Técnicas Reunidas, S.A.

Hello, good afternoon. This is Joaquin Perez de Ayala.

Welcome to this Results Presentation of the First Quarter of 2022, that will be conducted by our Chairman, Juan Lladó; and our CEO, Eduardo San Miguel. It will take around 20 minutes and you can pose your questions after it.

And now I give the floor to Mr. Juan Lladó.

Hi. Hello, everyone.

Let me start this presentation and let me go through with a quick summary of today's presentation, as I have said. First, I will review the main awards that has been granted to TR in this 2022 first quarter – well year-to-date, which I think are very important and it deserves some detailed explanation.

Secondly, Eduardo will take you through the first quarter results. Third, and this is new, Joaquin Perez de Ayala, who is now TR’s Head of Energy Transition will give you an update on how we are developing the Energy Transition business.

And we will finalize with me again, I'll do a quick presentation with the review on how we are progressing, and we are progressing with discipline and success along our five main strategic lines. So let me start off with a year-to-date awards.

And here we have INEOS, I mean, where you have been writing the details, but I think there are few things that are very important to stress for TR and for us. It's important for me in this job.

First of all, the size. This is a huge project.

And according to INEOS numbers, the investment will be above €3 billion. This will make – we will be the largest capital investment made in Europe chemical sector over the last 20 years.

This is a job that has been awarded to us – to TR. So secondly, I want to highlight the endorsement by INEOS of our engineering capabilities.

It has stressed TR on this very important this key ethylene plant that will be the heart of a very important petrochemical complex. For this purpose, TR with the support of INEOS team together will have to mobilize more than 700 professionals.

Out of those 700 professionals, close to 500 will be in Madrid here, our center of excellence together with INEOS team. And then we will have to move and in parallel to the sites and to the yards as this job is going to be through models.

It is very important to stress the environmental features of this job. We are going to be advancing – I'm sorry, we are going to be using together with INEOS advanced technology that will be applied to this project to make it the most efficient energy project.

It will be the most energy-efficient, environmental sustainable facility of its kind in Europe. We will do it together and we will be successful.

It is true by the way, we have structured this project that we are not going to be bearing direct construction risk, which it doesn't mean that together with our customer, we are not going to be very much focusing on quality, schedule and obviously budget. The second major project awarded to us is the Qatargas package four.

I am extremely happy with this job because this is the second job we have secured with Qatargas in the last nine months. It is extremely important for us to repeat with customers.

It shows and it had nine months to think about it and to see it that Qatargas is extremely important investor trust. It is trusting our engineering excellence, which is something I'll be repeating through this presentation and fully supports our goal of becoming a key suppliers of the large future investment program.

In this very large project, which is around $6 million also includes an option to support sulfur production for the two additional LNG trains on the North Field South Project of Qatargas. And obviously, we have the structure and joint venture with Wison.

TR will be leading this project with 70% and we will be devoting here in Madrid close to 400 engineers working again together with Qatargas. So it is extremely successful story for us.

And finally, but not least, TR was awarded at the very beginning of February, four natural gas combined cycles. We have four different sites, so there are four different projects, there are four different [indiscernible] but there are four different contracts and we are working directly for Mexico's Federal Electricity Commission, the largest company in the electricity sector in Latin America for a total amount of $670 million.

We have done combined cycles in Mexico very successfully, but for independent power producers for investors, this is the first time that we work directly for Comisión Federal, and we are extremely proud of working for them. And how we have structured this job?

We have structured the job with the Spanish company, electro-mechanical company, TSK that we know well, and we have various success stories with them together and we will be using the turbine technologies provided by Siemens and Mitsubishi. You all know that we have extremely good experience with GE with these awards, but it shows, and we have the trust of the leading cutting-edge technology providers in this combined cycle sector.

So why we have structured this job this way? We have structured this job this way because we need and we want to focus on quality and profitability.

We have what we consider one of the best electro-mechanical companies in the sector happen to be Spanish and we know well. Obviously we have to partner with the technology provider Siemens on one side and Mitsubishi in the other.

And finally, ourselves, that we are going to be focusing on these four projects as well on the engineering. So the objective here is not volume.

The objective here obviously is quality, schedule and profitability for our customer and three of us. So this is an example of how we are moving towards a profitable business.

And having gone through these three awards, which I think they were very important and very significant, I leave the floor to Eduardo San Miguel.

