Técnicas Reunidas, S.A.

Hello, good afternoon. This is Eduardo San Miguel.

Welcome to this First Quarter 2019 Results Presentation that will be conducted by Mr. Juan Lladó, CEO of the group.

It will take something like 15 minutes and you can post your questions in the Q&A session that comes after the speech. And now, I give the floor to Mr.

Juan Lladó.

Hi, hello, everyone. Like this quarterly presentations, I’m going to talk about awards and pipeline.

We do a quick analysis that important of our backlog and then we go through the numbers to finalize with the outlook of both the market and TR team. Let’s start here with awards.

And here I thought it was important to talk about the ExxonMobil award in Singapore. It’s a very important refinery.

Obviously, I wanted to spend a few seconds here as I think is not only a first quality refining job, very important and very first quality. We’re going to be working with ExxonMobil technology.

It is important because it’s in the Far East. It’s in Singapore.

It’s not that far, where we have already delivered and we are doing all the testing exercises in their refinery we’ve done for PETRONAS in Malaysia is quite close. And so in spite of the market, it’s the place that would like to be.

But very important is to explain how we have been awarded. This is the result of a more than a year or close to a year competitive fit exercise we’ve done together with the Exxon team, the team that has done that exercise and that fit analysis together with Exxon.

The TR team is going to be and it is the same team that now is progressing in this new phase, which is the TR EPC phase. So I do believe because of geography, because the quality of the job and also because it’s ExxonMobil, that opens the door for new opportunities in the very near future.

So I just wanted to say that word. We’ve been very thankful to the ExxonMobil exercise through these last 12 months and very proud of our TR team on this very specific job.

And another award of different times, it is very different, because it’s a combined cycle. It’s a combined cycle that has been awarded to us by Sumitomo Corporation and GE.

And it’s in the Emirates [indiscernible] which is one of the Arab Emirates, no that far from Abu Dhabi. And what it has the peculiarity here is that we are working in joint venture with GE that is not peculiar, because we work with GE, the peculiarity is that GE select us to work with them and work for them.

We have worked in joint venture with GE for many years. The $350 million, it’s our scope, the balance of plant plus other different parts of the plant.

And GE like always focuses on the power island. This joint venture is not new exercise.

It is the same sort of joint venture we have done before in Spain with successful – very important successful results we have done with them in France and we have done with them in Holland and in different places around the world. So it shows again our quality and it shows again that our TR is always selected like sub-companies by blue chips of the industry to work with them and for them.

So that was the two messages that I wanted to sense to you and the markets. So if it’s true that our TR is being awarded by sub companies – by the sub companies in the industry, it’s also true that over the last month starting in October, we had been awarded more than $4 billion jobs, which is a sign that the markets fully recovered.

But if you go one by one of the jobs, even if it’s a front end, it’s always a tough company of the industry. And today, we have an increase in our dynamic and we have labeled these slight pipeline.

It is also true that we have our fingers crossed and we’re waiting for important awards in the first – in the next weeks or months, which is including the $47 billion pipeline, so our awards, quality of customers and quality and size of a pipeline across the industry and across geographies. Having talk about awards and pipeline is do analysis of our backlog.

If you compare backdrop of the last three quarters, you see we have increased from a slightly below €9 billion to slightly above, very slightly above €9 billion. It’s competition of that backlog.

If you look into it is obviously very important, it has to do with downstream and one third is upstream and gas. In the very near future, probably when we – I was going to say sit together, but we never sit in together, when I talked to you on my next presentation, you'll see that our gas and upstream is moving forward.

We'll take far more important part of the backlog. And in the near future, you'll see also the petrochemicals.

We'll start to get a decent share. And this analysis, I think it is important.

If you compare when you're against another some of the analyst, some of the investors across the market may think that the backlog hasn’t changed – over year has not changed in size. But I think the quality of the backlog has changed dramatically.

I mean, today we have the backlog were more than 95% effective, so it has been awarded and it has come into force. We’re working with our customers in other jobs.

And very important, 65% of the backlog is setup engineering space. [Indiscernible] have the advantage is that we have – the backlog is good, is real and today it's not reflected in revenues, it is in the near future transmitted into revenue as engineer goes fast and then you move into procurement to finalize with construction.

