBR Inc (KBR) 2015 Q2 法說會逐字稿

Good day and welcome to the KBR second-quarter 2015 earnings conference call. This call is being recorded.

(Operator Instructions)

For opening remarks introductions I would like to turn the call over to Zac Nagle, Vice President, Investor Relations. Please go ahead, sir

Good morning and thank you for joining us for KBR's second-quarter 2015 earnings conference call. Today's call is also being webcast and a replay will be available on KBR's website for seven days at www.kbr.com. The press release announcing KBR's second-quarter results is also available on KBR's website.

Joining me today are Stuart Bradie, President and Chief Executive Officer; and Brian Ferraioli, Executive Vice President and Chief Financial Officer. During today's call, Stuart and Brian will cover KBR's results in more detail and discuss our market outlook by major segment. Please refer to the company presentation as posted on our website at www.kbr.com. After our prepared remarks we will open the floor for questions.

Before turning call over to Stuart, I would like to remind our audience that today's comments may include forward-looking statements, reflecting KBR's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ significantly from our forward looking statements. These risks are discussed in KBR's second-quarter earnings press release, KBR's earnings presentation, KBR's form 10-K for the period ended December 31, 2014, and KBR's current reports on Form 8-K. You can find all these documents at www.kbr.com.

Now I'll turn the call over to Stuart.

Thank you Zac and good morning. Turning to the first slide, we start every meeting as most of some of you have had this before with a safety moment. Today's no exception. We thought we would do something a little bit different. Our safety performance, we usually put up as a graph to show how we're traveling at. We're still continuing to improve year on year with 27% reduction in our recordable incident rate. But we're really trying to pass along safety and I thought it would be worthwhile sharing this photograph that's actually the granddaughter of one of our foremen on site in a KBR hardhat. The reason we use this imaging is really to make it a very personal thing in terms of looking after yourself and those around you. And of course the most important people in ones lives is generally their family. So I tried to make it very personal and take that sort of key value, not just apply it at the workplace but also take it home.

Moving on, just a quick summary of how the quarter has gone. Significantly improved from last year. Underpinned by strong operating performance across the projects. The two mega LNGs projects continued to perform well and as we reported last time, we expect them to continue to be contributors to earnings in 2015 and in 2016. We've announced that we have won the strategically important Johan Sverdrup contract from Statoil and this is the first of a multistage development, so we're very excited about being involved in probably the largest project in the foreseeable future in and around the Norwegian and North Sea. Government services backlog now reflects the volume of the full contract term for the PFI contracts in the UK. And again, we disclosed last time that we were looking closely at that, and we are trying to be very transparent here. That increases our backlog by $5.4 billion.

In terms of the ongoing business backlog, relatively unchanged from Q1 to Q2 which I think in this marketplace is a good performance. The strategy is on track to it achieve the targeted margins and cost savings by the year end 2016 and we've identified now more than an action of $125 million of those savings, and these will be the upside of that is realized through the rest of 2015 and beyond. And we did close on the sale of the building group which was identified as non-strategic for new KBR. We also in the quarter, we're excited about the strategic partnership with Bernhard Capital for industrial services and pipe fabrication businesses and we feel that is set for earnings growth. Very much a 50-50 job venture and branded Brown and Root industrial services. And we will expand our customer base and give us a greater geographical reach for maintenance and small construction and small cap-type projects.

Pipe fabrication of lines will also provide us, and this is extremely important in these times, particularly in and around the Gold Coast, access to facilities and with that investment. Both transactions are expected to close by year end. And just to close on the summary, I think it's important to recognize, we maintained the strong balance sheet. Through these difficult times. And our cash position is providing flexibility in this challenging market.

Now I'd like to hand over to Brian who will put some more meat on those bones, Brian?

Thank you Stuart and good morning. Turning to slide 5. If you look at the backlog, it is up significantly. But that includes the $5.4 billion adjustment that Stuart referred to the government services for the long-term annuity type contracts we have in the UK. Under the PFI initiatives that they have. But as he mentioned, backlog just looking at it without the adjustment and excluding the non-strategic business was flat, was equal to that in the first quarter, which again is pretty good in some tough markets. Revenues were down a bit quarter over quarter. But that is primarily led or driven by Canadian pipe fabrication in North America and fixed-price construction projects which were underway last year, which we had previously announced that we were getting out of the fixed-price construction work and the Canadian pipe fabrication businesses were running down. I'm happy to announce that in July that we have shipped the last modules associated with the seven challenging projects that we have had over the last two years or so. Also the revenues were down slightly, as one of the LNG projects is running toward its conclusion. Which Stuart says will continue throughout 2015 and into 2016.

