Tecnicas Reunidas Sa Ord

Good morning, everyone, and welcome to TRS Q1 results presentation. We apologize for the slight delay in our schedule. We've had certain communication issues. The presentation will be conducted by our chairman, Juan Yadó, and our CEO, Eduardo Samuel. It's going to last approximately 15 minutes, and you'll be able to pose your questions after the final remarks. I now leave the floor to our chairman, Mr. Juan Yadó.

Hello, everyone. Let me start by reminding you that in two weeks, we'll be hosting our Capital Markets Day. It's going to be in Abu Dhabi, as you know. And obviously, in this event, we'll be able to devote enough time with you to share TR's very motivating and promising growth strategies. So therefore, today's presentation will have to be shorter than usual. I will start then with a short update on our commercial pipeline, and then I'll follow with some minutes devoted to TRAC and our transition energy business. It has just celebrated its first anniversary. TRAC's division has celebrated its first anniversary. Then Eduardo would follow with financial review for this quarter. And then, as always, I will conclude with our guidance for 24. So let me start with a quick glance of our commercial pipeline. When you look at this slide, an important number is that we have a strong €72 billion pipeline for the next two years. But let me work now with you with a different breakdown of the 72 billion, which I think will allow all of us to understand how TR, by engaging early with our customers, by engaging in early contracts, is today for a better position for future and healthier awards. First, we have the first tranche, 61 billion euros of our traditional EPCs, EPs, and EPCMs, I mean our service business, which are pipeline that we're already bidding. We qualify and we're going to be bidding, obviously, in competition with other engineering firms within the next 24 months. This is a traditional pipeline, and this figure already shows that investment cycle remains very solid. The second tranche, you see there are only 1.4 billion euros, which represents several contracts that TR has already secured, negotiated, and agreed. Those are contracts that we are already working with our customers on a service basis, and eventually will be converted in EPCs when the final investment decision takes place, which we expect will be within the next 18 months. And finally, you see the last tranche of the commercial pipeline. We're bidding or we're getting ready to bid about 10 billion euros, which represent or corresponds to EPCs where we have already been engaged with our customers by executing dual or competitive fees, which means we'll have to compete with one Or there are traditional fits where customers will give us the opportunity sometimes to continue and sometimes to compete. But obviously, it's a different story when you have bidding for a bid that you have designed. And obviously, many pre-fits that we are engaging with the customers. So those are 10 billion euros that we bid in that obviously not only increases the likelihood of getting awards, but also the health of those awards. So we think that this breakdown shows well how the market dynamics have changed over the last two years. So having gone through the pipeline, which I thought it was important, let's continue, as I've said, with an update of truck. which is our Energy Transmission Business Unit. Just a few weeks ago, we were here celebrating that TR, Energy Transmission Business Unit, TRAC, was celebrating its first anniversary of the public presentation. About a year ago, we made a big presentation here with our government included of our TRAC division, and we were celebrating as such. All of us, we were extremely satisfied, and that's what we want to present to you today, what has been accomplished over the last year, and how optimistic we are for the future outlook of the business. As you know, the purpose of Creating Track was to generate more opportunities in decarbonization and focus on projects offering additional services to our customers and differentiated value. To achieve these goals, we have put together different service proposals within TRAC and obviously attracting and moving into, you know, combining new business lines, combining our traditional business lines, our traditional customers with new business lines, which is basically cement and steel. So what has happened? Let's look into the left-hand side of this slide. And we see that since first quarter 21, when all of us were learning and doing feasibility studies about this market, CR has accumulated more than 300 million euros in awards of engineering services, fully devoted to a low-carbon project. And we tell you 300 million euros in services is a lot. Especially in this business, as you know very well, it's a very slow-growing business or developing business. What that means in terms of resources, what that means in terms of where are we? If we look into the right-hand side, we see that we have been very successful in developing these three lines of low-carbon business that we're very good at. We're very good at green hydrogen, and we have been successful. We're very good at biofields, and we have been successful. And we're very good, and we need it for the low-carbon capture business, and we have been successful. And let's see what that means to researchers. I mean, why are we successful, and why are we needed? We're needed because engineering resources are needed to really tackle this business. That means that we have deployed 1.8 million engineering man-hours. which are fully focused in this fast-growing market, which if you translate that into people, into engineers, into chemical and process engineers, that means that about 1,000 engineers are focused in TR in this business. So this is only where we are. And then let's just put just one quick slide to tell you where are we going. So now let's just look into the next slide. on the right-hand side as well to see where we're going. A couple of minutes ago, I told you and I showed to you that we have a pipeline for the next 24 months of 72 million euros. Well, within this year, 2 billion euros actually corresponds to projects already focused in low-carbon technologies. Let me tell you that two years ago it would have been very difficult for me and for my whole team to have that figure in front of all of you. Also, it's important to highlight that we're greatly widening our client base. Today, we have customers that we didn't have before, which is very important. And a big portion of these investments will be undertaken, as I've said before, with companies outside our traditional oil and gas base, allowing us, in many cases, to work and develop those EPCs hand-to-hand, co-developing with our investors, which was, you know, as I said before, a differentiating strategy. So I think this is my whole presentation, strong pipeline, good breakdown, and extremely well positioned in regrowing low-carbon business. And with this message, let me now pass the floor, or the macro in this case, to Eduardo.