Okay. Thank you, Juan.

Good afternoon, everyone. Let's move now to the financial section.

In this first slide, you have a brief summary of the main figures for the first quarter. Starting with sales, we have delivered €773 million, which means an increase of 10% compared with the previous quarter, so growing, but still far from our pre-COVID levels that were substantially above €1 billion per quarter.

In terms of operating result, the EBIT figure is €7 million and a margin of 1% over sales. This is still small margin has to be very positively evaluated as it has been achieved with a level of sales that is well below our fully normalized levels.

As I has stressed in my previous presentation, sales increases are the key to deliver higher margins in line with our medium-term objectives. The EBIT adjusted by the costs of COVID is €13 million.

To understand this adjustment, I need to elaborate a bit about the accounting rules. I'm sorry for that.

All our projects are booked following the percentage of completion method. And so as projects impacted by COVID in the last two years, continue to progress in 2022.

Some past COVID effects are reflected in the current quarterly figures. The management of the company obviously is only focused in maximizing the non-adjusted EBIT, but I believe adjusted EBIT provides good information about the underlying profitability of the business in this first quarter.

And finally, moving to cash, we finished the quarter with a net cash position of €61 million. I will talk about this figure later.

Last quarter, my message was the effect from COVID on sales and margins gradually subside throughout 2022. And that would translate into better sales and margins especially in the second half.

Now I can confirm that recovery is real and the reason basically are the following: First, the project we programmed during COVID period are now moving to its ordinary phase of execution. Second, rates awarded during COVID, which are moving now to the procurement stage, always deliver higher sales.

And third, and finally, all other projects that are advancing faster since COVID disruptions are disappearing, tend to deliver better margins and better sales, but we still have to be very cautious. The world's perspective have changed quite a lot since we have talked in February and not for the better.

Events in Ukraine and China in the last month have created major challenges to the operation in our sector. Inflation of raw materials that came after COVID has deepened because of the Ukrainian war and we also face chain and workforce disruptions linked to the confinements in China.

This context is resulting in some unprecedented facts like suppliers or subcontractors rejecting to provide [indiscernible] or coating at prohibitive prices to cover themselves against the background volatility. In any case, TR is working hard to tackle the situation that we believe it will improve across the year and is working hard as well to reach the goals targeted for 2022 in our guidance.

Let me now move to the financial profile. As I announced in February, the improvements of the cash profile is one of our main targets for this year.

And as you can see in the slide with a SEPI support added to our balance sheet together with our cash preservation policy, we have enhanced our financial situation, but we are still facing tensions. Although oil and gas prices are standing at much higher levels, payment practices from some of our clients are not yet fully normalized.

For EPC contractors, we intend to pass to our subcontractor these payment terms. However, this is not always possible or even desirable.

When they speak project execution is impacted or when subcontractors are financially weaker, we have to advance as much cash as we can to those subcontractors. I personally believe this cash tension will persist in this second quarter.

And I also believe this tension will ease progressively in the second half of the year. And now, let me give the floor to Joaquin, who will drive you through an update of the energy transition business in our group.

Thank you, Eduardo. I am very pleased to be today here with you to explain our activity and our achievements in the energy transition landscape.

First, I would like to review with you our offering in low carbon solutions. As you can see in the slide, we provide an ample portfolio of products.

We are in hydrogen and its main applications. We are indifferent by products and circular economy schemes.

We are in carbon capture and storage, and we are studying if and how to be in methane emission, control and management through new services. We [indiscernible] them our offering will cover more than half of the technologies that will be needed to be net zero by 2050.

On top of that, you already know that there is a lot of investor appetite towards the energy transition. And we want to support these investors, which are our clients.

Therefore, we have a structure, a dedicated business unit that will coordinate all our efforts in the carbonization projects. With this step, we will accelerate our positioning in low carbon technologies.

So when we combine this portfolio of technologies with our services, we will become an attractive partner for the execution of low carbon projects. Our productivity will be providing our already known services for all the products from conceptual assessment to full EPC execution.

But we are seeing a lack of maturity in this new scenario. So we have decided to do development efforts to make projects happen and secure FEED and EPC jobs.

We want the investors. We just develop projects to accelerate our growth.

For these services, we are working for companies of the energy industry for energy intensive companies and for the investors’ energy infrastructures, and sometimes for a mix of all of them. And as an upside, we help companies and investors to successfully move energy transition-related technologies to industrial escape.