Gross profit was significantly improved, led by the improved business performance and the reduced operational costs that we have been working on for some time. And again, last year we had $41 million in charges on those Canadian pipe fabrication contracts. And another $19 million loss in our non-strategic business, which is included in all of these results here. The overheads are lower, and that again reflects the initiatives that we announced back in December. And we did have restructuring charges for the period. Primarily severance-related costs, but also an asset impairment relating to some land with a building that we are process of trying to sell. We have this gain on the sale of the building group subsidiary of $28 million. And the net income and the EPS of $0.43 reflects all of the above.

Turning to slide 6 and looking at the segments. On the revenue side, technology and consulting continues to perform very well. They had a little less volume of activity because, as of last quarter, less proprietary equipment and a reduced level of upstream oil and gas consulting activity. The E&C decline again represents the Canadian pipe fabrication and North American fixed-price construction contracts from a year ago, which we are not really having this year. And again, a reduction in some of the LNG activity. Turning to profit, the T&C had very strong margins, 26%. And again this reflects the shift of work to more technology from the proprietary agreement and consultancy work. But also reflects the reduction of overhead that we mentioned before.

E&C has improved underlying business performance and reduced cost associated with this overhead. But it also had a $15 million correction of an error which was a favorable correction. This goes back to the spin in 2007 and it is a series of small adjustments to a number of years which added up to about $15 million, so that's reflected in the equity and earnings numbers that you see here. And the earnings also reflect continued progress on the second LNG project in Australia. As a mentioned, 2014 had losses which were not repeated and all of the Canadian modules, as I said before, have now all been shipped. So our risk profile has reduced significantly. On the government services side, they continue to perform very well. Primarily in the UK Ministry of Defense projects, as well as having reduced overheads. They had $5 million in legal fees associated with the legacy US government LogCAP and RIO contracts. And also the 2014 results had one-time $15 million change, a reduction in cost and collection of insurance proceeds on a project that obviously did not re-occur in 2015. The non-strategic businesses continued to perform as planned, they also had some lower overheads so those provisions that we had taken at year end are holding. Performance is good and we did have charges in 2014 which again did not repeat this year. And finally we also sold the building group, as Stuart mentioned, and that is reflected in the non-strategic EBITDA line.

Turning to cash. Cash was down a hair for the quarter, $731 million, but still a good cash balance. You see on the slide that there were number of one-time type events or non-operational type events. The largest of which are funding the lost contracts for which we had previously taken a provision. But you also see that there was a payment as part of the settlement with our former parent, we have one more of those to go. And you see the net of these special items is $55 million. We did not buy any shares back during the quarter. The share price performed very well in the second quarter, moving from $15.87 on April 28 which was the day before we filed our Q1 results, at it rose to $19.48 at the end of June, a 23% increase. And even if you compare the share price performance at yesterday's close, the stock is up 9%. We remain committed to a balanced capital allocation policy that we discussed when we rolled out our strategy in December. As a reminder, that includes investing in our current businesses, adding new businesses and or technologies, and returning capital to our shareholders. As you know we already pay a dividend and that yields currently 1.9% and we have returned in excess of $1 billion to our shareholders since January of 2007.

With that I'll turn it back to Stuart and we'll chat a little bit more about the market.

Thanks Brian. Moving to the next slide. So the market outlook in technology and consulting, the technology and market opportunities are particularly led by (inaudible) refining and olefin's and particularly in the revamp area remain strong. Opportunities for VCC technology, which essentially takes heavy hydrocarbons and converts it into lighter fuels, especially diesel for a first commercial plant now in full operation in China. And performing well. So those are significant interest in this technology and so we see that as a good opportunity into the future. In the consulting arena it's a tough environment and particularly in upstream E&P. But we are seeing some life in that market in the consulting and the study arena. And we're looking at that very closely on specific opportunities. And we continue to look for additional opportunities and we've reported before, to expand our technology portfolio into new products and services.

