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Edited Transcript of MT.MI earnings conference call or presentation 25-Jul-19 3:30pm GMT

Half Year 2019 Maire Tecnimont SpA Earnings Call

Rome Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Maire Tecnimont SpA earnings conference call or presentation Thursday, July 25, 2019 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alessandro Bernini

Maire Tecnimont S.p.A. - Group CFO

* Pierroberto Folgiero

Maire Tecnimont S.p.A. - CEO, COO, GM & Director

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Conference Call Participants

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* Francesco Sala

Banca Akros S.p.A., Research Division - Analyst

* Giuseppe Marsella

Exane BNP Paribas, Research Division - Equity Analyst

* Kevin Roger

Kepler Cheuvreux, Research Division - Research Analyst

* Luca Riboldi

BANOR SIM SpA - CIO

* Massimo Bonisoli

Equita SIM S.p.A., Research Division - Analyst

* Roberto Ranieri

Banca IMI SpA, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Maire Tecnimont First Half 2019 Financial Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Pierroberto Folgiero, CEO of Maire Tecnimont. Please go ahead, sir.

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [2]

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Good afternoon, everyone. Thank you for attending the First Half 2019 Financial Results Conference Call. As of the end of this first half, our existing projects are running at full steam. As such, more than 10 projects are expected to reach a provisional acceptance phase within the next 6, 9 months, a number higher than in any other year in this group's history.

We continue to experience a very high quality order intake as we were awarded very attractive projects by prestigious clients around the world. Some of these orders are expected to lead to additional larger projects yet to be sanctioned.

The backlog remains solid at EUR 6.6 billion and gives us a good visibility to future revenues.

The commercial pipeline continues to be extremely strong, rising to an all-time high of EUR 44.5 billion, as we continue to pursue a good number of interesting opportunities around the world.

After we launched the new NextChem initiative at the end of last November, we carried out several concrete steps, including the production ramp-up of our mechanical plastic recycling plant in Bedizzole as well as the signing of a very important agreement with ENI in the area of waste to chemicals and fuels.

Green Chemistry is a business we firmly believe in, and we are working on a number of additional initiatives which will provide great satisfaction to the group and a source of long-term value.

Finally, EUR 39.1 million in dividends were paid last May, bringing the cumulative amount over the last 4 years to EUR 124 million. This demonstrates, once again, our commitment to shareholders in creating long-term value. As a result of our performance and on the basis of what is expected in the second half, the 2019 guidance that was provided in last March is confirmed.

Our main consolidated financial results are shown on Page 4 and will be discussed in more detail by Alessandro later on in the presentation.

Let's focus now on our operational performance. Our first half order intake of about EUR 1.5 billion has been characterized by very high-quality orders across all geographies, awarded to our group by some of the best companies in the oil and gas, petrochemicals and fertilizer space. These orders have been driven by our technological leadership and unparalleled know-how, by our long-standing relationships with key clients as well as by our proactive approach to engage with our clients at a very early stage through our project development involvement.

Contracts that were awarded to us in the first half span the entire business spectrum in petrochemicals. For example, we were awarded a EUR 45 million contract by Borouge concerning the feed for Borouge 4 in the UAE as well as a EUR 90 million service contract by Borealis for a new PDH plant in Belgium.

The ExxonMobil project will be discussed in more detail in a couple of slides. In oil and gas refining, we were awarded a $200 million contract by ENI in Angola for the upgrading of Sonangol's Luanda Refinery and a $50 million contract with the Nigerian National Petroleum Company for the initial phase of the ramping of the Port Harcourt Refinery Complex.

In fertilizers, we were awarded a contract by ANWIL for a new granulation unit in Poland in addition to new licenses and services being awarded to Stamicarbon. All these awards confirm several facts and trends in our 3 core industries around the world: ongoing significant demand for petrochemical assets driven by gas monetization, a compelling need for revamping existing oil and gas refining assets driven by more stringent environmental regulations, and the pickup in new investments in the fertilizer business.

Our first half order intake also highlights an order trend that we were witnessing in the market, that is the rise of FEED projects being awarded to EPC contractors. As you can see from this chart, the number of FEEDs awarded to our group in the first half alone is equal to the cumulative number awarded to us over the last 3 years.

Historically, front-end engineering design services were usually awarded to an independent party, namely an engineering company, while the corresponding EPC contract to a typical contractor. This meant that the contractor had to bid and later perform work based on someone else's analysis and studies.

Over the last 12 months, however, we have started to see a change in the clients' modus operandi, who have started to award FEEDs to contractors who later are chosen to perform the full EPC work. We see a lot of benefits to this approach, which allows the contractor to have a better picture of the project characteristics and peculiarities from the very early stage, leading to a more efficient involvement in the full EPC project, given the contractor's more extensive knowledge of how to better execute such a complex project.

