Técnicas Reunidas, S.A.

Good afternoon. This is Eduardo San Miguel.

Welcome to the Third Quarter 2021 Results Presentation that will be conducted, as always, by our Chairman, Juan Lladó. It will take something like 20 minutes and you can post your questions in the Q&A session that comes after the speech.

And now, I give the room to Mr. Juan Lladó.

Hello, everyone. I have a presentation that if I want to make it in 20 minutes, I’d like to make it in 20 minutes.

I have to go fast and be precise. So I’ll try to go fast with my slides.

And then if you need some color to this presentation, I’m sure you will get it through the Q&A session at the end. Okay.

This presentation is structured basically in two points is where are we today, where our third quarter results that you’ve already gone and read that we are giving a guidance of end of the year of a breakeven? And that breakeven, how it has been impacted, which I think we’ve always talked about COVID and non-COVID.

But I think now that as we see it in the back of us, I think it was an analysis and what was the impact of our operations and how it has been impacted our sales margin and obviously, cash position. Once we go through that, which are the numbers and the analysis of those numbers, we’ll go to what I think is extremely important, how do I see 2022 as we move forward?

Why are we well positioned and very well resourced to benefit from these new awards and the market? And a brief summary, we have to go through awards.

I mean we are well-positioned, because we have strong awards, quality excellent quality and well de-risk. We came with the problems and excuses that started towards the end of 2020 with all the big factor that we had, had been reprogrammed.

Now we use the opportunity, we’re sitting with our customers, how we can bring all those jobs, again to 2022 for many of the jobs they have moving forward to 2023. So all those restarting jobs, which is close to €4 billion, it’s a big figure, are being reprogrammed back to reality.

And positive, let’s talk about future, because we’re extremely well positioned in what we call energy transition. We have customers, we have contracts, and we’re taking a very proactive role.

And taking a proactive role is good, and we’ll talk about that later. And very important, because now with the SEPI agreement that we do expect the funds to come in shortly.

We’re financially back where we were at the end of 2019, where we had organized TR to grow with the big backlog that we had. So in all these four points allow me to be positive and say that we’re extremely well positioned and well-resourced to go back to benefit growth and margin trends and that that will be summarized on my outlook and guidance.

The first part, as I said, results is impacted of COVID. Sometimes I was a bit about this slide, because it’s one of those things that all of us think – I think it’s worst doing analysis.

Some companies have more impact. Some others had less impact.

We happen to be the ones that had more, because of the stage of the backlog that we’ve got and the stage of our projects and where we had our project, which in more cases where the Middle East. So we had big impact in the managing of the site, mobilization and demobilization.

I’ll come out with an example afterwards. Obviously, a big impact in managing the manpower and logistics, lack of flights, visa problems, delays of equipment, quarantines, to give you some examples.

And obviously, the managing of subcontractors with the delays in claims, and that translates into how do we manage the project, which is starting on the days, are we able to progress? Are we reaching the milestones?

Are we getting paid? Well, billing has been difficult.

Billing at construction stage with the delays and not being able to reach milestones that we have by contract. It was very difficult.

Some cases, we have been successful in restructuring the multiple, some others not. But today, progress is back to the trend that it was before and obviously, that these difficulties can always be resolved if we have good customers in face-to-face negotiations.

But extremely difficult through Zoom or through Teams or through all those new means that we are very proud of, which is good, but not to resolve conflicts. It’s same with change orders.

We have agreed lot of change orders with customers, and we’re moving forward quite successfully with them. But those change orders will be translated in cash at the end of the project, they always are.

So there is all the impacts of our balance sheet and of our projects and working capital and cash. So, site problems, manpower and logistics and project management.

And I think this is extremely well explained with one example. Let’s look at these graphs.

And these, to give you an idea, I don’t want to put – the name of the customers is not here, and the name of the project, but I can tell you, it’s in the Middle East and it’s €1 billion plus project size. And it’s a project that it was planned, and this is the first graph that it was planned by early 2021 to have manpower working on the site above 20,000 workers.

The reality is at that time, we only had 5,000 and probably many of them under quarantine. Let’s move on – if you have such few people, what was the progress?

Let’s look into the blue line again, and let’s go to the next slide. If you go to the same date, early 2021, obviously, the progress on that job should have been close to 80%.

