Tecnicas Reunidas Sa Ord

Hello. Good morning. This is Eduardo San Miguel. Before entering into the presentation, I would like to introduce you all Antonio Alonso Muñoz-Hierro, who is the new head of the Investor Relations Department of the company. He replaces Joaquin Peredayala, who from now on is the head of the Truck Energy Transition Unit. Thank you. Joaquin is with us today as well. Thank you. Thank you for your support these five, six years, Joaquin.

And now Antonio, you have the floor. Thank you. Thank you very much, Eduardo. And good morning, everyone. And it's a pleasure to have a chance to say hi to all of you. And I will do my best, along with Tomas, which you all know, to provide the best quality service you expect from this position. So thank you very much. And now, let me welcome to you to this results presentation of the first half of 2023. It will be conducted by our chairman, Juan Yadot, and our CEO, Eduardo San Miguel. It will take around 20 minutes, and afterwards, you will be able to address all your questions. So, Juan, please, you have the floor.

Hi. Hello, everyone. Let me congratulate Antonio Joaquin for the new challenges, which are good challenges, but also fun challenges. And I'm sure they're gonna do great. Let me start in today's presentation. Eduardo and I will be driving you through a summary of your results for this first half of 2023. And then I will start with a review of our commercial activity and what you can expect for the upcoming quarters. I will also update you on the recent evolution of TRAC, which is our low-carbon technologies new business unit. Eduardo then will move on to give you an update on the most relevant milestones recently achieved on our ongoing projects, our production, our execution, very important to us. And as usual, Eduardo will explain to you the financial figures for the period. And then, finally, I will conclude the presentation with the guidance for 2023. Start with the commercial activity. This is, to me, a rather large and complex slide. So, let me walk you through this slide. As I went with it to share our convention, this is going to be a great year for TR on the commercial front. a year in which high-quality awards will comfortably surpass our annual sales, a year that will confirm our good times ahead of us with what we call the investment super cycle. And we call it that way when we did our capital increase not that long ago, and it's happening. In the slides that we showed to you three months ago, we stated that we were facing the three largest pipeline ever had. We were reaching, and we're still there, close to $70 billion for the next couple of years. And that's the pipeline that we maintain. But let me do a further analysis. Only in 2020, TR is expected to submit bids for a total of 26 million euros. And let's do a breakdown of this. The breakdown is that 13 billion in natural gas projects are already presented, more than 10 billion in petrochemical and refining development, and almost 3 billion in energy transition projects. Those are the 26 billion altogether that we have to present and we are presenting in 2023. So out of this, what are we now? What we have already done? As of today, TR has already submitted bids for a total of 11 billion euros altogether with the three weeks. The bids follow the expected sequence of investment weeks that we have showed to you in our last presentation. We have the first wave of natural gas, petrochemicals, and low-carbon technologies. And even more important, as of today, I can confirm, and this is very important, that within these 11 billion euros that we have already submitted, this is very important, first, we have been declared prohibitors in projects for a total of 1.8 billion euros. Being selected prefer bidders signifies that we are already negotiating final terms with our customers. And second, as important as the first point, we have been declared frontrunners in additional bids for an additional amount of 2 billion euros. Being a frontrunner really is As I said to my team, it's for us to lose. We should win. I mean, we have to get those jobs. Therefore, I can be very optimistic, and I am optimistic, to deliver to you good news in the upcoming months from the bid that we have already been presented. We are being selected as pro-runners and pro-providers. But more is also important. This is not the end. We're still going to submit bids for another 15 million euros from now to the end of 2023. So in this regard, let me stress that TR is not a short-term business. This is not a trading business. This is a long-term business, and we have to manage it as such. It pays to the, you know, it pays to the company, to our shareholders, to all the stakeholders to be patient. And we will be patient and selective. Patient and selective to be well-selected. And we are being well-selected. And we're striving to get a high-quality and profitable backlog. We have been patient because we think that the projects we're currently negotiating, and this is very important, are the right ones for TR. So the projects that we want to have. So the ones that better fit our know-how or capacity, and they're consistent with our risky strategy. And therefore, they're the ones that will deliver stronger and more stable margins. So after this complex and dense slide, let me do a wrap-up with a simple one. Now with a simple slide, let's do a recap of the full picture of a commercial situation. And sorry for repeating myself on and on, but I think it is important to have a crystal clear picture of this commercial outlook for the year. In