Specialist
Former senior manager at Fluor Corp
Agenda
- Fluor's (NYSE: FLR) outlook and coronavirus-related issues
- Reduced capital in the O&G sector and impacts to the E&C (engineering and construction) industry
- Contracting shifts over time and risk mitigation efforts
- Diversity of Fluor's backlog, and management shifts
Questions
1.
Could you outline the current environment for the major E&C [engineering and construction] players and any challenges or opportunities they’re dealing with?
2.
Could you elaborate on the difference between cost-plus and a cost-plus fee?
3.
In order for the pendulum to swing back away from fixed-cost, as you said, a lot of the larger players will have to take a step back from agreeing to fixed-cost projects. However, there’s always going to be a player who will take on fixed-cost work. Would you agree that it’s a middle ground area where large E&Cs really don’t want to take on that work but feel pressured to because there will always be someone willing to?
4.
How should a company such as Fluor approach project selection? It seems that the historical approach – especially around oil and gas and specific projects – hasn’t worked so well due to the cost or the fixed pricing model. The company has spoken about de-risking and reassessing projects etc, but as you said, there’s always the pressure to take on fixed-cost projects unless intending to scale down. How are you assessing Fluor’s potential strategy for the next five years to de-risk the backlog and so on?
5.
You described building a power plant or an LNG plant from the ground up as almost starting from square one, but is there an element of critical mass where having done one of these projects means having a better handle on future ones and the associated risks? Is there an element of learning and experience or is each project case-by-case meaning there’s really no transferable knowledge from one to the next?
6.
How are you assessing Fluor’s competitive positioning and edge? What do you think are its core competencies or overall strengths?
7.
Could you elaborate on some of Fluor’s talent drain recently? How much of the talent drain would you say is due to company culture and why?
8.
What are the top two or three industries where you think Fluor has a fairly significant competitive advantage? In which end markets do its skill sets really come to fruition?
9.
What makes the oil and gas and petrochem projects so unpredictable and hard to execute?
10.
Was there any internal indication of Fluor trying to shift away from oil and gas, LNG and petrochem projects? Would you expect the portfolio to slowly shift towards its strengths or do you think it will continue to take on those projects with larger contingency budgets?
11.
How should investors try to analyse and think about the overall riskiness in the backlog? Which projects would you highlight as potentially risky?
12.
Do you think the best approach to de-risk is to incrementally create larger and larger contingency budgets? It seems as if unpredictable things happen on a project-by-project basis and are often unavoidable. Would increasing contingency budgets and putting more controls around using them be the best approach here?
13.
How should we think about the proportion of backlog that is EPCM [engineering, procurement, and construction management] work, as you just described, vs the more higher-risk classic EPC category?
14.
Is there any degree of capacity imbalance in Fluor’s segments or end markets? It seems like these larger EPCs over the past several years have reported record backlogs, which suggests that these large-scale projects at the top might not have as much capacity as before. Might there be some capacity shortage for large-scale projects where there’s inadequate capacity at the higher end of these EPC players to take on extra work?
15.
Who do you consider to be Fluor’s most direct competitors and how do they compete with Fluor? Could you summarise some of the different competitors in each of the core segments?
16.
There are indications that international competitors are increasingly putting pressure on and getting more involved in North American markets. Are you aware of Asian competitors getting more involved here?
17.
Do you have any thoughts on Fluor’s potential divestments or acquisitions? Which particular divisions might be likely candidates for divesting? Are there particular end markets or industries where you think Fluor would like to add to the portfolio or enter a new market through acquisition?
18.
Do you have any additional insights or anything that you would encourage deeper examination of?