Moving on to E&C. The Q2 development supporting strategic focus areas. I think again, we set out our stall in December saying we were very, very interested in the Johan Sverdrup opportunity and obviously we have secured that. Again, we're moving to grow our industrial services and maintenance business and reinvigorate the Brown and Root brand through this mutual venture. And moved into the strategic alliance for pipe fabrication. And the sale of the building group, again announced in December was closed. So I think a good quarter in terms of actually delivering on the promises that we made in December. We continued a strong base of large projects in backlog through 2015 and 2016. The two mega-projects you're well aware of. They continue to be significant components of earnings for 2015 and in 2016, and as we reported last time, favorable resolution of pending change orders could result in 2016 income being comparable to 2015. We have a significant backlog of ammonia, urea, refining and gas projects and as Brian reported, and we're very happy to report we shipped the final modules on the Canadian pipe fabrication module assembly contracts. Which reduces our risk in that particular business significantly. And it is actually worth noting that, that Canadian pipe fabrication business has rolled into our venture for the pipe fabrication business with Benicia.

Moving on to the next slide, good pipeline of near-term and long-term prospects. It is a difficult market out there. But I think, as we set out a stall in December, we're pointing the organization very much at key areas and key markets. Particularly around gas. And geographies where we feel that there are good opportunities and clients continue to spend money. One of those being the Middle East and we've hired and strengthened our management team there by hiring a new president for the Middle East who is well-known in the region and been in and around the region for 20 odd years. His name is Jay Abraham.

Onshore opportunities in the Middle East and Caspian do remain positive. We've formed a joint venture in Azerbaijan with OSCAR, the national oil company. We have been in Azerbaijan for many, many years and been involved in most of the developments, particularly in the offshore side and in and around Azerbaijan. So we feel this sort of plays to the national content push and services our position there, particularly for brownfield work. Offshore developments continue, some continue anyway in the Gulf of Mexico and West Africa. And again as I said last time, we're being very careful to try and really understand our clients and which projects are the best opportunity to proceed, whether it's through political needs or whether the financials with these oil prices are robust. So we continue to work on the Maersk clean job in the UK North sea, we see more opportunities with Statoil, not just in Johan Sverdrup, but in other areas. And we've got opportunities across Thailand, Qatar and Indonesia.

The BG global alliance, the future of that is uncertainty I guess beyond the close of the Shell BG deal. But at the moment it's going very well we've awarded early work on it and that work is ramping up and proceeding well. And as we reported last time, circa $2 billion complex in the Midwest is moving to EPC pricing. In and around the end of the year, December time. Major LNG developments in process supporting backlog growth into 2016 and beyond in addition to obviously the ammonia opportunities. The Shell global LNG agreement is going very well also with a number of assignments underway. And the Tangguh LNG opportunity in Indonesia again as reported is on track for EPC price submission later this year with award an early 2016.

You'll have seen some of the announcements from Magnolia Energy by LNG limited, they're now moving from a 4 million ton train solution to and 8 million ton train solution because of good progress and uptick in agreements. They feel confident that, that is what they can get. As a consequence of that, they have asked us to upgrade our study and our EPC pricing for 8 million tons. That's underway and will be concluded on that before year end. And work is underway on LNG Limited's Bear Head opportunity in Canada. Again they have reported significant progress on a number of the approvals and permitting associated with the project. Pre feed work and tendering ongoing for two FLNG projects again, as we reported earlier.

Now moving into government services. We've confirmed preferred bidder for the UK Ministry of Defense fixed wing training contract. Another long term annuity type project, and as we reported earlier, this award is expected this year. UK Army rebasing, discussions continue on a [soul source] basis, decision is expected again within this year. Strong operational performance in the UK, particularly on the PFI contracts and the long-term facilities maintenance as we disclosed earlier, backlog has now been looked out and we have moved that up $5.4 billion higher to represent the true value of those contracts across the whole of the O&M lifespan. We have a number of UK, sorry, US overseas based operations support opportunities which we're tendering at the moment, the largest of which is in Kuwait. And our services in Iraq, as we support the US military in their fight against ISIS continues to ramp up. Also, I'm very happy to report that we continue to make significant progress in successfully closing out US government audits and legacy issues related to LogCAP III and the RIO contracts. So we had a good quarter in that arena.