With €1 billion, and the cash comes behind the progress. Obviously, the progress at that stage early ‘21 was on the 20%.

And that was – and those 2, 3 years, we had to manage the progress, we have to negotiate, obviously, with our customer, suppliers and subcontracts. And let me give you some quick data, what does that mean?

It means that we had to manage on that very specific job, more than 1,700 positive cases on site. We had to manage quarantines of close to 6,000 workers in that same site.

And this is a realistic case, this is not theory, which translates in more than 70,000 man-days lost through those quarantines and why so many quarantines, because we had to do more than 500 PCRs a day. Well, we have to go through that, and this is one example.

But if you do an analysis, I do want to do it now in public, the public jobs that we had in the Middle East, what was the backlog of the jobs that we had in the Middle East, and we had in Kuwait, we had in South Arabia, we had in Emirates, and we had in Oman. You may imagine, we’ve gone through difficult time.

But let me tell you, difficult times, extremely successfully managed by our team and with a good relationship with our customers, but with an impact, an impact in sales and impact in cost and an impact in cash. An impact in sales, then it’s extremely well seen in this – because the backlog is what it is.

And you’ve known and some of people say, why you have so many such few sales with such a big backlog? Well, I think it’s very well explained in this slide.

If you go to end of 2019, we have the level of sales, which was close to €1.3 billion. We went to back, let me tell you, at the end of that quarter quite happy, TR was – had gone through the oil and gas crisis and was back to growth.

If you go to next – the last two quarters, we have reached €700 million, which is, give or take, sales figure close to 40% to 45% lower. It’s not easy to manage your business, your sales figure lowers down to up 40% what you had before.

And we’ve done it well. And that’s why the breakeven figure, that translates in lower sales.

It has an impact in margin. And obviously, it makes the management of our working capital quite tight, as I think is reflected in the next slide.

This quarter, we had a negative €91 million at the end of September. September, it is true that it was already a month of recovery.

It was a month or a plan with using all the collection from our customers, and we were already back on business to pay our suppliers. We needed to run through progress on construction and to reach those desirable milestones with all our customers.

And our suppliers continues to be in our plan as COVID, the real COVID is behind us. And obviously, with that plan, if it’s tight, then we need to run.

And the level of sales hasn’t reached the level that we had before. Obviously, we can run through mismatches and we run into mismatch, a match of 1 day that – cash collection of 1 day €90 million that we readjusted, as you see right below the negative €91 million.

There was a collection of €90 million that we would have shown a figure, an adjusted figure, so to speak. I don’t want to use the name or the term adjusted anymore, because I want to go back to reality of practically having a breakeven cash figure.

And that translates into the third quarter results, third quarter results of a level of sales quite low, quite low, as I explained before, despite of the backlog and despite of the awards, as progress was slow, has been slow through September, improving now, little by little, but improving, and an EBIT and a real EBIT, therefore, of €0 million. And this is a breakeven quarter.

And we expect next month to have similar figure. I guess we like to – we do expect to finish the year with the two breakeven quarters.

With that level of sales, this is the reality, and this is the real, non-adjusted account. This is not adjusted EBIT result.

Good news that market has picked up and the level of sales we go through them afterwards, the level of sales has improved – I am sorry, the level of sales – the level of awards, order intake has improved substantially. And year-to-date – and we do think we’re going to grow up a little bit – we have €7.7 billion awards, which is way above €4 billion, which is very much the positive number – the good set of the number that I was expecting to – at the very beginning of the year.

We thought that the market was good. I don’t see had much credibility one of the same period market.

That was challenging, but I would reach in the €4 billion, and those €4 billion are here, which gives us the backlog, a very healthy backlog of €10.4 billion. So we have a breakeven two quarters, but the pullback in business with a good order intake and a very strong backlog, the backlog that I think is worth to do some analysis.

And with that backlog, let’s go with the second part of the presentation: Why are we well-positioned and well-resourced to benefit from this backlog and to benefit from this new market? First of all, because TR franchise is healthy, is very healthy, as has been reflected in the €4 billion of new awards.

If you go one by one, you can see the quality and how those awards, in some cases, extremely de-risked. Two, because, obviously, it is difficult when you have awards and we had in 2019 and to reprogram, it has an impact in our balance sheet, it has an impact in our resources, it has an impact on our cash.