And having talk about the backlog, the active backlog, the backlog in engineering space, let’s talk about the quick analysis of the numbers. And I think, I haven't talked with the backlog is easy to understand by everyone that our revenue this quarter is 20% lower that it was the year ago.

Having a big and strong backlog had engineering space; it doesn't allow us to grow in revenues. It gives us visibility and credibility, but it does not allow us to grow in revenue, so that is the reason of what 21% of their revenues today – our revenues are 21% lower they would have a year ago.

If we were to do an analysis and this is an analysis that we have – we were able – we had been able to recognize the $250 million difference between first quarter 2018 – first quarter 2019. And I'm being very ambitious with margins, not very ambitious at all.

On margin, we have been somewhere between 2 and 2.5. So I like to translate to the market and to you that have in low revenues is good news.

That means in these days the low revenues with a strong real backlog in other words real backlog, active backlog at engineering space on our backlog. And also if we do an analysis or take a picture because it's not an analysis, if you take a picture of business you see that we have been able to manage the business, managing a stable net cash position, net of debt.

And we have done that despite the fact that today we are delivering and we’re delivering to customer satisfaction this by difficulties of the size and the complexity of the jobs we’re delivering very final phase more than 13 billion job in size, amount of jobs in contrast, which always has working capital requirement. And also more than 65% of the backlog, 68% stays here, is in the Middle East, where the working capital requirements are here – are bigger and much more – far more important than other regions.

So with those two considerations, I think we are doing a very distinct management of our balance sheet and we finalized the quarters with a positive net cash position. And that's it.

Let's finalize, I think this time I've done well. Let's finalize with the outlook.

First of all, outlook for the market to finalize with the outlook for TR. It is known, especially about you, it happen to be analysts of the market, there are new investments being sanctioned in our production in our gas infrastructures across the regions Asia, Europe, Middle East.

There are new investments being sanctioned very important ones in refining because of expansion, because of rail routes, environmental. And there is another secret way with ones that are big, especially in the Middle East petrochemical investments already being sanctioned and frontend designs have been awarded in the whole Middle East to create value on their gas and petrochemical environments.

And it's not as stupid for our customers, which are the ones that are making those investments that TR has the reference, quality and experience to advance these markets across all the four points that I have highlighted here, gas, oil production, refining and petrochemical. There is a recovery not only in the Middle East, not only some of the specific projects, it is the recovery that we've seen in the industry across all geographies.

If you ask me about TR's outlook, our pipeline increases, we have a big, I mean, we don't have the necessity of a bigger pipeline, but it is increasing. So this allows to be selective to focus in the jobs that we can do best and we're better at to focus with the customers that we have worked before.

And even if they are new, we do believe we can deliver the jobs at highest quality to focus on growth and opportunities that make sense for TR. It's also true that we can grow because our future sales, the realities or sales are going to grow because of what we already have.

We have a very stronger first – out first backlog, which is growing but has already started. And it's also true that despite these three or four years of difficult market we have been able to maintain TR's franchise at its best.

And I think TR's franchise today because of our engineering capacity and delivery capacity of large and complex jobs as I said, it is the key for the long-term success and then we’re very much convinced with it. And that's it.

I think I'm done. I'm done with the presentation.

And I'm more than happy to stay here as long as you want to answer any questions that you may want to post. Thank you very much.

Hello. Good morning and thank you for taking my question.

Just a quick one. You mainly tell us during the Q4 presentation about the dividend that would depend on the environment.

You have commented that the backlog environment is good, you are comfortable with the current situation of the company, so could you give us some light on the dividend payment for this year? Thank you.

Okay, Francisco, thank you very much for the question. Okay let's talk about dividends, which I think is an important issue.

Okay, let's – as you have seen, the Board meeting that we had last Tuesday, it was the Board meeting that was fully focused on first quarter results, awards, efficiency, margins and managing book. That was the focus of the Board meeting of the first quarter, which took place two days ago.