So in summary, significantly improved earnings versus 2014 driven by strong operational performance. Our restructuring remains on track to deliver the cost savings of $200 million we announced previously and we're standing by that number. And again, very good progress and achievement in some areas, a number of areas on our margin objectives on technology consulting, we're running above that at the moment but the mix could bring that in line later through the year. E&C upper-single digits, we are performing at that level and we're moving the government services businesses up towards the low teens as we progress, I think of 1% on last quarter. So continued success in strategically important areas. Johan Sverdrup, we've talked about, the alliance for industrial services and pipe fabrication, selling the buildings group. We continue with a strong balance sheet. Which again, in these difficult times, is very prudent and gives us flexibility.

Good bookings resulting in a relatively unchanged from a Q1 backlog. Which again, I think a great performance in this marketplace. Significant progress in closing out the legacy issues associated with LogCAP III and the RIO audits. And also a part of closing out one of the major power plants. Expect two major LNG projects to contribute to 2015 and into 2016. EPS guidance now at $1.22 to $1.37, excluding legacy costs. And post closing we have shipped the final Canadian modules. And the first of the three EPC power plants is now operational. So again, I think significant de-risking of the business during the quarter.

So I'd now like to hand it back to the operator for questions. Thank you.

Thank you.

(Operator Instructions)

John Rogers, DA Davidson

Congratulations on the quarter. First question, Stuart, of the $200 million in annual cost savings that you're targeting, how much have you recognized of that in 2015? So what would be the incremental amount in 2016?

Brian's probably better to answer that question

We haven't given the specific ranges for that, and the challenge is, some of those costs are still in the results for the year, as the reductions occurred throughout the year and continued to occur. You had costs in there for the first six months, you have costs in for the first three months. So that $125 million is being spread out. Some of which have been identified and are being actioned and the costs haven't yet come out of the results that have been published.

So the by the end of the year, the full $125 million will be effective. But it's really a blend throughout the year.

Okay, sorry, the $125 million, you referred to a $200 million in annual costs savings.

Yes, what we've said is, $125 million has been identified in action to date, $200 million is the goal.

Okay, thanks for that clarification. And then I guess, Brian, one other thing in terms of the guidance. The $1.22 to $1.37, does that include restructuring costs?

It does, it does. It reflects the gain on the building group sale, which obviously had not been baked into the guidance at the beginning of the year. But it includes the restructuring. And it also, frankly, includes the correction of the error -- the restructuring and the correction of the error kind of balance out.

Okay, great, thanks, I'll get back in queue

Thank you

Tahira Afzal, KeyBanc Capital Markets

Good morning and congratulations, very solid quarter. Stuart, we've seen a scurry or flurry of LNG announcements recently, including potential contractor selection. If I do the math it seems like, at least for the near-term demand, lets say for the next three years, we're probably going to see an excess of capacity, where customers are going to say they're going ahead with projects.

So we'd love to get your view point, do you think there's a change you'll see a slight overbuild as customers try to take advantage of a transitory low-cost environment? Or do you think eventually some of these projects will get slightly pushed out?

I think probably the latter. At the end of the day, the customers, themselves, the client base are under capital allocation pressure, as you know. And they are trying to cut their own costs and some are out over their skis and they're trying to get back.

So I suspect the latter in that. I think what will be important is the cost of development, the competitor relative to the LNG projects themselves against each other. And I think we've said that all along, that we feel the ones that are more brownfield in nature can take advantage of existing infrastructure et cetera, that are really have the best chance to go ahead.

Got it, okay. The next question, you mentioned again in your commentary that you are still hoping to see low teens kind of margins on the government services side. I would assume that would mean that you still expect the large UK contract to potentially be on time, and any way you can start seeing a potential tick from that into 2016?

Yes, there's two of those contracts. I think one is progressing very well, the fixed wing and we do think that will pull us this year. And the Army 20/20 is, as ever, you're in the, at the mercy of politics and we do feel positive that that will progress again, it may move out a little bit but I think there's a significant commitment from the UK government to bring the army back from Germany.

So I think we made a statement, so we think both of those will happen this year. But while certainly MFDS will happen this year and the decisions on Army 20/20 will be made this year.

Got it, thank you very much, congrats and I'll hope back in the queue.

Steven Fisher, UBS

Great, thanks, good morning. Just wondering if you could talk about the trajectory of backlog in both the near term and Q3 and Q4 and how you think the backlog could progress in 2016, assuming Magnolia and Tangguh projects come through. And related to that, are the Tangguh and Magnolia potential awards bigger than what you still have left to burn on [access]?