Okay. Thank you, Juan. Good morning, everyone. Let's move now to the financial results. Well, this slide summarizes the main financial figures for the first quarter. In terms of sales, TR surpassed the 1 billion euro threshold with a 13% growth from our previous quarter. As you are aware, that quarter was a quite extraordinary small quarter in terms of sales due to a bigger than usual volume of projects in the engineering stage. The EBIT reached 40 million euros with a 4% margin over sales in line with our guidance for the year. And the net cash position stood at a healthy 633 million euros level at the end of the quarter. Focusing now on margins, you can see in the slide that in the last two years, we have consistently grown our operating margins up to the 4% level reported in the quarter. There are several reasons behind this positive recovery that were elaborated in previous results presentation. However, I think it is important to highlight them again because they will also be supporting the future margin evolution. First, we are more selective when choosing which projects we want to bid for. Second, we have implemented a proactive risk mitigation strategy. And third, the cost efficiency mindset has landed solidly throughout the company. We're moving to the cash net evolution. As you can see in the slide, the net cash efficient stands at €333 million. You know, one of the positive drivers that the actual investment cycle is bringing is the improvement of the cash cycle linked to new awards. And this is not only related to the revival of initial nonpayments, but in general, to a more positively balanced milestone scale for payments. And in that sense, to give you some additional color, while the 2023 full year figure included down payment of the MIRAN project, the first quarter figure does not include down payment of REJAS, of the REJAS project in Saudi Arabia. A cash inflow we expect to occur in the second quarter of 2024. The purpose of TR is not to maximize our cash in bank, but to consume wisely this cash inflows in accelerating the project's execution. It has been a short presentation, but now I give the floor to Juan to conclude with the guidance for 2024.

Thanks, Eduardo. As always, as usual, let me conclude today's presentation with our guidance. Our guidance for 2024 contemplates a level of 4.5 billion euros on sales and a solid 4% EBITDA margin. But this is not just a number. The message we were to throw with this guidance is that it shows that in the last two years, we have strengthened our capacity in all fronts. And let me underline that, capacity in all fronts. And today, we are ready, having been stronger as we are, to capture that we see an extremely exciting and promising market. So I do understand that it's a solid and good guidance. And having said that, let me finalize again reminding you that we'll be hosting the Capital Markets Day from the 23rd to the 24th of May in Abu Dhabi. You know that the United States, the United Arab States, you know, MBH, is... place where we're currently executing one of the most important projects in our backlog. We have there one of our most important customers and different divisions for customers and will be definitely key for our long-term growth. We enjoy and we want to be in Abu Dhabi. Eduardo, myself, and other members of TR's management team will be devoting time all the time required to explain TR's strategy and the growth path of the company in the coming years. We're very sure it's going to happen. And now, as you finish, and with this reminder, we're more than happy to answer any questions that you may want to address. Thank you very much.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. If you would like to cancel your request, please press star two. One moment, please, for your first question. Your first question comes from the line of Francisco Ruiz from BNP Paribas. Your line is now open.