Finally, we have been actively working in the last year to see if we can build new recurrent service lines related to decarbonization. We have already identified two; carbon capture and storage as a service and methane emissions control and management.

We are now in the final process and decide to move ahead. So as you can see in this slide, the market already recognized our capabilities.

We have been awarded flagship projects by [indiscernible] projects, projects that cover the full range of low carbon solutions we provide. You can see them on the left side of the slide.

Some of them are already completed, others still ongoing. Just in the last month, we have won two good contracts for two early stage hydrogen and bio-methanol projects that if converted to EPC will represent jobs of €100 million.

Now we are also involved in the development of five projects in different maturity stages. You can see them with a red line.

In these opportunities, we are partnering with large and renowned industrials, energy companies and infrastructure investors. And let me explain the slide on the right.

The main prospects, not all, but the main that we are currently following amount to €3.2 billion in potential EPC contracts. EPC contracts that could be awarded between 2022 and 2024.

Of them, 72% are originated by clients and 28% come from our development efforts. Let me summarize these red lines.

We are in the energy transition business. We are very well positioned and we are actively managing our profit.

And now, I give the floor to Juan.

Thank you very much, Joaquin. Before concluding today's presentation, as I said in introduction, I'd like to spend a few minutes recapping [indiscernible] this quarter in terms of the five main strategic lines of the company, five main strategic lines of TR that we have already outlined in previous presentations.

The first line is our focus on business that will accelerate energy transition. We have made major progress this quarter.

On the one hand, with a creation of a dedicated new energy transition business unit, on the other, with the award of three major projects in petrochemical and gas. These are traditional segments that they will be required and they are required bigger investments under this very new energy scenario.

The second and very important strategic line is the reduction of construction risk, obviously has gone through the awards. The INEOS job is a good example, the way we have structured our jobs in Mexico.

The third line extremely important is diversification towards new segments and new customers. In this regard, in this quarter or year-to-date, we have managed to gain two major customers, Comisión Federal de Electricidad, CFE and INEOS.

And as important, we are repeating business and strengthen our relationship with Qatargas, with whom we had a very limited relationship in the past. Obviously, point four and five, efficiency, digitalization and Spanish technology hub goes together.

Four, the increase of our efficiency and digitalization of our process are key ingredients for our TR TRansforma program, which is already entering the second phase. And our customers have seen it.

And five, Madrid is a technology hub for our operations were clients are sure of having a deep pool of high skilled professionals with the best engineering capabilities is becoming already a success story. And as I said before, our new customers are seeing it, and that's one of the main reasons of the awards.

So we are doing well. Frankly, I personally believe, and I personally feel comfortable that with this quarter, we have made substantial progress in these five strategic lines and therefore we are on the right path to accomplish our mid-term target, very important target, a target of achieving €5 billion of awards and €5 billion of sales while earning the very well deserved 4% EBIT margin that we had before.

So I finish with this message, these positive message and thank you very much for your attendance. And now we’ll all be very happy to answer any questions that you may want to address.

Thanks a lot.

Hi, good afternoon. I have three questions.

The first one is probably you have said in the past, that as you have qualified [participative] loan as an equity, do you have any strike price in order to convert it into real equity in the future? The second one, Eduardo, you mentioned that the new environment there with the crisis in Russia and Ukraine and increase on supply chains disruptions, are you saying that this could delay the margin recovery, and if there is any specific project which has been impacted by this situation?

The third one is, Juan you have commented on the new transformation or plan. When are you going to be able to give us more detail about that?

Thank you.

Hi, Francisco. This is Eduardo.

Hi. I'm afraid we have not understand fully the first question, but let me tell you what I understand you is the correct answer to the question you have posed.

The participative loan is hybrid, it's a hybrid product. It has features of equity and it has feature of few financing as well.

So it is something in the middle. It is clear for us is that this is something that the government rent us for five years.

And in the meantime, it's a kind of equity. So we consider it as an equity, okay.

In many ways or in one way, what the government is doing is they are anticipating as the money we are all expecting to earn in the forthcoming four years. So it's a kind of anticipation of the money received – of the money to be earned in the immediate future.

So that's why we think it's fair to consider it as an equity, that's first. Second, regarding the delay in the margin recovery, obviously the Russian-Ukrainian war should have some effect.