Good question. I think everything relates to timing.

I think Steven, our statements before were really that we expected backlog to be flat through the year and certainly our performance this quarter would hold up in that debate. I think going in towards the end of the year, there's a lot. We're thinking very much heavily around the fertilizer project and the timing around that is set for this financial year. But again, it could slip.

It's not scheduled through, but these things can move a little bit to the right and if it moves to the right it will slip into early 2016. But moving into 2016 on the broader question around Tangguh and our ammonia opportunities and Magnolia, there's a good opportunity for us if the stars align that those things could increase our backlog.

Okay, I'm not sure if I missed it, I didn't see anything definitive in the queue, but could you give us an update, sounds like that is imminent, but I know it's a hard thing to nail down specifically, any updates there you can give us?

Unfortunately not. I think we're again at the mercy of the US legal system and we're still waiting for the ruling. And as we said last time, once that ruling is made, assuming it's in our favor, that then goes back to the lower courts for the formal implementation of that ruling. And thereafter the recourse they would have would be to the Supreme Court.

And if the Supreme Court does not hear that because it is simply a resolution of business, not a matter law and that's really the feedback we have had from third-party lawyers. External counsel that they feel it's unlikely the Supreme Court would hear that, unlikely does not mean that they won't of course, but it's unlikely.

And then it would finally be finished. But we are waiting for that ruling to come out of the system and all of the arguments and papers and things are all submitted and have been for quite a few months now. And obviously when we do hear that we'll come out and tell you.

Probably still more a 2016 kind of timeframe for that?

Yes I think that's right.

All right, nice job on the quarter. Thanks.

Thank you.

Jamie Cook, Credit Suisse.

Hi good morning. Nice quarter. I guess a couple of questions.

One, Brian, as it relates to the implied guidance for the back half of the year. I think it implies $0.43 to $0.58. Which imply numbers at the low end of the range or below the first half sort of clean numbers. I'm just trying to understand what would be the drivers are behind that?

One, are there any, just given the cost and saving initiatives that you should benefit from? Are there any deferrals or projects getting pushed out? Are there any projects that are completing? I'm just trying to understand why the back end of the guide would be so much lower relative to what we've seen in the first half with the cost saving benefits that you are getting.

And then my second question relates to cash flow. It was a little light in the quarter relative to what I would have thought, so can you give your expectations on how you're thinking about the back half of the year?

And I guess my last question Stuart, would be you talked about the two LNG projects. Could you talk about the resolution of the pending change orders? I guess just given that we're six months into the year, how you are feeling about the contribution in 2016. I think there was news this morning that there were pending strikes in the Oregon project, so I'm just trying to get a feel if you are still comfortable with your ability to get those change orders? Thanks.

Okay. I guess I will start off with the guidance.

Jamie, basically we've changed the guidance for the gain on the sale of the building group. We're trying to go slow and walk before we run. We have had severance costs in there that we had not contemplated at the beginning of the year. We have a correction of an error that we hadn't contemplated at the beginning of the year. And we still have a ways to go in some challenging markets.

So we're keeping basically guidance unchanged, except for the transaction. And we'll see how we go as we progress throughout the year.

In terms of cash, pretty much as expected. Last quarter we said that the cash balance should be relatively flat through the last three quarters of the year. Some quarters up a little bit, some quarters down a little bit. I don't think that anything has changed there as well. We were down slightly, but nothing that was unexpected.

But I guess Brian, just to clarify, and I understand what the guidance, but to be clear, the cost benefits associated with restructuring should continue to gain traction. And there's nothing that you see today that would imply the earnings generated from your backlog should deteriorate for whatever reason, there are some projects that are completing via we're concerned about something. Just trying to understand if there's anything in there?

No. No projects that are completing. No concerns other than a challenging market and we had six months to go. Nothing in that regard, anything significant change.

And the cost savings should continue to accelerate?

The cost savings should continue to accelerate. But that's something we have considered for some time.

Thanks and sorry, Stuart, the last question just on how you're feeling about Oregon and the ability to get favorable change order as we look into 2016 versus six months ago?

Yes it's difficult Jamie to be specific just because of the nature of the ongoing discussions and negotiations. But we would not have put it into our presentation if we didn't feel -- if we weren't confident of resolution.

