Tecnicas Reunidas Sa Ord

Good afternoon, and welcome to TR's nine-month 2024 results presentation. It will be conducted by our chairman, Juan Gallo, and our CEO, Eduardo San Miguel. It will last approximately 20 minutes, and you'll be able to post your questions after the final remarks. And I'll leave the floor to our chairman, Juan Gallo.

Thank you very much, Antonio. And good afternoon to everyone. Sorry for being here with you this late. We had a morning with customers. Nowadays, it happens often, but not always on a Friday. As usual, Eduardo, Miguel, and I will walk you through today's presentation. And first, I will provide a very brief overview of the main figures of our performance for these first nine months. Second, I will get more in detail of the recent commercial performance of this period. And then Eduardo will update you with the various milestones achieved by TR in our operations, in our delivery of projects. And then he will continue with an overview of the financial results. And as usual, I will wrap up. with our guidance for 2024. And let me go through the highlights. First one, our quarterly intake, which obviously includes the announced awards, stands for 4.1 billion euros. If you all remember, we always had the question of whether we were going to be able to replace sales with new awards this 2024. And I guess that, you know, with these new awards, this is not a challenge anymore. The second important number is backlog. It's already in page, translating to a record backlog of 12.4 billion euros, which is the highest number we have ever recorded. This is important, but most important is to precise the quality of these backdrops. Most of it, and if you review them one by one, has been awarded to us together with the strategic partner. The strategic partner, which allows us to focus ourselves on the quality and the excellence of the institution, and Good risk management. Third, our revenue for this third quarter. So, you know, it's the first nine months of the year have amounted to 3.2 billion euros. Getting those records to our target and guidance for the year. Which has translated into an EBIT, which in our business is our operation margin. of 131 million euros, implying a 4.1% margin of sale, which is on the environment, on the neighborhood, of our target, of our performance target, and our guidance. And as well, regarding our net cash position, we have closed this period with a consistent level of cash of 298 million euros. I think those are five numbers, but very important, and sell it by the highlights, the numbers. And now let me go through and elaborate more in detail their commercial performance. Here is the slide, which is... get into detail, it's not the purpose of confusing, you get into detail of performance for these nine months, which has been the result of a good strategy and good market trends. First, as you may recall, in July, we were selected by a major chemical customer, which still we cannot release the name, still we cannot release the name for more than $100 million euros in a petrochemical project on a service basis in North America, very much within our strategy, very much within our Southeast strategy, which is what we have announced to you, presented to you in a couple of more days. We are very fully engaged with the task force, integrated with our customers here in Madrid, adding value to this very important job. Second, furthermore, we also announced in July that Saudi Aramco awarded to the joint venture of TR and Stanopec the development of free gas compression plant of Yafura. Our stake in this job is 60%, which amounts of a bit more than 1.2 million euros. A very important job, I guess, for us, obviously, and for Saudi Aramco. Additionally, we have been awarded more than 72 million euros in other service contracts, costless contracts, front-end design, competitive fit, and other engineering jobs for various customers here in Spain, in the U.S., and where we have a strong presence in the Middle East. Covering a wide range of products, which starts in low-carbon products, uh, projects, petrochemicals, as well as natural gas. And last September, I'm sure you recall that a consortium led that bypassed Moody Gas and wooded the development of an