the first month of the year, we were awarded the new fertilizer plant that CasaLoc is developing in CasaStanis. We were also set to develop a new recalcification plant in Germany, very important one. And that was, you know, that was 0.5 big euros. But if you remember well, we put together the deal with the two construction companies that we trust more, for both civil and mechanical. And we have put together a very good and, you know, which will be a very successful deal. And furthermore, we secured through track several key energy transition projects for clients very important to us, you know, always all-time clients such as Cepsa, Repsol, and Atlas Agro. All in all, we have already secured 1.8 billion euros in awards. On the other hand, within the 17 billion euro pipeline, we have already put forward rates for another billion euros. And the outlook looks very positive. We have been selected as preferred bidder for 1.8 billion in awards, and we should be announcing awards, those awards, very soon. And we were very well placed. We were extremely well placed in more than 2 billion euros of other new projects, which we have to really focus with our customers because as I said to my team, it's for us to lose. In conclusion, we are very comfortable. I am very confident in surpassing the 5 billion euros threshold in terms of new awards for 2023. As I know we will be stating later, this confidence will lead us to include this figure as we haven't done it before as part of our guidance for this current 2023 year. Let me now move, which I think is important, to the last wave. It is very important. It's the last wave, and eventually it becomes a truly important wave. Let's move to track. And I will explain how the hardwood of track here now, with his low-carbon technology business unit, is already bearing fruit in all many different fronts and technology. This slide has, we're extremely busy. You can see we're extremely busy in all dimensions of the low-carbon technology. In this slide, we have just selected a sample of the results of our intense work in this business, in this way. Up to the first quarter, results presented Back in May, we had already announced three important awards that I'd like to repeat as that I do believe is very important. We were awarded and it potentially converted into a large open book for a green fertilizer company, Atlas Agro, to develop a zero-carbon nitrogen fertilizer plant in the USA, which would include CHOS technology in nitric, you know, and fertilizers. Two, very important as well, in this case it's engineering, it's not volume but quality. You know, we've been awarded the engineering, procurement management and construction management to develop for CEPSA, for good customer, the second generation biofuels plant in Welva. And this happens to be the largest project in this kind in southern Europe. We happen to be an engineering company working intensively with them. We have already started. And finally, with our good customer, Repsol, we are awarded the engineering plus procurement and management of all the electrification of two very basic petrochemical complexes for Repsol, one in Portugal, Cines, and the other one in Spain, which is the first step to decarbonize petrochemical products. And you may be wondering what have we done, you know, the last two months. And things are happening. It happened very rapidly. And that's the message that I want to, you know, express in this presentation. A memorandum of understanding, we have signed a memorandum of understanding with the IFC, which all of you know that is the World Bank subsidiary for the private sector. and the objective is to develop carbon technology projects in Eastern Europe. IFC is one of the biggest financiers, you know, in developing the private sector, you know, all these industries, and we've put together a very intense and collaboration memo about the standing. The collaboration seeks to support the development of projects and facilitate a transition in low carbon technologies which will promote the carbonization of carbon in all the intensive industries. Obviously, we'll have to work very hard in the things that we are very strong. We'll include hydrogen and all its derivatives, biofuel and all these alternatives, and the different technologies for low-carbon units. This agreement is relevant as the investment in Eastern Europe countries indoor carbon technologies are respected according to external analysis to be more than 35 billion euros in the coming years. And also it's important to say that all these countries produce about 35% of the total CO2 emissions in Europe. So we have a lot of work to do and a very good memo of understanding in time. We're working hard. You might be wondering what happened with the U.S. that we talked to you before. We already have the premises. We have opened the premises. We're extremely busy and growing, and we have already hired a new leader, and we are building up the project saturation team to take advantage of the attractive regulation that the U.S. has already put in place. So we are already there. We have been working. And finally, we have another award. Unfortunately, I cannot disclose the client. It's a good client. It's a client with whom we have worked before and we know extremely well. And we have been awarded the Engineering Services for a very green ammonia, very green, I'm going to say, a very big ammonia project in Europe. We will be announcing this award soon. as our customer allows us to do so. And having done so, now it's time for Eduardo to move on with our production and numbers.