There is lots of uncertainty those days, but we still believe that working hard, as I said, we can achieve the margins we have in our guidance. So probably will take some more – a few more months to reach this level of ordinary execution, but we still expect to be able to do what we told the market was going to be done this year.

And for sure, in the medium-term, it's clear that this 4% margin is not being affected by the current war or whatever. So probably has an impact in the very short-term, but not in the medium-term for sure.

And regarding the third question, the TRansforma plan, what is delivery result? Yes, the TRansforma plan, it's obvious the war and the effects of COVID in China are affecting the operation.

And I think there are two clear ways to be protected versus those effects. The first one is we have to talk with the clients and we have already done it.

And we have been talking with all the major clients in the last two, three weeks, and all of them have communicated us that they have the willing to collaborate with us, to support us in the actual circumstances. So that will be the first hedge against any potential risk regarding this cost increase.

And the second one is a TRansforma plan. TRansforma plan is very ambitious and it has a two different steps.

First step has to do with the short-term and has to do with the short-term. And we already are seeing the effect in the numbers we are providing you.

So when we talk about a 2% margin this year because and thank you to the existence of this TRansforma plan that is offsetting some of the potential deviations that we are currently seeing because of the facts we have commented before. But the TRansforma plan is a bit more futuristic because it has a lot to do about how the company will do business, and we construct plans in the future.

And I will see more intense effects of this TRansforma plan from 2023 and onwards. But today in my figures, there are savings due to the new way of doing things because of these new TRansforma two plan.

Yes. Hi, good afternoon.

Thanks for taking the question. The first one will be related on your expectation in terms of phasing for the topline improvement and then margin improvements in the coming quarters because you have confirmed the guidance.

So we should expect quite a nice improvement in the topline. So I was wondering if you can provide us a bit more color on the phasing, should we expect a gradual improvement or strong pick up as soon as Q2?

And the second question is related to the COVID cost, to make a kind of split between the adjusted EBITDA and EBIT. You said in your presentation that basically it's related to the percentage of completion methodology, et cetera.

So what should we expect for the coming quarters in terms of COVID cost in addition to what we are in Q1 and when should we expect the end of those costs please?

I will start with second question. The amounts of COVID costs that were incurred in previous year are to be booked this year 2022 is €16 million.

So I cannot be more accurate, but that's a figure assuming there are no new costs coming from COVID problems today. I mean – but today what we have booked in our expected figures is an impact of €16 million for 2022.

And regarding how the sales will evolve this year. Well, today, I am exactly in €4,000 million, that's the most accurate expectation I have is not just an overall guidance.

It is exactly the figure I have in my planification. So I don't know if there is any further question regarding that.

Oh, sorry, and don't worry because when we see the figure now, when we see now it's 770, you probably say, okay, the second half of the year, you will have to be delivering €2.3 billion. That's right.

That's what we expect to happen.

Okay. So it means if I well understand that basically the – let's say increasing the topline will be mainly focused on H2 rather than Q2, correct?

Absolutely. That's correct.

Perfect. Very clear.

Thanks a lot for that. Thanks.

Have a very good day.

Hi. Good afternoon, gentlemen.

Question related to the energy transition for Joaquin. In the presentation, you highlight that the project development is – is in the pipeline you have 72% is tendered by clients.

In the presentation, it's interesting to see that there's no Middle East clients there, is that going to offer a lot more potential in the longer term or why is that? There's none in the moment.

And the other question is, in terms of the project development, can we have an idea of – there any new industries in that pipeline such as, for example, I think I know you're doing project with [indiscernible] in the steel industry and can that offer a new sector for you in the future?

Robert, thanks for your question. Yes, of course.

I think that the pipeline in the energy transition are our achievements, the energy transition has been focused mainly to date in Europe and in Spain, okay. Because this is where we are seeing more activity for now, okay.

But it's true that we are also following some prospects all over the world. We are seeing opportunities in Canada.

We are seeing opportunities in the Middle East, okay. But the most mature market currently for energy transition is Europe and Spain.

And that's where we are currently seeing the largest opportunity. What that means for us is that, we see a lot of space for growth in the future when we move forward or we say are more – our largest markets now where – we are now in the other province, okay.

That will be one point. And then talking about project development.

Yes, it's true. I think this is an opportunity for us to move to other industries.

We are moving currently in steel making industry, but we are also seeing prospects for the cement industry and we expect to see additional ones, okay. So I think energy transition for us is an opportunity to move ahead in other industries, where we can build additional capabilities.