ethylene cracker, again, to the joint venture on a 50-50% basis of Tecnica Ronedas and Cenotec. This is a very important job because of the customer. because of the meeting, and because of our strategic partner, and I will elaborate in more detail in my next slide. And finally, as it happens now more and more often, clients start asking us to mobilize to the project, obviously getting paid, you know, organize the task force, starting the job, and planning the kickoff meeting, which is exactly what we have announced today. This is the announcement of the large three combined cycles. Unfortunately, we cannot disclose the specific details of this job, but it's important to clarify that we have already been engaged with the three combined cycles, that the amount is 1.45 billion euros, and it's in the Middle East. In summary, the order intake for this period is 4.1 billion euros, which translates, as I said before, into a backlog of 12.4 billion euros. And now let's just spend a few minutes or a couple of minutes, no more than that, on the Cash Minute Gas Awards. On September 18th, the construction, which was led by Capital Gas, Gas Stand is a state-owned oil and gas company. Together, which as we've seen in this case, is also a customer with a 30% stake, Sinopec awarded the development of a steam cracker unit to the venture of ourselves, the Nicaraguan leaders, and our Chinese partner, strategic partner, Sinopec. This contract, or this award, is part of our strategic agreement with Sinopec, and is already the third job awarded 20 kWh Sinopec gas, which is important. In this case, the generation partners, TR, choose Lucas Technology, an extremely well-known U.S.-based company with whom we have worked, you know, for years. Some of you may not know that the owner of CR is LUMUS, you know, in the 60s. In this case, LUMUS is the technology influencer for this different partner unit. This decision underscores the emphasis of utilizing strong, proven technologies which we work extremely well to develop and grow in this petrochemical sector. This is an ethylene cracker, and there are not that many companies which can perform design and condition this type of petrochemical sector. This cracker, which is a critical component as I said before, of any petrochemical complex, we utilize natural gas source from the gas system's abundant fields, and eventually would, you know, generate a variety of petrochemical products in the local market, and also the exports to other geographies manage the idea that we need gas and this data for gas. And in this slide, I wanted to put emphasis on our service-based business. When we say 172 million euros of services compared with a full billion of awards, you might think it's not important. This is extremely important. And this is a demonstration that our SALTA strategy is already paying off. And, you know, we are continuing strengthening and dedicating our service on the unit block of services. This shift services reflect the awardness of the growing demand for these types of services, engineering services. We have been grooving by an increasing number of assignments of our clients who are entrusting more and more PR at the very early stages of their investments. So the contract is a clear demonstration of our focus and commitment commitment, offer service factor, offer service units. You have to compare that up. Forty contracts, if you compare with the 27, you know, a year ago, it's a big jump. And it shows fully dedication of TR to our customers and to this business. This includes projects as fees-per-fees, basic engineering scope, feasibility studies, technology assessments, many initiatives, a lot of initiatives related to low carbon, ammonia, EFUELs, and carbon capture technologies in the U.S., Europe, and in the Middle East as well. It's important also to mention, and it's not a contract, but it's a memorandum, and it's very important for us that recently it was announced you know, publicly announce the Memorandum of Understanding that will reach with excellence to provide a comprehensive property capture, transport, and storage service contract. This is the very beginning, the early beginning of a long trip together. And after these slides, Eduardo will drive you through