Hello, good morning. I have three questions for me. The first one is on the 12 million pipeline that you highlighted on track, could you allocate this in the three blocks in terms of your commercial pipeline? I mean, how much is in the first one, how much in the second and in the third? The second one, and my second question is on the book that you expect for this year, if you think that for sure there should be an acceleration, but to be able to be at levels of one time your sales. And my last question is, if you could provide, what's the level of low-risk contracts that you used to provide in previous presentation as a percentage of total pipeline? Thank you.

Hello? I want to start with a third question. This is the only one I think we have clear. There is no significant modification of the existing backlog compared to the backlog we had 30 months ago because there are no relevant additions but the one in Saudi Arabia that we just won. If I'm not wrong, at that time we were saying we were around 75% of the backlog had any kind of risk mitigation measures implemented. So it should remain similar. It should be around this 75% at first. Regarding the first question, I think you're asking for when we are going to deliver this pipeline and what is going to be converted into EPCs. No, no.

Exactly. Eduardo, what I am talking about is taking into account the classification you made on your pipeline between traditional, awarded, and not in the backlog, and potential, if you could split the 12 million euros, 2 billion euros of the truck pipeline into these three tranches.

Thank you. Thank you for the clarification. It's 12 million euros. Four out of these 12 are part of the 10 billion euros that are already on an ongoing service contract. I mean, it's the third class. And the other 8 million euros are in the first class, traditional EPCMs we are bidding for or we are planning to bid in the future.

Okay, very clear. And the last question was on the book to build. I mean, what's your order intake estimate for the year, if you could give us some color on this?

Now, let me answer that question to you. We do believe it's not a real challenge, but it is obviously a challenge to this business to be able to replace sales. I mean, it's I mean, last year we wanted to replace sales and we did better. This year we want to replace sales and hopefully we may end up doing better. But it shouldn't be a challenge.

Okay. Thank you very much, Juan.

But we're not very specific. I think in the capital markets, they will be more explicit. I think we'll get more into detail to what we go in, what we expect, customers, markets, and type of business services, EPCMs.

Your next question comes from the line of Mick Pickup from Barclays. Your line is now open.

Good morning, everybody. Can I just ask about on that chart you gave on your commercial pipeline, 1.4 billion of awards awarded but not in backlog. You're saying FID 18 months seems a long time for stuff that's been awarded and not in backlog. So what is it that needs to happen to get those over the line?

As I said before, market dynamics have changed. They're not in the backlog, and that's why it's in the pipeline. Contracts have been secure. We're working on those contracts, doing early works and pre-feeds, getting ready and waiting for the customers. Let me tell you, customers is a blue-chip customer. They're not creative investment schemes. They're blue chips. And the customers have decided that while they put together the final investment decision on the different contracts, that they want to start with us with early works, with the contract signed, fully indexated to market changes, obviously, because it's not the same. The market might change. Some of them may convert into EPC in 12 months and some of them in 18 months or some of them one in nine. It may depend. But the good message is either real, their contracts, it's a blue chip, they're blue chip industrial customers, not investment schemes. They're just spending some money to see whether they put together a finance. It don't really have to do with putting together a complex finance. it has to do for the customers to make the final investment decision which I cannot get into more details I can tell you to Europe that's it but I don't think I know tell you to more details because I'm not allowed to be to be honest with you okay and then I

Just looking at that, obviously that slide says contract awarded, nothing backlogged, and then the next one is potential conversion into EPC of ongoing service contracts. Is that word conversion is getting more and more common early engagement? Are we heading towards an open book market? Yeah.

