Tecnicas Reunidas Sa Ord

I now leave the floor to our chairman, Juan Eduardo. JUAN EDUARDO GUZMAN- Hi. Hello, everyone. You know, today, Eduardo and myself, as usually, you know, we'll walk you through this presentation. First of all, I'll go through the main highlights of this first semester of 2024. And these highlights will include our main economic figures for the period, and very important, our strategic pillars for the upcoming years. In fact, a quick review of our SALTA strategy that we had celebrated a few weeks ago in Abu Dhabi. And then afterwards, Eduardo will follow up with our business performance during this first half of the year. which would include the commercial achievements as well, as always, of financial results for the period. And then, as usual as well, I will wrap up with our guidance for the year 2024 and how I see or how we see the upcoming semester. So this is just the main highlights for the period. As I said before, and you all know, TR held its Capital Markets Day in Abu Dhabi, where we share our new strategy for the upcoming years that we have called SALTA. SALTA is the path set by TR to achieve our new medium and long-term financial goals. Financial goals that I like to start with a number, which imply doubling to 8% our 2028 operating margins. And to achieve this goal, our Southeast strategy is based in seven very important pillars, seven key pillars that I do believe is important enough that I'll walk you through now in this webcast.

The first one is service contract.

And it is the creation, it's a very specific unit to boost our engineering and project management service Our engineering business is already very good. Our customers call us and hire us to deliver and to service them the quality of engineering that we do for our own EPC project, Constructible Process Engineering. So now we're focusing on the business units to deliver that engineering to them. together with all those fit and competitive fits that are multiplying every month, as you have noticed. The second pillar, extremely important, and is very linked to the first one, is North America. We are already expanding our presence in the region and capturing the potential of the local market. The market there is booming. And we will leverage our Houston office, that we are already there, The strength in our relationship of our customers today and the new customers that you have seen, they are awarding jobs already. And the third one, and very much linked to the number one and two, decarbonization. With a very special focus on what we're very good at. You have to remember that we're a process engineering company, so we focus on hydrogen and its derivatives. Carbon capture, we are already, you know, delivering jobs to our main customers. Sustainable fuels, you have already seen that we work in other jobs on front-end design and detailed design. And decarbonization of other industries that we have already announced that we work in, especially in the steel industry in the main plants in Europe. Having these three very important key pillars means that we abandon an EPC? The answer is no. The answer is we are, in our strategy, strengthening our local presence, not only in the U.S., which is very much focused on services and deep communications, but in Europe and in the Middle East. We have to be closer, and we organize ourselves to be much closer to our customers, and we organize ourselves in execution units. We're not abandoning EPC. We're improving our EPC capacities, and we're improving our EPC capacities with a fifth pillar here that is very important, the stress. And the first example is with alliances with the best partners. And that implies our alliance with SinoPAC. You have seen already that since we announced our strategy and our alliances, we have already been awarded two very big jobs, two very important jobs. That means the risking and best managing our business and continue with our EPC business in a better way, in a better de-risk way with a strong alliance. If you have seen us with the strong alliances in Abu Dhabi, you have seen it with the strong alliances in Poland, you have seen it with the strong alliances with Sanotech in Abu Dhabi, I'm sorry, in Saudi Arabia with Aramco.