Well, now we’re sitting with those customers. With some of them we have already concluded, and we’ll be starting the €4 billion of reprogrammed projects.

That’s good news. That’s the second reason, that allow me to say that we are very well positioned.

Third, because probably 12 months ago, energy transition was more an idea than a reality, now it’s a reality. And if I was telling 12 months ago that we were well positioned because we had the know-how, we had the skills, we had engineers, now I can tell you that I have the customers and as those customers have the project and very soon have the sales and the margin.

And for that growth, we have the Spanish government. We have the Spanish government that confirms that they want to help us to grow and put us back to where we were in 2019, that’s the message.

So those are the four main reasons why I’m positive and why I’m telling you that we are well positioned to grow and go back to what is more important to a real benefit, to real profit. We are talking about awards, why I’m positive of awards.

And I think this is like, I think it’s a good one. This one is one of the ones that I really like.

Well, our business is very difficult to measure on quarterly sales. We’ve done it.

We’ve done it – and this is like we’ll see what was the quarterly sales start in 2017 that we were having in this business. Obviously, we have an average of way above €1 billion and having sales of €1.2 billion, €1.3 billion, very high level of sales, way above €1 billion, €1.3 billion.

Very good. Awards, I’m not – sorry, I’m saying sales that are awards.

Obviously, that’s important. We were getting award.

The pandemic came, and you see that especially over 2020 and early ‘21, the level of awards were nil, practically nothing. And if you see now where are we today, we’re at the level of awards that we’re getting, and we’re getting now this last quarter, very important last quarters is we’re back to our best years of awards, to our very best years of awards.

So we’re back on the market. But we’re getting awards with old customers, new customers, very much is – very much well positioned in petrochemicals, very well positioned in gas, and an analysis of the jobs, very healthy de-risk.

And let’s do an analysis of those awards. This is an old slide.

It has been – putting in green all the jobs that originally, two quarters ago, I was presenting to you on the jobs that thought that could be awarded to us. Not they were awards, but that we were well positioned, either because we were selected by customers but not award or because we thought in the competition is not strong enough, I mean, and we’re only to competing and the likelihood of us is quite high.

If you go through all of them, the ones in red are the ones we’ve lost. And we had put with no color on our previous presentation, we cost them, you see here are €4.7 billion of awards.

€4.7 billion with new customers in a market which is very important, very much focused in gas and petrochemicals, which are going to grow and we’re going to grow with that market. And everybody understands now that it’s a bit mismatch between supply and demand of gas and petrochemicals.

And we are there. We’re there with old customers and with the new customers, and quite likely in the few weeks, we’ll have good news.

We do expect that some of the jobs that we’re very well positioned for the end of the year and first half of next year will happen soon. So this is what I told you before that it could happen and it has happened.

This is very important. So that’s why I like to – I don’t – it’s a big, complex slide, but this is the trend of awards that have occurred give or take, as we’ve announced to the market, they could take place.

So let’s go to the next slide, which gives us an analysis of the backlog. And an analysis of the backlog which justifies and explain sales that we’re back to benefit, we’re back to a healthy level of sales.

We have a backlog. The 42% of the backlog are what we call reprogrammed jobs that we are negotiating with the customers to start again and to start soon.

That will translate in sales into 2022. 35% is another €4 billion of new projects.

Some of them have really come into force, and some other, we are in early work has been awarded. We started with engineering, but they have not come full into force.

As they’re starting to come into full force, and we start finishing engineering and move into procurement, we’re translating sales and sales will translate in margins and we’ll be back in a profitable business. And 23% of the €3 billion of jobs that are – that have been executed are very much – most of them in construction.

The ones that were engineering is easy to manage, very easy to manage a job if it was a non-engineering job. Our engineering companies have managed extremely well.

We are moving to a non-percentage of engineering. But if you have to manage transaction, it was a different story.

And fortunately, we were very heavily affected. And with this split, I think we are very comfortable to say that the sales ramp up due to our reprogram jobs and new sales is done, is here.

And therefore, we’re back into profitability, with a good pipeline. So, let’s talk about reality.

Let’s talk about what we already had. And now let’s talk about everybody wonders what is TR’s strategy in this energy transition.