Thank you. Thank you, Juan. Good morning again. It's true. The immediate future is extremely promising. as Juan has explained in detail, but we cannot miss the focus on executing properly the current projects of our backlog. This is why I would like to devote this part of the presentation to give some color about a few relevant milestones that have been achieved within the last quarter in different projects. Before entering into the milestones achieved, I would like to highlight two messages. The first one is that after three difficult years, we are almost back to full normality. And the second one is that under this scenario of normality, we have secured the delivery of at least 1 billion euros of sales per quarter. And this is the minimum threshold we believe the company needs to deliver consistently solid margins. Let's go to the slide now. At the top of the slide, we see our ADGAS project for AMLOC, an expansion of its gas treatment facilities in Das Island for around 1 billion euros. As you know, the project is being performed by JV, where we are the leaders. The main scope of TR in this project was recently achieved with the completion of the loadout of the last module, as you can see in the top right-hand picture. At this point, the engineering, the procurement, and the module shipment is fully completed. The construction now is in charge of technical partners at the JV and has 50% progress completed. And now at the bottom, and regarding our petrochemical segment, I want to focus on one of the biggest projects in our backlog, the Oliofins project for Orlen in Poland that we are constructing together with Hyundai. In recent weeks, TIA completed the transport of the wash tower to the site. As you can see in the picture, this transport was very challenging. Due to its huge size, transport was done through the Vistula River and we cross by track the city of Plotch during night hours to avoid disruption of traffic in the city. The engineering and the procurement are almost fully completed and the construction phase is currently under development at full speed. Let's take now a look at the refining segment. In this case, we have chosen two of the largest projects carried out by Tecnica Ronillas in its history, the Ducum Refinery in Oman and the Crisp Refinery for Exxon. The Ducum project was awarded to the consortium formed by Tecnica Ronillas and Daiwo in 2018 for an amount of almost $3 billion. And during this third quarter, Dukum has started its initial operation and is currently ramping up to full capacity. We are particularly proud about the delivery of this project since a big part of the construction works were executed during the pandemia. The CRISP project for Exxon at the bottom of the slide is an expansion of its Singapore refinery and was awarded to TR in 2018 as well. One of the big challenges of this project is that the process units are to be constructed as modules outside Singapore and have to be assembled at the site. During the first half of the year, several shipments with modules have already been sent from Thailand and most of them are already installed in the site. The project is also a good example of our continuous effort on improving the safety both at the yard and at the construction site. We want to emphasize that we have reached 24 million of safe man hours in this project. Let me now give you an update on the evolution of Tecnica Ronidas engineering capacity in recent quarters. As we indicated during the capital increase presentation in April, the engineering resources available in the sector shrunk dramatically over the last decade. We also explained that, on the contrary, Tecnica Ronidas kept intact its core engineering base during that period. I want to strengthen the message that Técnicas Unidas is ready to address the large investment super cycle. We will not only keep intact our core engineering base, but we are also reinforcing our engineering team in Spain and stepping up the growth of our offices in the Middle East, India, and Turkey. This will allow us to have capacity available at competitive costs. The number of professionals, as you can see, has increased 50% year-over-year since June 2022, to reach a level of 1,700 employees today. And the growth is totally consistent with the commercial outlook that Juan presented to you. Major waves of investments are coming, and we are getting ready to address them all. Okay, let's move to the figures of the first semester of 2023. In terms of sales, TR continues to record quarterly sales of more than 1 billion euros, reaching 2.2 billion euros in the first six months of the year. The figure implies an increase of more than 31% versus the same period of 2022. The margin from our operations continues to grow quarter after quarter, getting closer to the 4% guidance for 2023. The margin for the second quarter stood at 3.7%. This is the fourth quarter in a row that sales are above €1 billion and that EBIT margin grows versus the preceding quarter. Moving to balance sheet figures, as you can see in the slide, the net cash position at the end of June stood at 241 million euros. This figure includes obviously the 150 million euros inflow coming from the capital increase that was close at the beginning of the second quarter. And during this second quarter, as advanced to do in the capital increase presentation, we have put to work sum of this cash, devoting it to repay about 48 million euros of our financial debt, and to incentivize our suppliers to accelerate the project as fast as possible. We are sure this is a wise use for the cash available. Revitalizing our suppliers' cash cycle is the best way to reach on time new milestones to be invoiced, and that generates further cash to feed this positive loop. Our financial goal is obviously to be certain to deliver on time projects to full satisfaction of our clients. And now I will hand over the floor to Juan for the guidance.