And all those five tiles,

You know, the five pillars here, you know, they have to be strengthened with quality. And what is the quality? That's the sixth pillar here, which means digitalization. We will keep increasing efficiency and productivity through innovation in digital tools and artificial intelligence. We are already doing so. And we are already doing so and sharing that know-how with our customers, which in some cases... You know, they're helping us to develop our digital tools. We're working together with them, and those are prime customers, the ones I'm talking about. That's key to the success of the previous panel. And none of this will make sense, and that means the seventh pillar, without the best talent. The quality of engineering of TR, the quality of our engineers, we have a very good reputation, is very high. Well, we have to improve it, and we have to increase the numbers, and we have to maintain and improve our internal personalized programs to the objective to train and retain and have the best career path for young and sometimes even senior engineers. So I like to use, you know, this slide which talks about everything, but it's very important that we follow the seven pillars, which I think will translate, you know, and that's, you know, in the 2028, as I said before, and I like to repeat myself, in an EBIT margin, you know, which will be very close to the 8% target. And if we move in this slide, if we focus on the right-hand side, you know, 2023 is where we are today, and, you know, mid-2024, 2023, let's compare where we are to where we want to be. We see that our ambition is to have 5 billion euros of turnover. You might think that that's very low. It is not very low. This 5 billion is composed of, you know, slightly before 5 billion on EPC, but very much e-risk EPC, digitalized EPC, with alliance EPC, close to the customers EPC, and improved margins EPC, you know. And together with our service business, our engineering business, together with our engineering business and with the objective of having a turnover of 500 million euros, you know, we ended up having, and that's a very solid $5 billion turnover, but a very solid $5 billion turnover where 30% of it, thanks to the tracking services, you know, will depend, will imply, you know, just fully de-risked service value-added business. So by 2028, we will enjoy not only a better margin, we will not only double in our margin to 8%, It will happen much stronger and help your business. So this is the important message that I wanted to highlight in my introduction, which is a very fast summary of the two days we have spent together in Abu Dhabi. So now let's move into the financial figures for the first two quarters of the year. The quality intake, including the awards recently announced, stands to 1.4 billion euros. At this point of the year, I'm considering the bidding we are working with our customers. We are doing early works. We have selected leaders in some cases. I do think, we all think, it would be a big challenge to replace 2024 sales with the new upcoming awards. So, you know, I'll see afterwards if we keep our guidance. Our revenue in these first six months of the year is 2.1 billion euros and an EBIT of 84 million euros. And very important, a solid 4% margin, 4% of those revenues. And important as well, an EBIT decision that we have closed this semester with 318 million euros level. which shows the solid guarantee of a business. And this is my introduction. Calta, strategy, and key figures. And now Eduardo will continue with our commercial performance. And it's always a financial figure for the first half of the year. Thank you. And now Eduardo will follow up.

Okay. Thank you, Juan. Good morning, everyone. Let's move now to the business performance. On the commercial side, I can assure you TIAS activity has been very intense this quarter. As we explained at our Capital Markets Day, TIAS pipeline is extraordinary, and we are being very, very selective with the opportunities we have in front of us. However, as we have highlighted on other occasions, we depend on the decision schedules of our clients. The good news in this scenario is that even before announcing the award, we are often requested by our clients to start mobilizing the project task force, schedule the kickoff meetings, or other initial activities. This is the case for the project listed on this slide. First, we have been selected by a large chemical client for a 100 million euro service project in North America. This is an extremely important milestone for SALTA's strategy, since it is a major service contract, it is in the PECOM sector, and it is in the United States. And second, as announced last week, Saudi Aramco has sent a letter of intent to the JV Tecnica Remedial Sinopec for the potential development of three gas compression plants at Jafura. In this case, the share of TR amounts to more than 1.2 billion euros. All in all, The order intake of the period resulted in 1.4 billion euros, and the backlog moved close to 11 billion euros. Finally, let me remind you the new project awarded by RWE, announced at the beginning of June, that has not been included in the backlog, as it is the case with the other two projects awarded last year by the same client.

I will elaborate about this award later. Now let me give you some details regarding the new project.

Let's start with the one in the U.S. As I said before, we can consider this project as the first key milestone achieved by our new strategy, CELTA, as it scores in two of our main pillars, services and North America. Unfortunately, we cannot yet disclose the name of the client, but it is a large petrochemical plant in the United States. The client has decided to start with the early engineering and project execution services while the environmental permit is granted. We expect the contract signature will take place in the upcoming months. The total value of the contract amounts to 100 million euros for the time being as additional services as construction supervision could be awarded at a later stage.

The works will require more than one million hours of engineering.

The second milestone on the commercial front is Saudi Arabia. In this case, Aramco signed a letter of intent in favor of the joint venture formed by Teni Carronidas and the Chinese group Sinotech for the development of three gas completion plants at Jafuga, the largest and conventional gas field in the Kingdom of Saudi Arabia. The letter of intent also relates to potential work to install a 230 kW power connection at the gas plant substation area and to upgrade the water pump system. The total value of the project is estimated at more than $2.2 billion, with a split 60% TR and 40% for Sinopec.