I can hear the message, and I don’t want to go through all those lines here. I’ll go forever, and I’m not good at it is that today, we can confirm that we are starting to be, if not we are a relevant actor in this transition.

We have real projects and real customers, not only proposals. We agree on projects with GI Dynamics, with Swiss Zinc, with ZAR Foundation.

We have with Repsol, with Acerinox. With Enagas, we have two large projects and we are becoming a real actor in this transition.

So we’ve done this in a complex year, let me tell you, where management had to focus in managing profit, had to focus in managing jobs, had to focus in trying to collect from customers. So in this transition, we have placed ourselves and positioned ourselves very close already to – of a profitable business.

So we move a step forward, and that step forward is now we want to be, and we are proactive, extremely proactive in these markets. We know as we sit in with customers, we know as we speak with infrastructure funds and helping and supporting them, and there is money.

There is money that our customers and ourselves, we need to capture. And we’re putting together a strong and aggressive strategy, a strategy trying to defend with customers how to decarbonize their industries and their plans.

Fitting with customers and fitting with new companies in developing green ammonia for low carbon shipping technology, fitting with customers and fitting infrastructure funds in developing technologies and helping to escalate technologies and monetarize methane emissions. And obviously, fitting with customers, old customers, new customers and funds in developing the technology of electrolysis technologies, trying to co-develop with some new and fresh companies because that’s probably the right idea, and we’ve got to learn how and trying to escalate that.

So reality, we’ve taken a very proactive activity. We have structured ourselves as a very strong division.

And the message and I’m quite sure that we can, we want, and we will be a very important catalyzer to develop this technology. So I’m extremely positive that very soon and sooner than later, it will be a very important division of TR.

And now let’s talk everybody is wondering the fourth reason why I’m positive. I’m positive because we have the support of the Spanish government.

And with the support of the Spanish government and back to what it was in 2019 when I was ready to capture a market and have a sales figure of above €5 billion. So, SEPI, which is called Spanish government through the support scheme, and was developed at the European Union, confirms that we are strategic for the Spanish economy and support us with €175 million of hybrid equity loan and with another ordinary loan of €165 million.

And we do expect, as we’re working very closely day-to-day with the Spanish government, that those funds will be disbursed before year end. So it’s good news.

You need the balance sheet, you need the strength, you need to give comfort to investors and customers and you need the backdrop, and we’ve got it already. So that was the 4 reason why we are well prepared to go back to profit.

And this translates in guidance. Obviously, we’re at November 15.

And on November 15, I cannot say that we’re going to – this is going to happen in few weeks. I mean nothing is happening in a few weeks.

That’s why I’m giving you a guidance of breakeven from now to the end of a year. With sales which is going to be in a neighborhood of €3 billion, you cannot accrue the new backlog, you cannot accrue because you’re still sitting with our customers.

The reprogrammed jobs, obviously, you cannot – it is not translated in sales yet, and you cannot – it will not translate in margins in 2021. But it will definitely translate into margins as we move forward into ‘22, the first quarters at a slower pace, with much stronger pace toward the end of the year, which will give us an average margin above 2%, and average sales figure above €4 billion.

So that means a new award. It’s true.

It’s not a challenge for me. I don’t think it’s extremely challenging having, again, repeating awards of another 4 years.

So that’s the guidance for 2022. It’s not that challenging.

It’s doable. And we’ll see the progress of this guidance as we move forward towards the second, third and fourth quarter of the year.

And obviously, you might be wondering where you go forward as you get the new awards of – and then move forward to stabilize the business on a sales figure, €5 billion. We had it before, awards of €5 billion.

We’ve done it before. And I think the market and the pipeline is much stronger and far more demanding today than it was in 2017, ‘18 and ‘19, much stronger, far much stronger.

And let me tell you, and probably less risky, less risky because of the pace of the demand and an average EBIT above 4%. You might be wondering if I’m being stingy, mean or too prudent.

Well, the level of uncertainty still is great. I’ve been managing this business for 20 years.

And I think it’s prudent to say that about 4% margin is doable, but I would not like to give guidance above that. It’s true that they have new awards that have good margin embedded.

But I think 2023 is really far too long. And I think I am done.

This is my last slide. It has taken me, well, 25 close to 30 minutes.

I wanted to do in 20. But now, any questions you may post, I will try and answer them and give some color to this presentation.