Coming back to your question again about guidance and the things we're doing. We're trying very hard to deliver on our promise. We're not putting anything down here that we feel is something that is not achievable. So again, we stay firm on that statements that we made earlier.

Jerry Revich, Goldman Sachs

Hello good morning.

Good morning Jerry.

I'm wondering if you could talk about that Johan Sverdrup field. I think we're looking for total CapEx of over $3 billion. We'd love to understand what proportion of that would be addressable scope for you.

And then are there opportunities for follow-on work on surrounding fields? I understand those fields are moving towards final investment decision as well this year.

On Johan Sverdrup, the first phase is circa $3 billion to $4 billion M&R, addressable piece of this is that we've won to date. That is close to $850 million to $900 million that we're in (inaudible). That's what we've announced.

I think the exciting part about it Jerry is the fact that we feel it is the first stage of a multistage development. So I think the overall future CapEx spend on that particular development will be significantly above $3 billion, for sure. So that's probably the more exciting piece about it.

Thank you. And Stuart, you spoke about in your prepared remarks, opportunities in the Middle East and refining in petrochem. I wonder if you could just give us some more color in terms of number of greenfields or anything that you are comfortable sharing, just to flesh out opportunities set for us.

I think most people are aware that we are in the midst of doing the Sadara complex in the Middle East which is the largest integrated petrochem facility in the world. Which is a joint venture between Dow Chemicals and Aramco. And we've got a rich history in the Middle East and particularly in Saudi Arabia. Both with Sabic and Aramco.

And we're seeing a number of opportunities, not just with inside Saudi Arabia as well, but outside and also people like Sabic, companies like Sabic, looking outside of Saudi to expand their portfolios. So I think it's difficult at this stage and we have not talked specifically about named opportunities in there. But it is an ongoing part of our business. And there are a number of key prospects in and around that part of the world for sure.

Thank you.

Brian Konigsberg, Vertical Research Partners

Good morning. I just wanted to touch on the comment that you made about being in progress on closing US government audits on LogCAP and RIO billings. Will that give the opportunity to accelerate the collections on the form ones that are outstanding or is that included in the cash flow outlook?

Yes, is the more we close out the audits, there is an opportunity for us to collect some cash. As we're pushing for funding -- the two are separate, some of the disputes we have in the form ones are separate from the audit.

But to the extent that we do owe some money, we can all set it against what is owed up to us. So we eliminate the liability. But to answer your specific question, there's no significant amount of cash included in the cash flow forecast coming from the settlements with the US government. They could come but that would be an upside.

All right, great. And just secondly, just questions on FLNG involved in pre-feed. I was under the impression that at least one of those was a little further along, particularly on the East Coast of Africa.

Could you maybe just comment? Is the next stage on at least one of those a feed/EPC opportunity? Or will it progress into feed and then later on into EPC?

Brian, my choice of words weren't particularly good there. We did actually say this that one is in pre-feed and one is tendering. And the one that is tendering is the EPC opportunity in the East Coast of Africa.

And that would be anticipated by year end?

Yes.

Understood.

The client is saying that they will make the decision before year end.

Got it. Thank you very much.

(Operator Instructions)

George O'Leary, Tudor, Pickering, Holt & Co.

Good morning guys. Good job on the cost savings execution so far.

I was wondering if I you could just provide a little more color on where the incremental cost saves came from quarter-on-quarter. And then, as you look forward, if you broke it down into some buckets, corporate costs, combining facilities versus incremental reductions in workforce. Where do see sort of the lowest hanging fruit and then the more challenging cost cuts as we move through the back half of the year?

Well the cost reductions has really come across everything. We're looking at all costs, whether it be staffing levels, whether it be office, whether it be IT. Whether it be travel or training et cetera.

So it is really a comprehensive approach. And we're not trying to break it down by individual categories. We're just looking at the totals.

What I can tell you is, the majority of which is occurring in the businesses in terms of percentage, it is embedded in the gross profit number that you see. But you get a lot more visibility into the G&A line, which is pretty transparent and the financial statements.

But without question and unfortunately, the majority of the costs relate to reductions in total staffing. But again, it is a comprehensive approach to cost. And we are encouraging people to come up with ideas, suggestions on how we can accelerate for this, be more efficient. And we've got some really good responses from the staff as well.