Its execution will require more than 400 engineers, many of them specialized in chemical processes.

We don't want to lose the focus on our strategy of consolidating a solid, service-only unit. Our customers continue to entrust TR with key engineering services required to shape their future investments. Besides the major petrochemical services awarded in North America, in the first six months of 2024, we have added 17 new awards, half of them related to low-carbon technologies. The total order intake of track and services business units in the first half of the year stands at 142 million euros compared to 103 million euros in the same period last year. We continue to see a growing demand for engineering services related to energy transition. In this regard, we are gradually adapting the size of our human resources to capture this opportunity, since it entails a company profile with more secure margins. Before closing this chapter of our business performance, I wish to share with you a couple of relevant news which reconfirms that TR is recognized by its clients as a key technological contractor. First, TRAC has entered into a key agreement with Ignis, a leading global energy company. Through this agreement, GEA will provide engineering services for green ammonia projects in Spain, from the feasibility study to the fifth stage, including the evaluation and selection of technologies. The potential final investment of all these projects could exceed 5 billion euros. And second, at the beginning of June, RWE, the largest German power producer, awarded to the consortium of Tecnica Romina San Saldo the construction of a large 800 megawatt hydrogen-ready combined cycle plant. This part is not included in our backlog, since the final investment decision by the client is still pending. This will happen once the hydrogen grid connection, the regulatory framework, and the economic viability are closed.

Let's move now to the financial figures for the first half of the year.

In terms of sales, we have surpassed again the 1 billion euros level on a quarterly basis, reaching 1.1 billion euros in the second quarter of 2024. This implies a 9% growth compared to the previous quarter. EBIT reached 44 million euros in the second quarter, with a 4% margin over sales in the first half of the year, in line with our guidance for the year. And at the bottom line, the net profit stood at 22 million euros in the second quarter of the year, and 42 million euros for the first six months. Moving now to the net cash position of the period, as you can see in the slide, the June 13th figure stands at a solid 318 million euros. It is also important to remark that in those first six months of the year, TR has reduced its gross debt in 63 million euros, which includes the repayment to CEPI of 33 million euros of the ordinary loan. Everything very much aligned with TR's goal of reducing our total gross debt. If so, I give the floor back to Juan for the final part of today's presentation.

Hi, hello everyone again. The 2024 guidance considers the level of around 4.5 billion euros of sales and our focus to reach a solid 4% EBIT margin per year. However, this message with these guidance is important to underline the term quality. with the quality of the guidance, the quality of our numbers today. Quality, because first we've been very selective, as we have said before, in choosing our project and customers, which translate in a solid backlog, profit-wise.

Quality, because our service contract starts to gain more and more relevance in our business. This is a transformation of a company which will deliver in the future more value to shareholders.

And quality, and that's the third point, because our operations are very much focused on a task execution strategy, which is allowing us and will allow us as planned to reduce our debt to the desired levels and therefore having a much healthier partnership. I feel very comfortable that our strategy is starting to pay off, and we are already scoring in several of the seven very important pillars. I am convinced to be in the right path. And with this guidance and this message, we're done, and we're all very happy to answer any questions that you may want to address. Thank you very much.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys. Again, ladies and gentlemen, should you have a question, please press star followed by the number one on your touchstone phone. One moment, please, for your first question. Our first question comes from the line of Mick Pickup from Barclays. Go ahead, please.

Good afternoon, everybody. It's great to see how easy a quarter is when things are going well. A couple of questions, if I may. Can I just talk about the engineering services contract? Obviously, 100 million euros is a big number. Can you just talk about how long that extends for and how it will impact your working capital for the year? I assume you get paid... after reimbursable on that contract. So just how does that impact your working capital outlook for the year? And can you talk about any other projects that you're seeing coming down the pipeline on that? Obviously, you've got an ambitious target in engineering services. So just this being the start, but what's next? Sorry for being greedy. Hello, Nick, this is Juan. Hi, how are you? Are you in the beach or are you working? Never on the beach. We're always working. Okay. Okay.