It was not a Board meeting, which is going to take place next week, it was not a Board meeting having to do with our decisions, or presentations, or agreements that we have to present, including dividend to the shareholder assembly, which will take place by the end, I think it’s 26 of June if I'm not wrong. And then you start TR.

You know that it has been and will be committed to shareholder, that was decision to shareholders’ remuneration. And the fact is it has been proven through the years is the IPO that we have been paying dividends.

However, and that's very important that the long discussions that we've had, you have to agree that is not prudent today to pay dividends ahead of profit. And that's something we have said.

It is true that also we have said, the dividends will be paid if we feel comfortable with market we covered. Today, it's true that the market is recovering and we're facing probably the major growth in awards and backlog that we have ever faced.

Because of the market size, it’s also because TR’s capacity and TR’s franchise value. And the analysis we've done and we have done not only with shareholders and Board and Directors is that it will not be prudent, and it is not prudent towards our customers to pay dividends before awards.

And that's very important. I mean, we have to show to our customers in this market.

And this market I'm talking months, I'm not talking years. I’m talking weeks and months to give the message to the market that we pay dividends before awards have taken place.

We have to show our customers the strongest TR, on every term, resources, balance sheet, capacity, we have to be able to – convinced as we've always done, that they're going to have the best TR and stop paying dividends without the backup of profits. We thought it would not be a good idea.

And now my opinion, which is my opinion, it is the management’s opinion. My opinion is that I don't believe that we don't – we cannot B2B adventures.

And my opinion again is that we have to be prudent. We have to be prudent for the sake of our customers and also prudent for the sake of our employees, I mean the management of our employees.

We have to show to both important stakeholders of TR that TR is at its best. And being at its best will be that and we are going to be awarded the biggest jobs ever, large and complex and we're best fit to develop them.

And announcing now and I say now, a dividend policy, I mean as dividend policy, I mean that will be paying a dividend against last year result, it's not assigned to our prudency and it is a bit adventurous. It doesn’t mean that later in the year, as the recovery which is true it translates in awards and it translates in cash, and it translates in profits, in real profits, not in expectations of a beautiful backlog.

Then the Board will be more than happy as they’ve always done to propose the dividend. But I think today the message we may be giving – I don't know to some of the investors, but definitely to our customers, would be that we have been a bit adventures and that is – and we don't like that.

I mean let's consolidate the business which we are going through and we already are, let's consolidate the backlog. It's allowed us to take advantage of this growth and we’re already doing.

Let's give 100% confidence to our customers, the Exims, the Aramco, the ADNOC and many others. And then let's talk about dividend.

And that’s the message.

Okay. Thank you.

Very clear.

Hi, good morning. Thank you very much for taking my questions.

Firstly, just in terms of revenue question, Juan. Obviously, 1Q is a bit lite and we noted that because you're fairly heavy on the – fairly heavy on the engineering side of things.

Could you maybe just talk us through the progression for the rest of the year? Do you see a similar sort of out there in the second quarter and then a big step up in the second half to meet your guidance, or is it sort of more progressive through the year?

If you go through the end it’s sort of justifying, I mean today we are mid-May. So what I can anticipate as we had anticipated before is that first and second semesters – quarters I'm sorry, first and second quarters they're not going to be very different.

I mean they may improve because if we – let's see how sales would go because it has to do also with some levels of procurement that we can recognize more sales or not. But that's what the number says, and that would be – there is nothing we can do with that.

But obviously, when you see the pace of our business, the jobs engineering goes very fast, it goes sometimes very, very fast. So we'll start seeing the improvement in margin to meet the end of the year target at the end of the year, not only at the end of the year, third and fourth quarter.

Okay, thanks. And then just in terms of the order intake.

Obviously, a good start to the year, you talk about, almost like a record bit pipeline. Do you think that this year, where you could have record order intake, do you think that the business can take a sort of €7 billion of orders.

Just in terms of what's out there today and how confident you are within that pipeline of where you are well positioned?

Okay. It's the question that I'd like to answer.

It's much easier than the previous question on dividend. We are ready for the €7 billion.

I mean, TR we had the structure and the capacity to take the €7 billion. Having €7 billion awards is slightly bit challenging because, big jobs have to happen and they have to be negotiated, have to be awarded, negotiated and signed.