I will answer them the better I can. Thank you very much.

Yes. Hello, Juan and Eduardo.

Thanks for taking my questions and a couple of questions to start the discussion. One is about the mid-term target of guidance of €5 billion and 4% EBIT margin.

What is the time horizon for these kind of business environment, 24 months, more than that? Yes.

And the kind of – what kind of mix are you expecting in these sales in terms of energy transition projects, I don’t know, 15%, 20%, 30% of the total? That will be the first one.

And the second one is about the SEPI financial support. The final number is bigger than the one announced in July.

Why is that? And second is, in the statement, there is a comment about the potential equity commitment by SEPI in case of a capital increase, if you can elaborate on that?

Is SEPI your anchor investor for a potential capital increase and when could this be executed? Thank you.

Let me go one by one, but I think you’re asking all the questions, everybody wants to hear, your 3 questions. Alejandro, first question is on guidance.

I mean I’m talking about our ambition and I think at the pace that we get in the new and fresh backlog, the quality of the backlog and bringing forward all those jobs that had been reprogrammed, it’s the number of 2023. I mean, we have to target 2023 to go back to numbers and to margins that the business deserves.

And that’s the guidance, is of 2023. The mix in sales of energy transition, I think the energy transition, there’s going to be – it’s going to have an impact, but it’s not going to be a volume business.

There’s going to be very much – it’s going to impact in terms of margin. I don’t know how much, small 10%, 15%.

It would allow us to improve the margin, but it’s going to be very much a service business as a consequence business as everything having to do with new technologies, group projects. It cannot be structure as in EPC, obviously, because it cannot.

It cannot – I mean, you cannot put a price on a new technology having to do with hydrogen or having to do to with – so it would be either cost plus or service. So it would allow us to manage the business, to develop our engineers, to capitalize the business and improve our margins, as you see, profit and low level of sales, but it would not signify a large percentage of sales.

Probably, you will see an improvement of the margins as we start rendering good services relatively with partner. SEPI, why €340 million and not €290 million, as we had said before?

€290 million was – in July, we decided to make it public, and we decided with our government to make it probably. That was the number we were analyzing.

That was the number that we were analyzing that we needed. That was the best number we could come out to put us back where we were before, because we want to be back equity wise where we were before.

And for the same reason that the virus and the different variants are live, we announced we were doing very much with SEPI allowed us to see that the good number was €290 million as opposed to €340 million. Both things were alive.

Costs have been alive. We have gone through it for us, and therefore, the number has grown.

And I think this is the final and good number. So it’s an analysis, so they are like two like figures, costs with virus and then government report.

Yes, equity conversion as a catalyzer, it has nothing to do with equity conversion or it has to do with catalyzer. It is – we have – we’re going to be with SEPI as a partner with the hybrid for 4 years.

Having SEPI as a partner for 4 years, we have talked – we talk to customers and we have talked to customers in August, September, October and November, that is good. That is good to be partner of the government.

And here, what we have is the option in the near or future, most likely in the future tense once we pay back, once we’re back by all means where we were before to continue having our government partner, which is small percentage. It is small, because some of our competition has it.

It’s because we think that commercially speaking, make others alike, especially in a world that is changing extremely well. And we have competitors in France, competitors in Italy, competitors in Korea, any third option.

There is an option that we have today, and we don’t want to have it in 4-year times. And it’s a good option that we get from the government to support the growth of TR if we happen to use it.

You don’t solve anything with $45 million, but it gives us the health and the strength of having the support of the Spanish government. Let me tell you, many of our customers appreciate that.

Okay. So this is just – sorry to follow-on this.

It’s not that you’re planning a capital increase. It’s just an option in the long-term for SEPI to be part of this potential capital increase?

It is, obviously, the fund – the pure fund has to go through hybrid. But if we have to, and that’s the terms we have to, and we plan to, and we’re quite comfortable we will repay back in 4 years, as I have explained before.

But we have – we like to have the option and the government agrees to it, to continue having steady as a part. If we do, it gives credibility and it put us in similar position to some of our competitors.

Alright. Thank you very much.

Great. Good afternoon, Juan.

Thank you very much for your presentation there. I have another question, but just following up on Alejandro’s questions there, in terms of the €35 million commitment.