Let me answer you the question. If it's not fully completed, Eduardo will improve my answer. How long is it, you know, this contract? It is very similar. You know, we're doing the same contract with Eneos. You know, you have to remember that we started two years ago. engineers with a big engineering job, which was home office services, which pure engineering, the pure engineering of a job is usually, you know, on month 18, you should be around 90% of engineering. But they have to be continuing doing small pieces of engineering for the life of the job, which is four years. Obviously, now we've been hired and we have to focus because, as the customer said, we want the quality of the engineering. We want you to focus on home office services. And then we'll see how we expand because it's going to be our engineering to support us with construction supervision, with supervision of models, with other scope. But the focus now, where the customer has to focus is I will want your Madrid engineering and we deploy our team to support you here in Madrid. So this is where we have to focus. I mean, let's focus on the next two years. Obviously, with the, you know, perspective that as we do the engineering, we'll have to support the customer to supervise in the, you know, in the Gulf of the United States, Gulf of Mexico, which where construction is never easy to support them. with the quality of our engineering on the construction. And obviously, as we do engineering, we'll have to support them on procurement and activate and expedite procurement and travel with them and procurement. But now, the budget that we have announced is the pure home office engineering. But we're going to be the customers engineering overall. And this is pure cost plus. So working capital, you know, we start getting paid with this more advanced payment. And as we start to incorporate hours, they pay us. So we have, you know, working capital has no cost of working capital. I mean, you will not see big cash increases that you would not be, you know, need for cash in the market. It's pure, you know, cost plus. Okay.

I don't know if there was a third question. Just about other projects of the scope, obviously you've just started the engineering services business. This is a major milestone. What else is in the pipeline?

Very important. I mean, we are already working in early works and proceeds with customers. And those are, I'm talking the U.S. already. And with the expectations and the mutual agreement that if the project moves forward and we perform with them, we'll continue from the feed to feed and to fit to detail engineering and then construction supervision. So, I mean, that's where our expectations are very positive. At the same time, with other customers, we're signing framework agreements. And framework agreements mean that we're starting with them at the very least stage of jobs, and we move forward with the front end, and once front end is finished and you've then got the final investment decision, the likelihood of continuing with them is very high. So the level of agreements With customers, old customers and new customers, in terms of service that we're seeing today, we have never seen it before. And that's why we, you know, our strategy is good. It looks beautiful to grow, but it's necessary to deliver. I mean, we have very much to focus on services. We want to be successful when we start with the customer. And with that customer, that translates into a full job. So it requires focus, quality, and resources. And that's our objective.

Okay. Thank you.

I might add something. You know, in the Middle East, and in the Middle East, In the biggest country in the Middle East, I don't want to name customers, the number of investments that are coming up are huge. They're huge in petrochemical. And we, both contractors and customers, are exploring and we're engaging with them very early because the traditional way of going to the market, getting a front-end design, making a bid, asking customers, asking contractors to validate the front-end design in order to sign an EPC, is becoming, due to the volume, quality of the investments, type of investments, which is new, petrochemical, very different, very difficult to isolate as an EPC. is translating in a very early engagement with those customers in order to develop with them from the very beginning the large investments. And we'll see how the large investments, whether it continues as service, as EP.CM, or EPC. That's something that we'll have to explore together with our customers. So the early engagement developing the jobs with our customers A year ago, we were talking as something that we were starting to see.

Now it's a full reality. Okay. Thank you very much. Thanks, Mick.

Thank you. Our next question comes from the line of Ignacio Dominique from JB Capital. Go ahead, please.

Thank you for the presentation. Thank you for taking my questions. I have three. The first one is on the backlog. I would appreciate if you can give us the breakdown on the current status of the backlog. I would ask for a large portion in the beginning or early stages, not just to have a broad reference. Then the second question is on industry capacity. Some of your peers have mentioned that they are suffering of shortages of manpower, so I just wanted to get your view on this, and perhaps are you protected? Maybe... to the agreement with Chinopec. And my last question is on Algeria. Only if you can provide an update regarding the existing dispute with Sonatrac from QuadGas, and what is the latest status from the HACI in the South. Thank you.