That it can very well happen. I mean, is there – we are very well positioned, if not first position, it's some of the bit were ready in the market.

But the awards have not taken place. So, it could very well happen, but having a stronger pipeline that we have today, I don’t know having €7 billion awards, having somewhere between five and seven, that's less challenging.

And now we are working hard to and be prepare for that backlog in those jobs.

Okay. Just one final one for me, if you don't mind.

In previous quarters, you've talked a little bit about these major projects that are completing at this point in time. Could you perhaps give us just an update on progress there, really thinking things like design, et cetera?

Okay. We’re working hard and with the very final stage on the Jazan jobs which are two jobs in one that is we’re doing all the big utilities for the IGCC and then we’re doing a big refining hydrocracker package.

We are working with the customer delivering the units, order by systems by one so both of them they’re way above 90%. And now it's a team of both.

We are working very hard and our customer has to work very hard because at this stage is to work up to, I mean we're going to be finishing in the next month. Some of the units are already done.

The blend looks good. I think there is light at the end of the tunnel and there is light with Aramco and there is going to be no surprises.

There's going to be no disasters, if the quality is very good. And now we are system by system, unit by unit, the many units now being delivered, delivered, finalizing some punctuate list and being delivered to the customer.

Takes long, because it's very big and you have to be in combination with Aramco. We have many other units from other contractors to accept, they have to be delivered and everyone has to be coordinated.

So it's an issue of us working hard and us coordinating well with our customer as we've done before. So there is light – a lot of lights at the end of the tunnel.

It's a sunny light, it’s a good light. And the thing is now I cannot say not even in public, whether its weeks or months but we're finishing and we're finishing with no surprises within quality and customer satisfaction.

And the other jobs I can tell you, the other jobs are in Turkey. We're doing test runs which means we're done so that we still have marginal costs when you do the test runs.

We're working, we have delivered units. We had RAPID, which is in Malaysia, we’re also doing test runs.

We get marginal costs, very marginal but we're doing test runs signified that you have to put the units that are way above 100% and that's a mixture they work nice and smoothly. And then we have – and then we move out for a year, with that and we give our guarantees.

We are doing test runs as well in, we had some marginal problems which involves that – running the plants in Abu Dhabi, things were solved, nothing is normal. Everything within business, expectations, and again, we're also doing finance in marginal things and doing test runs.

People are saying we are very well and good coordination in the jobs with some of the units have been finalized. Now there would be finalized by the end of the year in spring next week, next year in Peru.

And we are in very good coordination with the customer, so we can maintain and take care of their plants before the utilities are finalized which are a bit behind. Similar story in Kuwait.

In Kuwait, we're already delivering units. We have already delivered some of the units by mid-December we’ll deliver orders and the full plan, we do expect to be deliver by the end of the year.

And also we are in good coordination with them to maintain the unit and preserve the unit as the utilities, water, power, hydrogen, whatever, are a little behind, just a little. So it’s good news.

It good news but it doesn’t help in terms of revenues, no in terms of a margins.

Okay. Thanks very much.

Thank you very much, James.

Hi. Good afternoon everyone.

Just two questions if I may. The first one, Juan, I think you missed that part, but you're speaking about margins between 2% and 2.5% that would be for this year.

This is what you were speaking about the average for the year. And the second question just on the – if you could help us a little bit to understand, how has this pipeline increase so much in the last six months, because it hasn’t increased by around €8 billion.

And considering that you have been awarded with a lot of projects, the real growth in new projects that you have added to the pipeline is even more. So could you help us understand a little bit why this spike in the pipeline in the last few months?

Thank you.

Okay. Nuno, thank you very much.

Let me ask you the first question, and then I’d understand the mismatch that you’re having with the pipeline, but all – let’s see if we can work it out together. First of all, when I said, between 2% and 2.5%, what I tried to say, maybe I did not explain myself properly is we were to do an analysis, we were comparing sales, the $250 million difference in sales between first quarter 2019 and first quarter 2018.

Today we have $250 million less of sales, if we were to apply a number of aggressive margins to that sale. That means – its not very big margin.