Okay, thank you, Juan.

And good afternoon, everyone. As Juan says, let me give you an update on the operations performance of this period. If we talk about performance, we have to talk about project delivery. So let me first elaborate on two projects where we have already achieved some of the final milestones. The first one is the Buhasa project for ABNOC onshore. TIAR has recently reached the mechanical completion of the main plant units, which is a crucial step forward as we progress on the startup of the new compression facilities. Buhasa is a 1.5 billion euros LAMSAM project that was awarded in late 2018. The project included an oil gathering system, a number of state-of-the-art gas compression facilities, and an extensive network for water injection units. The complexity of the project had to do with being a multi-site project. In fact, the project facilities were disseminated in a vast area of approximately 176 square kilometers, with more than 191 sites. The project has also been another good example of our commitment to the highest safety standards in the industry. Notably, this project has reached an extraordinary safety performance with 72 million safe man hours logged. It is the highest safety achievement in the history of Amnok Onshore. The second project I would like to talk about is the coke boiler replacement for Suncor. On October 15th, Ténica Ronidas successfully completed the first fire of the first gas turbine, and now our team is actively engaged in the hot commissioning and startup activities. This project refers to an 800 megawatt cogeneration plant in Canada, using Mitsubishi technology. This project aimed to replace an outdated coke boiler by two highly efficient natural gas cogeneration units. The project will allow our clients not only to enhance the steam efficiency, but also to strengthen its power export capacity to the Alberta grid. In fact, we are pleased to announce now And yesterday, it was the first day the steam produced by the unit was sent to other Suncor facilities. We believe this milestone underscores not only our technical construction and commissioning capabilities, but also our dedication to providing sustainable and high quality energy solutions to our clients. Now, let me move to a different topic. which is extremely relevant if we want to secure the immediate growth and the improvement of profitability, the human resources. As outlined in our Salta strategy, explained in the Capital Markets Day, given the growing demand of services-only contracts, PR has to increase its engineering resources. Although it is a quite hard challenge, due to the scarcity of professionals in the energy sector today, I believe we believe we are being successful. A few examples. In Spain, we have increased our workforce by 20% in less than two years. In India, we have almost tripled the staff, which actually has over 1,500 skilled professionals. Furthermore, In the Middle East, particularly in Saudi Arabia and the Emirates, we currently employ close to 500 engineers, positioning us strategically within this data region. We are also very proud of being honored last October with the award of the Top Employer 2024 Certification, a recognition that contributes to attract top-tier talent. Another fact that contributes to a better management of our human resources has been to integrate the digitalization in many of our processes. By adopting advanced digital solutions, we have not only optimized our resource allocation, but also achieved substantial cost savings. I wish also to emphasize once again that digitalization is a differentiating factor that contributes clients wanting to partner with us. And now let's go through the financial figures. In terms of sales, PR has once again exceeded the threshold of one billion euros on a quarterly basis. achieving 1.1 billion in revenue for the third quarter of 2024. Our EBIT for the quarter reached 47 million euros, resulting in a margin of 4.2% over sales. The overall margin over sales in the year stood slightly above 4%, which is fully aligned with our guidance for 2024. Today, I also would like to emphasize how our 2024 nine-month figures compare to those we had one year ago. When we talk about EBIT, it has grown around 10% due to a very solid performance. Similarly, at the bottom line, our net profit reflected a substantial increase of 58% compared to the same period of last year. All those figures highlight 2024 has been a year of growth, both in sales and margins. And we have no doubt this trend will consolidate in the forthcoming years. And turning to the balance sheet figures, we can see again all figures have significantly improved during the last 12 months. Net cash figure has grown 23%, the equity has grown 19%, and the gross debt has increased 15%. The evolution of all those figures proves the good performance of all our operations, and we expect they will go improving in the future years, especially regarding the net cash. You have to bear in mind, and that's important, but the 298 million euros as of September we have in cash does not still include any down payment from the awards obtained during the second half of the year. But saying so, I would like to insist in the fact that under the actual market scenario, where clients demand us to accelerate the projects, the wise way to use the cash is not to accumulate it in our balance sheet, but to pass it to our suppliers and allow them to execute their works smoothly. I think it's also important to remark that Tecnica Ronia's equity position has comfortably surpassed the 500 million euros figure. And now I leave the floor back to Juan for the conclusion of today's presentation.

Go ahead. We typically do, let me conclude the resource presentation with my view, my conclusions, and the guidance for the year. And this time, this quarter, I'd like to send a message of optimism. In the message of optimism, I'd like to, with this message, I'd like to paraphrase and repeat the message that I wrote in the results release notes. You have seen in the highlights that we show into the market, quarter after quarter, positive trends. Those positive trends are confident and optimistic and will persist. And they will persist, very important, because of the market, because of the market dynamics. The market is demanding our service. It will persist, the positive trends, Because quarter after quarter, we're gaining more and more trust with our customers. I can assure you that we continue to do it. We're very well positioned with our customers, and we grow alongside with them. And we're persistent because our strategy, more dynamic, and customer trust has translated into extremely high quality and record value. And I'm optimistic because I'm absolutely convinced that our strategy that we call SALTA, it's already proven to be the right strategy. And respect with guidance, let me reiterate our commitment of finishing this year with sales in the range of 4.5 billion, alongside the focus on achieving the solid EBIT margin of 4%. And now we will be glad here to answer any questions or points of discussion that you may have. 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 star followed by the one 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 star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Kevin Roger with Kepler Chevrolet. Your line is now open.

Yes, good afternoon. I would have three questions, if I may. The first one is on the working capital. Working capital has deteriorated this quarter. So can you give us a bit of color on the working cap and how you do see the evolution of the working cap over the next 12 months, please? That would be the first one. The second one, you mentioned in the remarks that you are expecting a gradual improvement quarter after quarter. We have seen this quarter the EBIT margin increasing slightly. Does it mean that Q4 this year, Q1 next year, you expect this slight improvement in the EBIT margin to continue quarter after quarter? Just to be sure we well understand that. And lastly, A few words on your remarks around the commercial pipeline, the expected commercial dynamic. So any color here would be helpful also, please.