Thank you very much, Eduardo. I have a very simple slide here. You see, you know, So let me conclude today's presentation, you know, reiterating our confidence on the positive commercial outlook ahead of us. Using the additional English expression, we can graphically say that investments recycle is alive and kicking. We all see that the first major wave of awards is already taking place all throughout the industry, not only with us. I am confident and TR is confident to take a big slice of this first win. We've gotten ready for it. As we discussed before, we have been declared with the bidders and frontrunners for clients on several major projects. We're bidding and the decisions are the very final stages. This make us confident through enough to conclude our 2023 guidance, the expectation to surpass the 5 billion euros of awards. This figure will imply that we achieved one of the highest levels of order intake in TR history. And probably, let me just order the intake with good and well-de-risk quality. We all expect this to be the beginning, the beginning of all the wave of awards coming through 2024 and beyond. Projecting these waves would be compatible not only in terms of size, but also in terms of their great and greater quality, which is what we're very much focused. As for the financial guidance, let me confirm our target for 2023. Given our current backlog, we think we can achieve the 4 billion-year sales and, if very important, the 4% EBIT margin. And in the mid-term future, we have the determination to grow. If market allows to grow, we will grow. And we are convinced that we will achieve our strategic goals for the benefit of all our stakeholders. We will grow in sales. consolidate our deal risk margins, and thus grow our bottom line in MCAS generation. In 2024, with the normalize of our operation on international variables, we should get back to you on these medium-term objectives. We're optimistic. And now we will be happy to answer any of the questions that you may want to address or pose to us. Thank you very much.

Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star 1 on your telephone keypad. Please be informed that there can be a short silence while questions are being registered. Once again, star 1 for questions. Thank you. The first question comes from Ignacio Dominic from JV Capital. Please go ahead.

So I would like to get a sense on how the higher margins are being achieved, any particular dynamics that there would be.

Ignacio, we have lost the line for a while. Do you mind to start the question again?

Yes, I'll start again. So the first question is on EBIT margins, your 4% guidance in 2023 would imply delivering margins above this 4% in the second half. So I would like to get a sense on how these margins are being achieved and any particular dynamics that you are seeing here. If there's any particular division that is better positioned or contributing more to achieve this profitability. And then my second question is on precast load generation. I believe this was affected by higher outflows Sorry, we have lost the line again.

Let's do something. I'm going to answer to the first question and you can call later and we can try to understand the second question and answer it. Yeah, we still believe that the expected margin for DGI is going to be a 4%. I want to be clear. It's a fact that we are now delivering around 3.7 per quarter, and it's a small challenge. But it's not a challenge if you analyze that we are today completing a number of projects, and we are closing final settlements with our clients and with our suppliers. And our idea is that the outcome of these final settlements will give us these extra points that we need to reach this 4%. To be very honest, I don't know if I want to be in the 4% in 4.2 or 3.8, because we are talking about, I think, 10 million euros or 9 million euros. But my target, and we believe it's achievable, and we will be doing it, is we will be doing this 4%.

Thank you very much. The next question comes from Roger Kevin from Kepler Chivre. Please go ahead.

Yes, good morning. As a kind of maybe follow-up, if you make the map around your guidance, you are basically implying that the H2 EBIT margin should be around 4.5%, while the top line should not materially increase on a quarterly basis. So what makes you really confident in the way that you can jump from a quarter to another from 3.5% around to 4.5% around? And if this guidance is correct in a way, what does it mean for 2024? Because if you are also refreshing the backlog with a new wave of orders coming, et cetera, that should be also the sign that your margin would be better in 2024-25 than in H2-23. So if those maths for the H2 are correct, does it also imply that H2 the EBIT margin at Technica should be at least of 4.5% plus for the coming year? That would be the first question, please.

Okay, Kevin.

As I have told you, this 4.5 potential margin of the second half of the year has to do with something very specific. We are closing a couple of projects that can deliver some extra points in the very last minute. But this is not the average. This is not the average. So next year, I think we should be waiting something around the 4%, which is the overall guidance we have been providing for the last, I would say, one year. That's my message. Anyway, we also have to be a bit conservative. And I don't want to say we are going to be conservative next year, but if by any reason we see that the projects can deliver a better margin, We internalize twice if we want to deliver it or not. You know, we have suffered a lot in the last years, and I think to provide a guidance for next year of 4% is a wise guidance. We can do it, and, you know, it's challenging, but it's not a huge challenge. It's something achievable.

Okay. Okay, understood. And to understand also the dynamic around cash flow for the coming quarter, Is there any specific element to mention for the cash flow in terms of working cap? Maybe some, if you have a very strong age to order intake, does it mean that you should receive some prepayment and that then should be a support for the cash? Any color here?