The overall margin of the fees first quarter 2019, it would had been somewhere in between 2% gross margins, 2.5% normal margins. So that’s what I was saying.

I was trying to justify or explain why we have low margins with low sales. That doesn’t mean that I’m giving to you, it is operational leverage.

I mean, nothing changes on TR, but we don’t – cannot apply revenue with margin that is not going to meet margin overall. I’m not saying the 2.5% margin by the end of the year.

And I don’t understand very much – the mismatch, sometimes the mismatch and maybe there's something that you talked to Marta, you talked to Eduardo and they can, because I don’t have the numbers in front of me, the mismatch itself easily the part of our sales, sometimes they’re not in the backlog because the services that we do in the different companies that we have from there’s one thing that produces a mismatch. There’s also growth in some of the contracts as when you working with customers it produce growth, which means, customer ask you to increase the scope and sometimes even to decrease this cost, they say, I don’t want you to be give this or that.

So there is always – so there is life, every job has its own life. It grows a little – the logical thing is it grows a little bit and in fact it does grow as many of our customers ask us to do more things in the level of the job, increasing these units and one more routes and one another vacuum unit here, the things that change – and then there are the new jobs.

And if you start to add, subtract one or the other, we come up with the backlog is not an accounting number, is not also – there is not also, but it’s not an estimate. It’s a real number.

It’s a real number also needs to be adjusted and that is another mismatch on today – at the end of our first quarter exchange rate as jobs has – in most of the cases are in dollars, with part of a multicurrency on euros. So there is always an adjustment.

Not very important, sometimes it is important. But I think this time have not been very important.

But I cannot get into depth analysis on mismatches now. Although, all I can say it’s not an estimate and it’s a real number.

Is that all right?

Yes, yes. Thank you.

Although, I was asking more was not about the backlog, but my question was, because your pipeline has increased from €39 billion to €47 billion. So in the last six months it was a very sizable increase in the pipeline.

If you could guide us a little bit through how – where these increase comes from, what are the regions that are contributing more, is this – do you feel that your clients have accelerated in terms of going ahead with projects because your price is higher? Could help us a little bit to understand this because it’s a large increase in the – in your pipeline.

Yes, that's a good question, Nuno. That – if you permit me to answer, I'm trying to look into adjustments in backlog.

The pipeline, as I said before, it shows – it never shows the size of the market that we're facing. And we don't – is there going to X number of investments in Saudi Arabia, it's not our pipeline.

The pipeline is, when we are invited or we are – then after invitation, we have to be prequalified and once we’re prequalified, we're bidding. In the bidding stage, we have already presented bids.

It shows our different stages and we don't break it down by categories. But over the last month, six months, many have announced investments in the region and very importantly, the Middle East, also in Asia-Pacific, there were announced.

Everybody talked about. It has been sanctioned and we have been invited to bid.

And we put there what we do consider that we're going to bid, we're going to be presenting. And that's why there were big investments on oil and gas in the Middle East.

Everybody knew that they were going to happen, but we were not invited to bid. Not only invited to bid, but first of all, we ask you if you want to be invited to bid, that’s first stage.

If they may invite you or not, they ask you that first question. They will not even ask.

We knew that investment is there. We were processing, we were doing marketing like always.

But it would show us now is that we have already been invited to bit, we’d bid. So that's why, it has been, we have included in the pipeline.

And also, include some of the jobs that were there before. But as we were bidding and we do expect to be awarded, if we're lucky, and we have our fingers crossed under table now in the next months.

Is that?

Thank you. Very clear.

Okay. Thank you for much, Nuno.

I’ve already been answered. but I have just one more.

I’m trying to make sense of the revenue figure and if I compare the stage of development of your backlog in Q1, it seems to be quite similar to that you presented in Q3 2018 and we could even say that this quarter has been marginally better, because you have some more weight of procurement phase. And still despite these and the backlog being higher and the FX more positive, your sales figure has been a bit below.

I don’t know if you can comment on that and also margins have been below those of Q3 2018 even though do you have also a positive impact from IFRS 16? So, if you could please provide some more detail on this front.

Thanks.