This trend is confirmed by a marked increase in the number of FEEDs which have been awarded to our group over the last 6 months, which was reached an all-time high. The 7 projects already awarded in 2019 are worth about EUR 75 million and are involving over 550 engineers, a very remarkable number.

While the FEEDs tend to be small in volume and don't have an advanced payment, they carry a higher margin and allow us to be in a better and more competitive position to win the subsequent EPC project, which is expected to have a less risky execution profile given the early FEED work already performed by us. As a consequence, we feel confident about our ability to win more sizable business in the near future as a result of our increased involvement at such an early stage.

Let's turn now to ExxonMobil-Baytown petrochemical project in the U.S. Last May, ExxonMobil made the final investment decision with respect to the construction of an expansion project of the Baytown petrochemical complex in Texas. In this complex, we have been awarded a reimbursable contract for the realization of new innovative process units and associated offsites and utilities. The project will be carried out by a consortium composed of Tecnimont acting as leader and Performance Contractors, a U.S.-based general contractor with a strong track record in the area. The consortium scope of work includes the implementation of the process units, including a 400,000 tons-per-year polymer unit, which produces products that offer higher levels of elasticity, softness and flexibility, attributes that contribute to a reduction in materials used and increased performance in everyday products. The scope of work also includes the implementation of a 350,000 tons-per-year linear alpha olefins unit, enabling ExxonMobil to enter the linear alpha olefins market, which are very innovative and highly sophisticated liquid chemicals used in numerous high-end applications.

The Baytown facility is the largest integrated petrochemical complex in the U.S. and is one of the most technologically advanced refining and petrochemical complex in the world. The expansion project is aimed at maximizing the value of increased production from the Permian Basin and at expanding ExxonMobil's and its affiliates' operation along the Gulf Coast. This contract represents an important milestone for the group in the U.S., a market with tremendous opportunities in the petrochemical sector. It also opens a way to more opportunities to work on ExxonMobil, both in the U.S. and in the rest of the world.

Our backlog continues to be very high quality, with a good diversification across various geographies around the world, as our European exposure has decreased in Q2 while our presence in North America and Africa has increased.

Focusing on the main business unit's backlog, we continue to maintain a good balance between volumes, marginality and duration. In particular, the amount of engineering services has further increased in Q2, while the value of engineering and procurement projects in the backlog is now above EUR 1 billion, mainly thanks to the Exxon project. The historical trend is shown in the next slide. The book-to-bill ratio is still around 2x.

On this page, we are showing the value of E and EP projects in the backlog since the first quarter of 2016. You can appreciate from the chart that the value has never been so high over the last few years. In fact, it is at an all-time high. This translates in a less risky backlog and provides a good support in terms of marginality.

Let's analyze now our commercial pipeline. Our commercial pipeline continues to grow, and it now stands at EUR 44.5 billion at the end of last June, up EUR 4.4 billion just in the second quarter alone and a level never reached before by this group. The last few months have seen a tremendous level of activity, with new opportunities being included in the pipeline at all phases of the tendering process. In fact, the amount of tender bids at EUR 11.5 billion is our highest level ever. Most opportunities are in the petrochemicals and oil and gas refining sectors, driven by gas monetization, heavy downstream investments around the world as well as environmental regulations pushing revamping of existing assets.

The higher level of activity that we have witnessed in the second quarter has been concentrated in the Middle East, CIS, Africa and Asia. New awards are expected in late September, early fall, including sizable projects worth in excess of $1 billion.

Let's move now to the Green Energy business unit. Since we formally launched the Green Chemistry initiative at the end of last November, we have been working hard on multiple fronts. We continue to aim at developing new technologies in the different areas where we operate, and our efforts have already led us to concrete results. The advanced mechanical recycling plant in Bedizzole was formally inaugurated last June with over 200 people present, including several investors and analysts, local authorities and representatives from the financial and business communities.

We recently introduced a black plastic sorting machine, and we are steadily increasing the productivity in the rest of the system lines, reaching one of the highest efficiency rates in the market. The plant is already profitable and is ready to be adopted as a model for other operators in Italy and abroad.

In the area of power-to-hydrogen, we are currently discussing a joint development agreement with major technology owners of electrolysis. We are also cooperating with major renewable energy producers for the conversion of renewable energy and the capture of geothermal CO2.

Furthermore, we are in touch with producer of biogenic CO2 capture and fuel production.

Finally, in biofuels, there are ongoing negotiations for alliances in second-generation ethanol licensing technology and second-generation renewable diesel licensing technology.

All in all, we are very excited about the progress we have reached so far, as evidenced by the improved financials of this business unit and the fact that Green Chemistry has been making money from the very beginning.