Ignacio, this is Eduardo Salmegal. Thank you. Thank you for the question. I was trying to make a quick number regarding the first question, but it is not easy to give you a quick answer. But my feeling... Every project awarded in the last eight months should be in the engineering phase. So, give or take, this should be around €34 billion, so it's 35% of the backlog in the pure engineering phase. I would say another third will be in the procurement, but nearly a bit more, 40% in the procurement phase. And I'm predicting the construction would be no more than 25% because we are finishing projects that were launched before COVID, but very few launched after COVID. So that's my guess, 35, 40, 25. That's my split. Regarding shortages in the manpower, well, we have been talking about this topic quite a lot because I think we did a great job during the COVID because we were able to retain the core engineering capacity of the company. So we are not missing this kind of professionals. But it is a fact that if we want to grow, we need... I don't want to call it less value-added engineering, but let's say more simple engineering, and that's where we really need to grow. For this purpose, we basically opened a number of branches around the world. The main one is in India, and today we have in India 1,500 professionals already working there. So we have found a way to grow fast if needed. It's a fact that there is an scarcity, but we have solutions. And also I would like to mention the alliance with Sinopec. One of the reasons we are together with Sinopec working around the world basically has to do with this difficulty. I don't want to say The resources coming from Sinopec have no limit. Obviously, they have a limit, but they have the capacity to add the people we need to those places where we have some difficulties. So I think we have done the homework correctly, and I do not really believe that manpower is the bottleneck for the growth of Tecnica Roneras. I don't see a problem in this part of the business. Regarding HACI, I will allow Juan to answer this question.

Okay. I think everybody knows that we have had and we continue having and we worked on having a very good relationship despite issues and problems company to company with Sonafrac. And we have done so. And we have been announcing quarter after quarter that we have been working and exploring with them different ways to relaunch the Hathi Refinery. And even Sunatrack has made it public as well, that they're exploring ways, as it's important to them, to relaunch the Refinery. And I have to say that we're doing so, and we are positive about it. That's one thing, you know. We're good relationship and positive in relaunching Hathi. And Twat, let me tell you that, you know, despite why I might feel positive, relationship, all those things, when we have a litigation, it's not prudent and it's not correct to answer anything and to make any comment in public. So, well, I think with those two, you know, I think with that I've answered your questions.

Thank you.

Our next question comes from the line of Robert Jackson from Bank of Santander. Go ahead, please.

Good afternoon, gentlemen. Just a couple questions. First of all, related to the alternative sector, such as the mentioned steel sector, Can you give us some light on progress in that sector? And there has been talk of some, I'd say, delays in terms of investments in the sector in terms of decarbonization. Can you give us, I mean, what your thoughts are and what you're seeing in terms of what you're doing and the potential there in that sector? And secondly, in North America, The exposure to the carbon capture and hydrogen sectors, can you give us any visibility of what you're seeing there regarding the pipeline and the outlook? Whether you're working with large infrastructure funds which have the financing to support those projects. If you could just give us more visibility on those segments. Any questions? Thank you.

Hello, thank you for your questions. The cutting the steel and the decarbonization. I had a call a couple of days ago with the CEO of one of the companies, one of our clients that is working with us. And the good news is that we are clearly moving to the next stage. I mean, you know, those projects have several windows. You need to jump from one window to the next one, one to achieve certain milestones, and we are in this situation. So I don't have the feeling that there are delays. We are moving ahead as expected. But it is a fact that it's a fact that the There are periods where everyone was talking about immediate actions, immediate opportunities to come. We have seen some slowing down slowly, little by little. It's a fact. Things are not moving as fast as probably we expected. But I don't have the feeling that that's a problem for us because the opportunities are still there. We see new clients you've been talking about still. Let's talk about steel. We see new clients of the steel sector coming to Tecnica Roneras and asking us to render service in the short future because they want to invest. The only problem is that they still have to decide technologies. They are waiting the subsidies to be granted. You know, there are a number of issues that are delaying a bit the decisions, but the opportunity clearly is there. What can I say to you is that the existing projects are on its way. Everything moves as expected. So, comfortable. Regarding the U.S., well, the feeling in the U.S., everything that has to do with blue ammonia is massive, and it is happening. You know, it takes time to reach the final decision investments of the clients because, you know, they need to compose the full business plan, they need to assure that they will have available the off-takers, you know, they need to understand deeply the costs and many of those new investments The cost is not that easy to define because on new technologies, it is taking time, but the appetite is still there. Again, my message is we feel comfortable, but we see how everything is moving a bit more slower than expected. I would never say we are negative, just the opposite. We see lots of opportunities. We are signing many early engagements, many framework agreements with many players in the United States that are willing to construct blue ammonia projects. So, you know, everything is moving, probably not as fast as expected, but everything is moving. That's my conclusion.