Sorry for the interruption. This is the operator. We are not able to hear you. We are here.

Okay. Regarding the working capital, you know, when I have a look to my balance sheet, what I see is the result of a mix of EPCs that are currently being launched, EPCs that are about to finish, and still a modest volume of services. Projects that are in the very early stages, if you don't get a down payment, used to be neutral. Projects that are in the last stages and you are in the last moments of the construction, they tend to consume cash until you receive the final retention from the client. And the services, if they are not relevant in terms of size, they produce little cash. The point is I am still not happy with the picture I have in front of me, but I'm pretty sure that once the existing projects that are in the engineering phase will start entering into the procurement phase, we will probably see a significant improvement in that situation. Obviously, we have our predictions, and we are not going to – I want today to share with all of you which are our forecast for the next year. But what it is very clear is that little by little, you will see a clear improvement of the cash and the working capital throughout 2025. As I said before, we still are waiting for the down payment of the three last projects you have in the list that Juan has provided today as new awards. So they should have an impact or in the last quarter of this year, or in the first quarter of 2025. That's regarding the working capital. Regarding the margins, yes, you have realized that little by little, our margins are improving quarter after quarter. I do believe that quarter is not the best way to understand how the project is evolving. Okay, what we told Dr. Marcus Dana, whatever it was, By the end of 2025, you will see us solidly installed in the 5% margin. That's what we expect for that year. So the consequence is that next year, we will see again how, again, little by little, you will see quarter after quarter, how the margins will go on improving. That's what I expect from the next year. And regarding the commercial pipeline, I will let Juan to answer you.

I could agree more with Eduardo that, you know, we have to report quarters because we have to report quarters. And you have to talk on us in quarters because we have to make, you know, talk on quarters. But this is not a quarterly business. You know, this is a yearly business, and this is the presentation that we made, you know, in Abu Dhabi. But nevertheless, we'll continue presenting on a quarterly basis. But if you want some color, I can give you a color of optimism. We have not presented this time, and so the size of the pipeline, but it's strong. It has not decreased because of the awards. It's a bit bigger than the pipeline that we had at the previous quarters. Very strong, very strong, and very strong worldwide. I mean, very strong in Europe. and extremely strong in the Middle East on the petrochemical sector, and very strong in the U.S. We already have a footprint. This is petrochemical. So you will see that we have some success stories in petrochemicals. Extremely strong in gas. Obviously, if it's strong in petrochemicals, it has to be, if it's strong in gas, it has to be very strong in gas. But not only gas for petrochemicals or gas for consumption, but also gas for power. which downstream with extremely well positioned. Very often we have said, and I guess we are the only engineering company that works nicely, and I understand extremely nicely, with all the power plants or power generator or technology suppliers. GE, Siemens, Mitsubishi, and Ensemble. And we have signed contracts with all of them. And you will see conversions into lump sums with caveats to lump sums with all four suppliers, technology suppliers. And optimism and with a growing and a stronger quarter after quarter pipeline on low carbon technologies. Some of them Hopefully, you will see conversions from front-end design, which are competitive front-end design, or open-book front-end design. And you will see more and more front-end, just pure, you know, service contracts on low-carbon transition. I mean, transition is a great opportunity for TR and for competitors as well. But I think that is There is food products. It's very important. Our customers are very much focused in the low-carbon transition with our traditional customers, as well as the new ones. So, pipeline is strong, and together with our delivery capacity, we're gaining more and more credibility with our customers. We have delivered, and we're delivering very large projects, and that translates into a stronger automatically into a much stronger pipeline.

Thank you very much, Kevin. Have a nice weekend.

Your next question comes from Nika Pickup with Barclays. Your line is now open.