Let's turn to our agreement with ENI and our efforts in waste to fuels and chemicals. Concerning waste to fuels and chemicals, last month, we signed a cooperation agreement with ENI to develop and implement a conversion technology, which uses high-temperature gasification to produce hydrogen and methanol from solid urban waste and nonrecycling plastic with minimal environmental impact. In particular, we are cooperating with ENI on 2 fronts. The first one is a Porto Marghera bio-refinery, where ENI currently uses hydrogen coming from traditional fossil fuels for its refining process. Thanks to our cooperation, this refinery will become completely green, as ENI will be able to use hydrogen coming from waste together with a low CO2 impact.

The second initiative concerns the production of methanol from waste using our shared know-how. These initiatives leverage on emerging and compelling needs around the world to reduce waste, burning that causes high CO2 release at a very high cost, while identifying alternative solution to the majority of waste that is not recycled or recyclable.

Finally, our waste to fuels and chemical projects are amongst the first large-scale industrial plants for this type of processes that until now have been at a very small prototype level. These are concrete examples of circular economy aimed at transforming and reusing waste as much as possible.

I now hand over the microphone to Alessandro, who will go through the first half financial performance. Please, Alessandro.

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Alessandro Bernini, Maire Tecnimont S.p.A. - Group CFO [3]

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Thank you. Thank you, Pierroberto. Slide 17 shows the usual reported income statement, together with the percentage change over past year. In order to facilitate the comparison with last year's numbers, however, we are also showing how the same first half 2019 P&L figures would have been without the application of the IFRS 16 principle. Our comments today refer to the like-for-like numbers, i.e., pre-IFRS 16.

Revenues in the first half were EUR 1.7 billion, driven by backlog execution. They are perfectly in line with the project's expected production timing, taking into consideration the completion of several projects this year and a higher percentage of revenues coming from services.

G&A were EUR 37.3 million, substantially in line across the first 2 quarters.

R&D increased to EUR 3 million, mainly driven by our push in Green Chemistry.

EBITDA was EUR 92.9 million, while marginality remained constant at 5.5%.

The quarter shows net financial charges of EUR 2.9 million, driven in part by a positive contribution from the net valuation of our derivatives portfolio. However, net financial charges relating to our financial debt, excluding any derivative component, have slightly improved in comparison to last year's.

Profit before taxes was EUR 78 million. Our tax rate was 31%, down 1.2 percentage point versus the corresponding period of last year.

Consolidated net income was EUR 53.9 million.

Given what we stated earlier, the cash flow bridge is also presented without taking into consideration the IFRS 16 principle.

As you may recall, during the fiscal year 2018 conference call last March, when we commented on net cash guidance for 2019, we expressly stated that while the amount at the end of the year is expected to be similar to the one at the end of 2018, its trend would not be linear. Rather, we stated that the net cash would decrease in the first half of the year and increase in the second semester, leading to the current guidance of EUR 80 million to EUR 100 million. This is driven, on one hand, by the fact that several projects are in their final stage in 2019 and, therefore, expected to use part of the cash that was generated during their lifetime, especially during the first semester; and on the other hand, by the fact that we expect a good portion of our order intake to be generated in the latter part of the year, leading to a lower amount of advance from clients in the first half. Therefore, what you see on Slide 17 is perfectly in line and normal and in line with the detailed explanation of the net cash evolution in 2019 that was provided during the March 14 and May 9 conference calls. That said, the breakdown by quarter shows that the highest operating cash outflows has taken place in the first quarter, and that it has reversed its trend in Q2, which has seen a better operating cash generation by more than EUR 60 million than in Q1.

I would like also to draw your attention to the fact that last May, EUR 39.1 million were paid as a dividend to our shareholders, bringing the total EUR 124 million over 4 years.

Given the cash flow evolution in the first semester, however, we thought it would be useful to the financial community to provide more color on the evolution of our working capital as well as on the dynamics of collections.

The chart shown on Slide 19 shows how the various components of our adjusted working capital have behaved in each quarter this semester. As a general comment, you can appreciate that the biggest changes that have negatively affected our working capital have taken place in the first quarter. The second quarter, on the other hand, has seen much smaller changes, indicating that the trend has reversed after March 31.

Let's take a look at the items that have shown the largest changes, i.e., advance from clients and to suppliers and net construction assets. The dynamic of the advance payments is consistent with what we have been communicating over the last few months. Recently acquired projects have brought lower advance from clients due to their specific nature, which are more E&P and less EPC, while advances to suppliers have increased almost twice as much, as the more advanced stage of certain projects has led to higher advanced payments. The net result is represented by EUR 68 million in more advances paid to suppliers than what we have received from clients.

As far as the construction assets are concerned, in general, the increase in the net work-in-progress is also due to the fact that we have a high number of projects that are in their final stages and characterized by longer milestones, as it shall be explained in a couple of slides.