Well, the cash flow probably would be one of the good news of the forthcoming quarters. I don't know the third quarter, but I'm sure the fourth quarter we will see very relevant down payments in the balance sheet, and probably we will not have time enough to pay our suppliers with the down payments received from clients. So we will see a significant increase of cash in our balance sheet by the end of the year. That's for sure.

Okay. Understood. Thanks for the time.

Thank you very much. Ladies and gentlemen, let me remind you again, if you wish to ask a question, please press star 1 on your telephone keypad. Thank you. Ladies and gentlemen, if you have any questions or comments, please dial star 1 on your telephone keypad to enter the queue. Thank you. The next question comes from Robert Jackson from Bank of Santander. Please go ahead.

Good morning, gentlemen. A quick question related to the U.S. and your development in that market. Can you give us any idea of what the challenges are for what you're having and more visibility in terms of timing or potential over the medium term? Maybe Joaquin could comment on what he's developing out there. Thank you.

Joaquin is going to answer this question.

Hello, Robert. Yes. Well, for the U.S., I think we have very good expectations, you know. We are fairly hard ahead of previous development for the United States, facing just to Houston. And he's working hard in these first weeks. And having as if, in fact, there are good conversations with product developers. We want to do some type of development with existing players there for hydrogen and for green ammonia projects, okay? And what we want is to benefit from the IRA incentives that the U.S. have put in place. It is something that we are studying, studying thoroughly. We are working hard with the McKinsey team that we have also there in Houston. And we are also trying to see how we could enter into new industries like demand, where we think that the carbon cap incentives under the IRA are going to be very attractive for this industry. So, well, you know, we are working, we are doing our homework, and we expect to have good news in the coming quarters.

Okay, thank you. I just have another question related to the MOU with IFC. It sounds very, very interesting and a lot of opportunity there. Can you give us any more visibility in terms of where Technicas or how Technicas can see that MOU in their backlog over the coming quarters or coming year? Any visibility there would be interesting. Any more visibility would be interesting to hear.

Yes, with the IFC, I think we entered into conversation several months ago, and we have very good meetings. You know, we are very aligned in the sense that we are going to develop good projects for green hydrogen, for biofuels, for carbon capture. We are trying to target, I would say, initially the largest emitters during the region. You know, the geographical scope is, the main countries around the geographical scope are Poland, Romania, Bulgaria, even Ukraine also, although this is not the moment, I would say. But you know that here what we see is that there could be about, from here to 2030, around 35 billion euros of investment carbonizing the assets of these industries, okay? We are going to begin to identify as the first week of September, okay? We are at the kickoff meeting in the first week of September, and we are working, I would say, hard to prepare those initial meetings. We also expect to have good news in the coming quarter. You know, we both institutions expect that we are going to have very good achievements under this collaboration.

Just to follow up, who will you be competing with in those markets?

Let me answer you to that. I mean, we are moving into a new sector at the end of the day. I mean, we do have the know-how. We do have the engineering capacity. We have increased our capacity from engineering to structuring. And the first thing you do when you develop is let's think of it as a startup. You have to gain visibility. Not credibility. We've got visibility. And I think that visibility together with the IFC, you know, it put us in a, you know, it's a jump forward, you know, very, very important. It's not the same to go by yourself knocking on doors than going together with the IFC, especially in those Eastern European countries. So what? This is very important. That's why we wanted to announce it and make it public. It is extremely important. To be successful, you don't only have to be good, you have to be seen good. And with them, we're going to be seen good. The same as in the U.S. I mean, we're good with Exxon. They know us. But we have to be seen good and believed good. And that's, you know, I'd identify the good project. And that's McKinsey's role. So I think we're working very hard in terms of visibility and credibility because we do have the know-how. Competition, you know, we don't know. Probably, you know, our long-time competitors, you know, they're going to be there and they're going to want to be there. I mean, we're not – I think we're very bright that we have to compete in this world with also very bright companies and very bright managers and very bright technicians.

All right. Let me add one thing, Juan. You know, going together with the IFC gives a lot of credibility to the investment proposals that we are trying to build.

Okay. Okay. Thank you very much.

Thank you. There are no further questions in today's conference. I now give back the floor to the speakers.

Okay.

Okay.

Thank you very much. It has been, I know it's not a good day, Friday, end of the month, and you all are very busy. So I have to thank you, all of you, that you, that first, you know, first thing in the morning is start and walk up and do the reports. So thank you for your time. Thank you for your patience and understanding. And thank you for listening to us. We'll be talking to you in November, I understand. Thanks a lot again.