I mean, is this what you’re saying is that this will be only decided at the end of the 4.5 years? And will it only happen if you also, at the same time, do some sort of capital increase at that time?

So I just wondered if you could confirm that that is just right at the end of the period type decision, firstly.

Let me be clear. We have an idea when are we going to convert it, if ever.

But we have 4 years. It could be months or it could be in 4 year time.

But today, we haven’t got SEPI as part in our structure, but it’s very well-known we’re going to have it. And let me tell you, it’s quite nice and healthy to visit our customers, and you have to go through how many award we’ve got in August, September, October and November.

And we came to the conclusion, they could be good. It could be good.

We don’t know. Let’s see what happens to continue having them as a shareholder, a small shareholder, but a shareholder.

Yes, give some color, just on the sort of customers that we have to serve, huge national oil companies and very often requesting public finance, structured finance, export finance. Well, I think we thought that it’s not very well developed.

We thought we could give some color to TR’s balance sheet.

Okay, okay, thank you. My question really was, I just wanted to talk about this kind of, first, the improvement in margins.

When you’ve giving the presentation, obviously, €4.5 billion of projects there or thereabouts are obviously – or have been reprogrammed or stopped and now need to be restarted. So I mean, I guess the question is, how have you – or what confidence can you give us that Enagas has managed to negotiate to offset things like inflation that we’re facing at this point in time in these projects?

What sort of confidence can you give us that the €4.5 billion are actually going to be able to generate margins as you head into kind of later part of 2022 and into 2023? And alongside that, maybe you could give us a bit of a flavor in terms of kind of the working capital side of things or how cash should progress?

I mean, if this is the case that these projects have stopped and are now restarting, so probably quite a long way from potential milestone payments. Is it sort of fair to assume that we shouldn’t really see much of an improvement in net cash until kind of 2023 timeframe or maybe just some color about how you think that may well evolve over the coming quarters?

That would be great. Thank you.

Obviously, I mean, we are sitting, and in this case, with all customers, customers for projects in Asia, customers for projects in the Middle East, customer for projects in North America. And with some of them, we have already reached agreements with our embedded costs and the embedded costs, which has been transferred to them, obviously, it has to do with inflation, has to do with materials, have to do with extra cost of having to reprogram again and launch the job.

With others, we’re very close, and with others we’re just beginning, because which has been announced that they like to sit with us. And it’s for – let me tell you, it’s much easier to sit down with the customer in today’s market that you have a real job, and there has been reprogrammed to their benefit.

It’s much easier to sit down with them and see how you can accelerate that job and negotiate a contract or some payment terms, milestones and cost. That would then go into the market and trying to bid for a new job.

This is something that both customer – I’m not going to name it and supplier, TR has to sit down and agree. And I’m quite confident that in some cases already, reach agreements.

Can’t name which and some others sooner than later, we will reach an agreement and accelerate. That’s – it’s having reprogrammed jobs and having to restructure yourself with – with a problem, with an unwanted problem that we had.

Now obviously, we have a lot of problems that we have to sit down and we negotiate with them, but it’s a better problem. It’s an easier solution.

And we happen to be successful, and we will. We program jobs and new jobs coming to force will translate into a far better working capital towards the second half of next year.

I think it was before.

Okay. So the second half of next year, I mean, that’s a relatively quick, I suppose, if you’ve got kind of €8 billion if you include the new projects sort of just starting up now.

I mean, you have to realize the project has been awarded. From being awarded, you have to come into force, when it first comes into force, engineering, very little impact when you start engineering in terms of working capital, very little because you are accruing in.

But as you move forward, you start reaching milestones, you have to place orders and it translates into a far better working capital structure on that diversity. And the same is going to happen with the jobs that will reprogram and we see the customers to see how to accelerate.

That’s why I say it’s quick and it’s quick. We’ve been starting to work with them in October, and I’m talking about second half of next year.

It takes 8, 9 months.

Okay, thank you very much, Juan. I appreciate your answers.

Thanks for the presentation.

Hi, Juan. I have two questions.

The first one is still on the cash position. So do you think that with the current cash and mainly the recovery you have just talked about in the second half of next year will be enough to finance the strong ramp-up that you’re going to have of €4 billion sales next year, €5 billion sales on the following or would be easier to make a capital increase right now in order to be more comfortable to finance this expansion?