Okay, what about in the Middle East, where there's probably more... access to financing and issues on regulation. Can you give us any visibility there in terms of the energy transition and projects you could be, you have in your pipeline in that market from existing clients?

You understand the joke. I don't want to be a gallero.

But it depends.

There are many big players we are working with in the States, and for them the priority is not the financing. It's to complete the business plan. That's the priority for them. So I don't really believe financing is, again, the bottleneck. But also what we have seen, and that's why we have some alliances with banks like the European Bank of Investments, I mean, the idea is we want to support our clients because from time to time they need some support in structuring the financials of the project. But we also have players in this market that are willing to invest in this sector. So we need to work as dealers from time to time trying to connect financial people with industrials. And that's one of the reasons why CLAC exists, because we realized that there was a big niche, there was a good opportunity of doing business because of having this ability to link those two parts of the business.

Okay.

Thank you very much, Luis.

Thank you. Our next question comes from the line of Kevin Roger from Kepler Sheru. Please go ahead.

Yes, good afternoon. Thanks for taking the question. I have just one on my side after those questions. I was wondering if you can comment a bit on the EBIT margin by division that you have seen in H1 and not only if you can comment why the petrochemical EBIT margin is so high at 25% for the H1, and on the refining side, why we have moved back into negative territory with a minus 1 EBIT margin. If we can have some color on those divisions, and notably just to be sure to understand the potential impact of this petrochemical services engineering contract, if we should then expect basically this division, petrochemical, to be again, sound in the next 18 months driven by those type of contracts, please.

Kevin, regarding the refining margin, the answer is very easy. We are about to deliver Some projects, we're in the last stages, and when you're in the last stages, you always invest in the project because you want to be on time. So we are spending money just for the sake of doing everything on time, as expected by the client. So it has a cost, and it is impacting the results. Regarding the PetChem, I don't have so many projects in the PetChem, so for me it's a bit difficult to give you explanations because it's very easy to identify what is happening in very specific projects. But last year, if I'm not wrong, the PetChem margin was around 15%, I think. So it's bigger, but there is not a huge difference. But we expect this year to – this margin should be solidly above this 20%. That's what we expect from the year.

Okay. Mark Anderson, thanks.

Thank you. Ladies and gentlemen, just a reminder, should you have a question, please press star, followed by the number one on your touchstone phone. We have our next question coming from the line of Baptiste Lebec from Otto. Go ahead, please.

Yes. Good afternoon. Thanks for taking my question. Just one question from my side. It's regarding the net financial charges, which were impacted by inflation by 6.6%. million euros in the first half, mainly due to Argentina and Turkey. Can you give us an idea of your backlog in these two countries? And can we have, let's say, an idea of the calendar of the projects which are in the backlog in these two countries? Thanks a lot.

Hi, Dr. Tift. Sorry, I was having the numbers. Yes, there is. We lose 6 million euros because of the hyperinflation. It has to do with two countries, with Turkey and with Argentina. In both cases, we are in the very last stages, very, very last stages of construction. So we have this impact now, but we should not expect very significant extra costs because of this in the forthcoming months. So... This is impact, but we shouldn't expect something additionally relevant.

Thank you very much. You're welcome.

Thank you.

There seems to be no further questions at this time. I'd now like to turn the call back over to management for final closing comments.

Okay, thank you.

We're done. Thank you very much for listening to us. Thank you very much for the questions. And then we'll see each other or talk to each other again in the presentation of the third quarter. Thanks again and have a good summer.