I mean, many years ago, open books, you know, with the market and the 19... You know, in 2007, 8, 9, and 10, you know, it was sort of trendy. Then all the crisis came. Everybody forgot about it. And now it's back in the market. And dual fits, I mean, having customers that said, well, you know, bid for us, you do a fit. Somebody else is going to do it with you at the same time. And it's a competition sometimes in price, sometimes in service, and very often in technology. At the end of the day, the customer has to decide after 12 months or eight months with whom to follow. So it's for us to do well, and it's for us to work with the customer, and it's for him to decide whether he wants to follow with us and our technology partners or with our competitors. In some other cases, it's just an open book. and we have just open books that we cannot do it because they're putting together the finance while we're doing the front-end design. At the same time, the cost estimate for the EPC, we cannot be, as they haven't got finance secure, we cannot book it in the backlog. Sometimes it's fully secure, and if you book it in this case, we cannot. And once they put together this whole thing, we have to negotiate with the customer, the EPC. which is similar. And in some others, it's just a rollover. They tell us you start with a pre-fit, continue with a fit, and we're happy with you. You continue either on the EPC, EPCM, or EPC construction management only. And that's more North America, which they like the rollovers and you continue with the customers they have been working with. And with the customer, where they have deployed their team here in Madrid to work on their jobs. So it's for us to do well, and sometimes what we say among ourselves is for us to lose, and we don't want to lose.

Okay, and then if I may, a last one just for Eduardo. You're saying on the cash side you haven't got the prepayment in yet for Rygas. Assuming working capital... is stable in Q2 your net cash is going to grow even higher and then your EV is going to only be a couple hundred million dollars you're heading well below two times EV to EBITDA on your guidance what's the market not getting

Mike, please don't ask me that question. It's too tough for me to give you an answer. Now, regarding the cash, let me go back to the fundamentals of the analysis. What for me was important, and that's what I've tried to say in my presentation, is please do not expect a very significant growth of cash flow. throughout the year because the idea is the money we receive from the clients, we want to pass it to the suppliers. It's the only way to accelerate the project. And that's the purpose, the original purpose of the down payments, you know, to accelerate and to do things smoother. So we will see probably an improvement in terms of cash, but please don't be too aggressive in your estimation because our plan is to to consume as much cash as we can. Obviously, we have certain compromises with banks, with SEPI, and we cannot go to very low figures of cash. We're not planning to do that, but be conservative, please, when doing your numbers.

Okay, thank you. See you in Abu Dhabi.

Okay, nice to see you there.

Your next question comes from the line of Alvaro Lenzay from Alantra. Your line is now open.

Hi, thanks for taking my questions. Just a follow-up on the cash flow. If I am not mistaken, in the Q4 conference call, you mentioned that you received a significant down payment late in December and that you expected to spend that to accelerate project executions. So I was expecting maybe higher cash exemptions. And since, as you mentioned, the real down payment is not there, that seems not to have been the case. So working capital or cash is roughly stable. Did you not distribute the original down payments to providers, or is it that you generated cash despite doing so? So just to understand the evolution of cash flow in Q1 in particular. Thank you.

Alvaro, there's not only one project in the backlog. It's not only the Meran project in the backlog. So the trend is we are starting to consume the down payment from a lock in Abu Dhabi. That's a fact. But also we are generating cash from other projects around the world. So the mix in the end has been to be very close to the figure we had three months ago. I don't want to say just a coincidence. I think it's good for all of us to have an acceptable level of stability in terms of cash to provide you comfort and to provide comfort to anyone around me. But to be honest, you cannot tell me what has happened with the down payment you received because you still have the same figure. There are 20 projects in the backlog and all of them are in very different stages. But in fact, we have already started with the very first purchases of the Meran project, and we are currently anticipating cash to main suppliers. So it's happening, but it's not still very material. But it's a project that was four months ago, so it's not that far. It makes sense. We have started with engineering, and then we started the procurement phase. So, you know, In four months' time, there's no time enough to consume a full down payment. That's a fact, but also we are generating new cash from other existing projects in the backlog.

Okay, thank you very much.

There are no further questions at this time. Please continue.

Well, we're all done. Thank you very much for staying with us and also for waiting 15 minutes as we had some problems with the link. And thanks for being with us. And a quick reminder again of our Abu Dhabi Capital Markets Day. Hope to see you there. We're definitely going to be there. So please come. Bye-bye. Thank you.