Good evening, gents. Just to follow up on what Kevin was asking there about your margin improvements, if I listen correctly, I'm sorry, I couldn't find your presentation. You're doing 170 million services this year. Given the much better margin in that, I would have expected it to be just dropping through a bit quicker onto your group's margin. So are there some costs associated with building that services line, which are holding that margin dropping through to the group level? And secondly, in your text, you mentioned the Algerian project. Could you just give us some colour on where you are on that? It's nice to see you mentioning it as moving forward.

In the first question, 172 million euros have been awarded within the year, but the delivery of those services is not in the year. Within the year, it takes at least a couple of years. the impact of the services in the revenue line is not that big. It's not that big. And if you are wondering what happens with the margin that comes from this and if it should be improved in the overall margin of the company, again, I go back to my first answer, to the cash. You know, today we are in a mix of projects finishing, projects being launched, services, but not significant volume of services. You know, the overall picture shows that clearly. Now and in the future, you will see little by little the impact of those services. But don't ask me today to show you extra 50 million euros because I have a bigger share of activity devoted to services. Finally, you will see the results of the services line in 2026. That was my message for you. Give me at least one year because I need to construct this service division now And until then, you know, you will not see material impact. That's my answer.

Let me ask you about Algeria because, you know, by tradition, I always talk on Algeria. It has to say anything. Our relationship with Sonatrack is better. I'm not going to say month after month. It's day after day. So we are very close with them, and I'm very optimistic on this project. That's very optimistic. That's all I can say. Okay.

Thank you, Juan. Have a great day. Sure. You too. You too, man.

Your next question comes from Robert Jackson with Banco Santander. Your line is now open.

Hi, good afternoon, gentlemen. I've got a few questions, and I'll take them one by one. So first of all, the first question is related to your low-carbon technology, the sales activity, which has increased from levels of 25 million euros in nine months last year to 94 million this year. Could we have some sort of breakdown of these sales? That would be my first question.

Robert, I'm not going to provide you now a breakdown of the sales, but I think it makes sense to analyze this issue in detail in our year-end results, okay? Because I think it was a few minutes to talk about how do we split the total sales between the different activities. But something you have to bear in mind, there is one EPC, at least inside those figures, So it's not only services. You know, last year you can revisit all the announcements we made last year, and there is one EPC inside those 90 million euros. So it's not purely services. But I understand the point. I think it makes sense to analyze in detail what we have done in the services, but the idea is to do it by the year end. And Antonio is offering, if you want to talk with him, please, he can give you some thoughts.

Okay, yeah, the reason why the significant jump versus last year, but I understand that we can wait until the end of the year. Okay, my second question is related to regarding the decarbonization of industry and potential projects. We are especially related to the steel sector. We're hearing a possible slowdown in investment provisions in this sector. And is this something that Technigas is also dealing with or seeing from your side in this sector?

Robert, Joaquín Pérez Ayala, a good friend of yours, is going to give you an answer.

Hi, Robert. Good afternoon. Well, yes, you know that we have always considered that there was an excessive hype in the news about the path of the rhythm of decarbonization, no? But, you know, what we are seeing here is that our clients, the good clients, are still committed to the decarbonization efforts, okay? So that's the first message that we want to deliver. It is true that some of the strategies, they are redefining them, okay? We are seeing clients in the steel sector that are moving from hydrogen to carbon capture, okay? But what they need also is to see how the whole value chain is built, okay? So this is something that we are seeing in the market. Apart of that, what we are seeing also is that we have in the pipeline and we are already delivering services for projects that have pretty good fundamentals, okay? We are currently working in proposals and in union services that amount more than 2 million tons just for the cement sector, for giving a figure, okay, for giving a figure. So the market is there. I think that the hype has disappeared. We have this good cream of praise with good fundamentals, and that's in what we are working on.

Okay. I think I've got another question for you, Joaquin. So considering the U.S. market and the development of renewable projects, for example, in the carbon capture and hydrogen. Do you see any risks with their opportunities from the infrastructure funds who may be looking to finance new projects and thus may be more independent of the possible risk from the new administration? And also, some of the U.S. oil majors, they're also looking to invest in renewables. I think there's ExxonMobil looking at one of the largest hydrogen plants in the world Could you give us your thoughts on these developments? Thank you.