And the second question is, if you could tell us if you have any significant impact from this scarcity of materials due to the freight cost or how you are going to deal with the raw materials inflation in the coming quarters?

Okay, thank you, Francisco, cash position, obviously, we’re getting €340 million of cash, not equity, cash, pure cash. And I think that put us in a very comfortable position to manage the growth in awards and sales, is good.

And that’s the analysis. That’s why we’ve fronted up from €290 million to €340 million.

So that’s – and that’s why I said the 4-point that gives the comfort that today, I had the awards, new awards are coming and back where it was with backlog at the end of 2019. So if the answer – is this enough to achieve the 2022 guidance, the answer is yes.

Inflation of raw materials, I’ll show you the backlog. The backlog is – the old jobs, the ones that were impacted, there is no inflation of raw materials.

They are under construction. The ones that they are being awarded, just funds, there is no impact, or very little impact of raw materials.

And obviously, in some – in the jobs, they have to be restructured or that has to be renegotiated, that is impacted, we see it one by one, customer by customer, don’t know that many customers, and don’t know that many jobs to accommodate raw materials impact. You have to realize that some of those jobs, equipment was already bought.

And the equipment was bought, and they are being preserved in the site. In some other bulk materials, which is something you buy at a very beginning, some equipment was bought and then partial repayment was bought.

So even in the restructured jobs, a very large percentage of the impact in raw materials was already – it was part of the job was already paid or was already agreed, was already closed or hedged. And the remaining one, now we’re taking with the customers to see we can accommodate, put a new way to validate.

But that is manageable.

Okay, Juan, thank you very much.

Yes. Good evening.

I will have two questions, please. The first one is related into the short-term, because you are guiding basically for something like €900 million of revenue for Q4, if you want to achieve the more than €3 billion revenue in Q4.

I was wondering if you can give us some metrics, give us to confirm the recovery in your activity because you were mentioning during the presentation, the number of people that are confined, desolated, under quarantine, etcetera, etcetera. So can you share with us some metrics in, let’s say, this week compared to 2 months ago to show what is the trend in your activity right now?

And the second question, sorry for that one, but I mean you have been talking about a nice backlog, good quality backlog, etcetera, since quite a few quarters now. When you look at 2022, you are guiding for 2% EBIT margin so far away from what you were expecting previously.

So what did you include in this 2% EBIT margin? What is, let’s say, what are your main assumptions for these 2%, please?

Hi, Kevin, you’re talking about metrics. And I think in the presentation, the reason that I give you an example of one single job where we had to manage a reduction of from 20,000 to 5,000 workers with 6,000 workers under quarantine, there is one job.

And do an analysis I don’t think I’m going to start nearly the different jobs that we had in the Middle East, in similar situations. So it’s very difficult to come out with metrics.

This is the real metrics. And the important metric is we managed that.

We managed that, and we are successfully progressing in those jobs, and we are successfully delivering those jobs. That’s the important thing about these metrics.

And it’s very difficult to come out with the real figure on a quality basis in this business. And it has been extremely difficult for us to anticipate that that was going to happen.

So the metric of our guidance of 2021 is that this whole thing is passed or is packing and that our jobs are progressing at an adequate pace and our customers, we’re negotiating with them to accelerate milestones that we get paid. So that allows me to say, okay, obviously, I have 6 months to finish the year.

And with those metrics, I can finish this next quarter at a breakeven basis. And this is the important thing.

And that breakeven, my message is a positive breakeven. I mean, it’s positive to finish at breakeven with a sales level as low as we’ve got.

So take it, or at least I take it as good news. Some analysts may not like it, because there are €6 or €7 way above or below, but this is good news.

We’ve managed this business under incredible uncertainty and stress. And we managed it extremely well, very well.

This is good news. And the second question is the quality of the backlog.

The quality is very good. And the margin embedded in the backlog is good.

But the sales figure would not increase, will not ramp up. I mean, we had – in the next – in the last two quarters of 2021, zero, we cannot go to four.

It will increase little by little as sales figure will increase, and we are able to accrue the new jobs, they have to come into force. To give you an example, the big Qatar that was awarded to us, and it’s going to be bigger than announced, because there are a lot of – we’ve already announced, there are a lot of options that have to be included as the customer works with the other engineering companies, is we are getting paid starting up engineering.