It is very difficult not to get in details. it is true that some of the – some of the jobs are moving slightly into a procurement phase, probably not at the pace we had expected in the Middle East.

Definitely, they’re moving to procurement phase, but at a lower pace. And their big jobs, their big jobs are being financed.

they don’t want to go faster until they have this full financial closure in some of the jobs first in Bahrain. The financial closure is taking place now.

So, those big jobs, we’ve seen the big financial structures having some pace to that. We have some slippages, not in the quality or in the job, its slippage is in the procurement phase.

So that might be affected. But I’m talking to you out of the blue, just trying to compare really quick one quarter against another.

So it’s not easy. It is also true that some of the jobs, Kuwait, Malaysia and whatever, are practically fully delivered.

So we have to take – there were regular revenues, but now it’s practically nil. So that also affects the low revenue this quarter.

But I don’t want to sound – but I don’t want to answer, but it is what it is. I mean the mix of different pitches in all the different jobs, give us the revenue, that give us that – which is what it is.

There’s nothing we can do. It is – the important thing, I think the very important thing is this business is extremely difficult to measure on a quarterly basis.

I mean, it’s from difficult to impossible. But the important thing is that all the jobs we’re delivering correctly and successfully, very important, which affect obviously revenue.

And very important, all the jobs, they’re either moving into procurement, in other engineer phase and they’re moving into procurement and there are more to come. So those are the three messages here, delivering correctly, all 60% of the backlog is today at engineering phase, and we’ll have to move to the end of the year into procurement, and there are new jobs that we do expect and that’s an expectation to come to strengthen the backlog.

But it’s difficult for me now to our – to get a detailed comparison of first quarter 2018 with this first quarter. There is the accounting, we have two auditors, and that we come.

Okay. I understand the complexity.

Thank you. Thank you very much for the information.

Okay. Thank you.

Hey, good afternoon. Two questions from my side and the first one was related to a pipeline, I don’t know if you could provide sensitivity of what the FEED contracts that you announced today, I mean sharing in that bidding pipeline that we assume – they want to provide for the next two years more or less.

The second question will be related to the provision you booked in the fourth quarter results. If you could provide cash out flow related to that provision and if it has had an impact in the progress of any specific projects once moving to mechanical completion or the ones you removed already from the job list.

Thank you.

Okay, Luis. Okay.

Let’s go, first of all in the first question FEED. We have more FEED than ever.

I think today we have far more – our strategy is to be better at FEED than to have more FEED that we ever had and we have been very successful. I think still we have – there is a lot of room for improvement that if we have more than ever.

What the FEED in some cases, not all, but indeed in the most of the ones we’ve got once we finish, would give us the opportunity with that FEED to bid into the EPC phase. All I can tell you the FEED that we’re doing for Russian customers, the FEED we are doing for Middle Eastern customers, they’re doing well, they are progressing well.

But obviously it’s too early to say whether we are going to be successful or not. So let me be very candid with you.

If we were to be successful, I won’t tell you, I cannot, I will not – those are things that I cannot say in public. But what is true is that over more than a year ago, we’ve been inconsistent that it was important for us to move more and more with our customers into the FEED stage because it give us the opportunity to make money on the FEED itself, to improve the quality of a process development, to understand our customers better.

And also to be able to put together a better offer on the EPC phase. It doesn’t mean it has to be more competitive.

It has to be a bit of derisk enough that we really – on a job that we really understand with less uncertainty, sometimes a competitor may come and because they had less information is more competitive and probably they’re making a mistake. That’s a risk obviously we’re more than happy, happy to run.

The second one – we have more questions, yes, provision. There was a – the provision was taken at the end of the year, it’s too early to say whether it's going to be translated in cash or not.

It’s just a few weeks – few months have gone through, they are in the balance sheet and there is no news.

Okay. Thank you very much.

Sure.

I understand there is no more questions. You have taken this altogether slightly less than that 50 minutes.

We’ve done well. So I’ll be talking to you next quarter, which will probably be at the end of – very end of July.

Thank you very much for attending this meeting and thank you very much indeed for posting the question you’ve done. You’ve post as I think it clarifies this whole thing.

Thanks a lot again.