Okay. The other question is, bearing in mind that the majority are in Europe, and that's where the higher costs are in terms of execution.

What would the risks be? What sort of risks do you consider in this energy transition division?

Well, the good point here is that in this type of projects, we are entering into [indiscernible]. So we are helping our clients to shape the projects and we are getting a very good knowledge of the risks associated with those projects, okay.

So I think that we are quite well protected in this, Robert.

Okay. Thank you very much.

Interesting.

Hi. Thanks for taking my questions.

I wanted to go again to these new initiatives in energy transition. The first question on this one would be whether your engineering team has the expertise due to similarities with other projects that you have done in the past, or whether to grow in these segments, you would need to go and hire more talent that has a skillset that it's adequate for this kind of projects?

The second question would be looking at the contracts, like, for example, the one from INEOS, not asking for the specifics of the contract, but if you could explain us how the economics of projects in which you do not do the construction and procurement, but you do the management and oversight and everything. How the economics work in this kind of contract?

Do they have a higher margin? I understand that they have lower risk, but do they have higher margin than revenue recognition?

How do all that kind of stuff work? And then the last question would be stepping out from the energy transition – sorry again, on the energy transition that the services that you are looking for this recurrent revenue type of business.

When should we expect this to start contributing? And again, how the business works in this line?

Do you have any peer or competitor that we could look at to see how the economics of this recurrent business works? Thank you.

Hello, Alvaro. This is Joaquin.

I'm going to answer the questions about the energy transition. Well, regarding the expertise of our team, well, it's not only the knowledge that we have about different technologies that could be exported to these new ones, okay.

One thing that you can see in the slide that we have shared with you is that we have an ample portfolio of technology that we are currently following not only in execution, but also in doing proposals and so on, okay. So the market is trusting our capability in this regard, and it's not only a matter of technologies, it's also a matter of I would say [prosecutors] knowledge, how to do business, how to do this type of jobs.

So that is what is behind what we can offer to the market, okay. And regarding the recurrent revenues, this is something that we are building now, okay.

So we should not expect a huge share of revenues in the coming quarter. It's something that we're building, but it's true that we are seeing other competitors that are doing similar services, and I see that you can follow them.

I guess that has also these type of services, other companies work for carbon capture, you can also see some others and for methane, where there are some U.S. companies that are also working in this space.

So I think this is something that we can compete with them for this type of services.

Hi, Alvaro. I'll answer the IEA – as I was talking about INEOS before I'll answer the IEA question about the economics.

This is nothing new. I mean, we're not being creative here.

This is the way the world works. You can work lumpsum EPC, where everything is one price.

It can be EP lumpsum, and then construction management, which means you render services to supervise construction and is the customer who decides and pays directly to the contractors. And you supervise the equipment that you have bought and is been installed and the engineering that you have developed and is being constructed.

And the most tradition and the old times way that we do the engineering with the supervision of our customers on a cost plus basis, we do the full detail of engineering from the most sophisticated to the single pipeline supervised by the customer on their cost plus basis. So they pay us as we work, and we have to work together to do.

That's why I said, we have to have the most efficient because they've seen us how we work the most efficient shop here in Madrid, the most efficient tax force, working together with INEOS. Together we place the order and we do the technical analysis of the suppliers, and then we award, the final award is done by the customer.

And he's the one who pays for them. We render all the services before they make their final payments.

And then together we select the subcontractors from civil to the one who do the final electric installation. And we will do the evaluation, we do the supervision and is the customer, obviously who’s paying our services and who's paying the – and who's paying the subcontractors.

And that's what in this market is called EPC cost plus, and that's how it’s going to be working. And why is the way because customers is – this is a very large investment, this is the very large investments that probably – when you are in a hurry, you cannot define and go and try to get a large lumpsum EPC that would've probably delayed a job one year or sometimes even two.

And that's the way that most of the jobs have been done in the U.S. and most of the jobs have been done in Europe.

It's nothing new. The good news here is what I said before is that INEOS came to Madrid.

We have worked to – been worked together before in smaller jobs, and he has decided that from here from Madrid, together we are going to be developing these mega investments.

Okay. Thank you.

Okay. I see there is no more questions.

So thank you very much again, for listening to us and posing all these questions is good for all of us. And we'll be talking to you in July, and I think is July 29.

So thanks again, and see you there.