Great. That's helpful color. And then maybe just one more on customer sentiment.

As the oil prices ramped up from $50 to $60 if you could call that really a bounce, at least in the US onshore you saw operators kind of think about adding activity back. I think your customer base is much more a long-term thinking than that. As we retrench down from $60 back to sub $50 a barrel.

Have discussions with customers changed? Or is the long-term outlook kind of remained somewhat the same and not much changing customer behavior?

I think -- both Shell and Chevron announced redundancies over the last little while. I think certainly their view would be that this is not a short-termism. There's a lot of market forces at play, the Iranian situation as well that will bring more oil into the market. I think the sentiment of the customers has not changed, I think it was there before. But I think that clearly there is a -- this oil price will be, we think at this level for some time.

We have tried to set our stall out in our business to strategically line up against that. I think it's also worth saying our exposure is predominantly in the gas arena rather than the oil of arena. And across areas that is not just oil and gas, particularly with chemical companies et cetera.

Great, thanks very much for the color guys.

Thank you.

Robert Connors, Stifel.

Good morning, guys. I just noticed perusing the queue very quickly that the language around a potential repatriation was removed versus the past couple of filings. Just wondering what the reasoning was around that?

The repatriation of cash from overseas?

Yes. I believe there was a strategy that identified, possibly up to $370 million sitting in Australia and the UK?

We have repatriated some cash. To be honest, I'm not clear why any language was removed other than we have repatriated some cash. We had put a plan in place and we have been able to bring cash back without incurring any significant cash or P&L hits.

Do you have any numbers around how much was brought back year-to-date?

I don't. But cash moves back and forth routinely. We're talking at least a couple hundred million dollars.

Okay great. Those are my only questions.

Okay Rob, thank you.

Vishal Shah, Deutsche Bank.

Thanks for taking my question. I just wanted to get some clarification on the profitability of the two segments.

The E&C segment is running at upper single digit margins and you still have some restructuring to go. How should we think about that segment profitability in the second half and could there be some upside to your target margins in that segment? As well as in the technology segment? Thank you.

I think we are sticking by the long-term goals that we established when we rolled out the strategy with the technology and consulting being in the low 20%s. The mix of work will impact both of the segments. But in technology and consulting, the more technology, the higher the margin would be, the more proprietary equipment and consulting services that those margins would come back down. So it really depends on the mix on a longer-term basis, the blend in the low 20%s we think still is a reasonable estimate.

And the same with the engineering and construction were the mix has a big influence. If you do more services, the profit margin will tend to be higher. If you do more EPC where you have the construction, the margins tend to be lower. The volume of business will be higher but the margins will be lower.

So again on a longer-term basis, we think the upper single digits for the E&C is a good basis. That will move around from quarter-to-quarter, depending again on the mix. But we're pretty confident that we can achieve those goals that we set out last December.

That's helpful. So can you just comment on the Middle East strategy? You said that you are looking to hire a new business head and President in the region. What sort of changes do you expect to make in that region?

Our representation in the Middle East is very much about going and doing a project and coming out with a detailed project that did in Qatar would be a good opportunity. But since then, really our legacy has very much centered as you mentioned on Saudi Arabia.

So we feel there's great opportunity for us to build businesses in and around the rest of the Middle East, whether that's in Oman or Qatar or Abu Dhabi or Kuwait et cetera. And opportunities in Iraq for that matter. And really establish -- our brand is very well respected, it's very well known across the Middle East. And I think we have got a great opportunity and some significant I guess growth opportunities for us looking at the Middle East in isolation.

Thank you.

Thank you. That does conclude the question and answer session. Mr. Stuart Bradie, at this time I'll turn the conference back over to you for any additional or closing remarks.

Thank you very much. Thank you very much for taking the time to listen to us this morning.

Again, it is a pleasure to be able to talk about the Company, we're very passionate about it and very passionate about the future. And I think coming back to some of the statements earlier where we're very conscious that historically, we've failed to deliver on promises and certainly, since my tenure we have been very clear as to what our strategic goals were and what the metrics would be that we should be measured against. And we're sticking by those and we report against them next quarter again.

So thank you very much again for taking the time and I look forward to seeing all of you as we travel around. Thank you.

That does conclude today's conference. Thank you all for your participation and you may all disconnect.