Robert, I have just landed this morning from the U.S. This week I have been there, and we have had several conversations with experts in regulatory affairs, okay? So the message that we get from them is that we think, and we want to be very cautious, but we think that the Trump administration could even be better for investment in low-carbon technologies than the previous one. And I mean by that is that some of the regulatory requirements are going to be relaxed. I'm talking about, for example, additionality or incrementality in the hydrogen business. And on top of that, you have to consider that the red states are very fond of hydrogen, the green and the blue, okay? The blue is with natural gas. It was carbon capture. So we see that there is going to be an increase of speed, okay, in this market. And one thing also that is very important is that it seems that with this new administration, the permitting process could be – It could be faster. Okay?

Yeah. Okay. Yeah, that's a good point. Yeah. Okay. Yeah, very interesting. Okay. Thank you very much indeed.

Thank you.

Thank you. Thank you, Robert.

Your next question is from Salit Leet, Kesa Bank. Your line is now open.

I have just one additional question. When do you expect a final resolution regarding the ocean litigation with the side that's also regarding KPP in Finland? Because in your annual account, you mentioned that the final decision is expected to be in 2024. I'm wondering if you feel the case. Should we expect something until the end? Thank you.

Felipe, I have to be very sorry.

With some of those litigations, we can be optimistic, but I don't think it's correct or sensible to talk about litigations in public.

So I cannot, you know, do any further analysis on that.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Alvaro Lenz with Alandra. Your line is now open.

Thanks for taking my questions. I wanted to come back to working capital. You still have some $150 million of net working capital financing given the new model in which you will pass through the prepayments and you I assume that you will be moving towards a more working capital neutral scenario in the future, right? So if that is the case, what I would expect, I would expect that financing to come down, maybe eventually turn to zero. But I would have expected that, which is the trend that you seem to be heading, but I would have expected that to come from a reduction in the balances of accounts receivable and accounts payable. And what we are seeing year to date and quarter on quarter, is that the reason why this financing has been reduced is because your accounts receivable is increasing, not because you are paying suppliers, which is what I would expect with the fact that you're in the latest stages of some projects and you're ending deliveries and you're still paying the suppliers and you still have some retained accounts, but I would not expect the accounts receivable to continue to increase. So, could you explain us the moving parts within the working capital? How should we expect them to evolve? Thank you.

Thank you. Thank you, Alvaro. It's a good question. We have been analyzing two previous questions this issue, and I think I can elaborate a bit more, yeah. You know, it is, again, let me, allow me not to compare quarter versus quarter. If you analyze year versus year, and you make your numbers, you see that both the account receivables and the accounts payables are very similar, as you said, but there is a difference. The activity of the company has grown around 15%. So, if the volume is the same, but the activity has grown, percentage-wise, both the account receivables and the account payables are smaller. So, we are already showing the market through the balance sheet that the profit and the cash is improving and converting into a better balance sheet figures. So that's first. Regarding the other question, regarding the other question, which is, are you going to move to a need of zero financing facilities? The answer is it will take a time, could happen, but it's not realistic to expect that because of two reasons. The first one, The first one has to do with a message I have given you hundreds of times. I want to pay as quick as I can to my suppliers. And if I need to get some finance from someone to accelerate those payments, I will be doing it. That's first because it's good for the project. And the second reason has to do with how we work. You know, we try to keep separate all the different projects in our backlog. You know, we like to mix. If we can avoid it, we avoid it. And from time to time, a project demands that fund cash. And we don't want to move money from one project to another, which in other reasons, because we are in a JV and we have partners. So our partners should not finance our deficits in other projects. So it's very difficult for me to do a kind of huge project. cash flow with the whole company, with every project, it can happen. So I will always have some finance facilities available in my balance sheet. And I think I have answered your two questions.

Yeah, thank you. Thank you, Eduardo, for the additional talk. Thank you. Thank you. It's been a pleasure.

There are no further questions at this time. I will now turn the call over to management for closing remarks.

Well, thank you, all of you. Thank you, all of you, for staying this late. Thank you, Kevin, Mike, Robert. I'm going to now leave the all of you for, you know, bringing good questions to this late evening, almost evening Friday session. And we'll be talking to you again, I guess, will be at the end of February with the end of the year and audited numbers. Thank you very much again. See you soon.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.