We are getting because sale hasn’t come fully into force because all the options have to be – have to be precisely reflected into the contract. So job came into force at the end of September.

So you have to – jobs take a while to come into force. They are good jobs.

They are good projects, but we will not be able to accrue those jobs with their embedded margin. And let me tell you, there are good margins and very much de-risked until second half of next year.

So it’s going to take a while. The good thing is we’ve got it.

We have the backlog and TR franchise has remained as strong as before with a good level of awards. I don’t know if I answered correctly, Kevin, but I tried my best.

Thanks for that color.

Thank you.

Hi, thanks very much for taking the question. First on guidance, you’re looking for €5 billion awards midterm.

If I am not mistaken, you’ve only reached certain amount 1 year. What makes you confident that you can reach these, especially as you’ve stated that energy transition contracts will likely come with a lower size, but higher margin?

So that would be my first question. Second one is regarding the agreement with SEPI.

The release, it says that you have committed to executing some kind of strategic plan that includes energy transition, diversification in different geographical regions and cost-cutting and so on. I wanted to know whether this refers to the transformer plan that is already in place or whether you are working on another strategic plan with the SEPI?

And lastly, if we look at the net cash position, it has reduced by roughly €180 million quarter-on-quarter, while the increase in working capital has only explained about €150 million. So there is a big difference, and I understand that those €90 million that you stated that was just a 1-day difference between collecting and not collecting it.

That would be already included in the working capital. So other than the working capital, the reduction in cash seems significantly higher than your net loss.

So, whether you could provide some more color on whether you are paying off some of the provisions that you’ve done during the year or what explains this decline in the net cash position? Thank you very much.

Alvaro, sorry to keep you waiting, we think it’s – I’m trying to organize how to answer you. There is a mix of questions.

The first one, you’re asking, you’re talking about our transform plan and our project with SEPI or strategies with SEPI, whether is the same or not. I’m not sure the question is, but let me tell you, transformer plan is something we worked very hard in 2019, continued work in 2020.

And obviously, SEPI liked it. Obviously, we liked it.

And in our strategy with SEPI, everything that we had working on transformer plan is already embedded of it. There is no difference between transformer and SEPI.

I mean transformer is the plan of TR being able structure ourselves to grow and to become a far more cost-effective company. And at the same time, provided that we have some auditors, how we could capture and de-risk part of the business, capture some other markets and the risk part of the business.

It’s not an obligation. It’s a good plan, and it’s a plan that we had before, and we have improved and we have talked to SEPI.

And we always do. That’s the natural way of managing a business.

The second question you were talking about guidance, guidance of the €5 billion sales figure. Obviously, if you crunch numbers, if we have awards and they come into force this year, above €4 billion and if they are going to be up above €4 billion.

And we have awards, only we have awards, slightly above €4 billion. Next year, by the time sales accrued, we’re going to be reaching the €5 billion in terms of sales.

It’s just – that’s just accrual, only with the remaining backlog and the awards. So €5 billion, if we get those levels awards, €5 billion, we’re going to be very, very close, if not above.

We’ve done it before, and we’ve done it before for several periods. We had a backlog to do it.

You still only have to look at the level of sales that we had at the end of 2019 and try to play with those numbers and to see what we had been our level of sales with that backlog in 2020. It would have been – and that’s what I said many months ago, we have put the business.

We’ve organized our sales for a business for a level of sales way above €4 billion. So it is a guidance but it’s a guidance that I do feel comfortable to reach.

And the last question has to do with the following cash, €90 million following working capital. And I’m little confused.

All I can tell you, those €90 million, there is a down payment. They should have come in during the month of September.

And for some reason, more administrative work credit came in on the October 1. So I don’t think it’s part of the working capital.

It’s just €90 million cash payment having to do with a down payment of a job that has just started. But if you want to get into detailed numbers, I would advise you to call our Investor Relations, and then you’ll get into details because probably I’m not the right person to give you the best and detailed answer.

Thanks a lot, Alvaro.

Thank you very much for the color.

Okay. Thank you to all of you for listening to the presentation, a bit longer than expected.

I tried to rush, but I was not able to. And thank you for all the questions, which help us and me, in particular, to clarify the presentation.

Thanks a lot and I’ll see you for sure in 3 months’ time, February.