In addition to this overall phenomenon, there is a specific one given by the Amurski project, which accounts for over 1/3 of the overall construction assets just by itself. In this project, as per its contractual terms, the invoicing happens at a later stage than in normal circumstances, for example, at the time of the assembly of the material rather than at the time of the delivery to the site, thereby increasing the amount of work performed but not invoiced. It is just a physiological factor relating only to this particular project and not an indicator of potential problems that may be wrongly inferred just by looking at the absolute numbers.

As the order intake increases in the second half, we continue to expect a confirmation of the reversal started in the first quarter and a marked improvement in our working capital. With that in mind, the group understands the importance of working capital, and it has always sought measures aimed at its improvement and optimization. In order to achieve these objectives, in 2014, we have established dedicated task forces that analyze the payment dynamics in every project and implement policies aimed at reducing the collection timing.

Our efforts have been very successful, as we have managed to decrease our DSOs by more than 50% from 154 to just 70 days, and this resulted in a positive impact on part of the working capital.

We know that we cannot rest on our laurels, and we are keeping our effort at a higher level in order to continue improving these metrics.

Shifting our focus to work-in-progress. You may recall that starting from late 2014 and early 2015, our group has been awarded several large EPC contracts in our core business. These projects are now coming to an end, which is the reason why a much higher number of projects is expected to be completed this year in comparison to the previous years. This is just a temporary exceptional circumstance, as the expected number of projects to be completed next year decreases to a more normal level.

As we have just seen, this phenomenon has also important implications on the group's cash flow dynamics and working capital. A project in the completion phase tends to have milestone which are far apart from each other, unlike the early stages where invoicing is more frequent. This physiological change in the invoicing frequency obviously has an impact on the construction assets, which tend to increase as work is being completed without all the invoices having been issued. It is just a temporary effect, which will naturally reverse itself over the coming months.

This concludes the financial results section, and now I hand over the microphone to Pierroberto for his final remarks.

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [4]

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Thanks, Alessandro. In conclusion, our market outlook is very positive as downstream investments continue, driven by gas monetization and demand for final products. More stringent environmental regulations are also pushing higher investments in refining. As a consequence, we have reached an all-time high in our commercial pipeline that is expected to generate more high-quality orders in the coming months.

In addition to be already profitable, the Green Chemistry business is growing fast, and we will soon announce further developments.

Finally, we continue to apply our usual financial discipline, with a particular focus on an effective management of our working capital.

We remain excited about our outlook, and we confirm the 2019 guidance that was communicated to the market last March and reconfirmed last May on the basis of the existing projects evolution and new order intake.

This concludes our presentation. As usual, Alessandro and I stand ready to answer any questions you may have. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Massimo Bonisoli of Equita.

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Massimo Bonisoli, Equita SIM S.p.A., Research Division - Analyst [2]

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Thank for very much for the presentation, especially on working capital. I have 2 broad questions. In your outlook, you mentioned the good level of commercial opportunities in petrochemical, especially from the gas monetization stream. How about naphtha-based stream for petrochemical? And how much it is important for Maire Tecnimont in your commercial pipeline? And second and, say, more general as well. Compared to the trading environment at the beginning of the year, do you see your guidance more or less challenging?

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [3]

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Starting from the -- your comment on naphtha, let me say that it depends a lot on a regional basis. So there are some regions in which the naphtha crackers are becoming fashionable again. It was typical of the past -- long time ago, then the gas was prevailing all over the world as, I would say, feedstock. Now naphtha, it's again very, very fashionable. It depends a lot from a number of dynamics. There are a lot of geo-energetical changes all over the world due to the abundance of gas in U.S., on the one hand; and on the other hand, there is larger, I would say, oil available to petchem, and there is also the need to maximize all the streams of existing refining as much as possible into downstream. So to get back to your question, gas is, for sure, a big feedstock for petchem. Naphtha is becoming increasingly important as a feedstock. Also, mixed crackers are becoming a new reality. So crackers that can manage either gas or naphtha, as the one that is expected to be built in Borouge 4.

So all in all, it is as if our polyolefins business today has 2 engines, one engine is the gas and the other engine is the naphtha. Let me say that whatever is the cracker, if it is gas or naphtha, in order to make money, you need to do polyolefins after cracking. So it's good -- very good news for polyolefins experts as we are. Point one. Point two, you are wondering -- you are asking if guidance are challenging and if guidance are more challenging than before -- than expected. Let me say that this absorption of working capital during the summer part of the exercise, this trend was abundantly expected at managerial level. That's why we have been anticipating this trend to the market from the very beginning, and no doubt that this trend is expected. So let me say that I may understand on your side that you perceive an increase in the challenging nature of the guidance, but on managerial side, since it was expected, we don't feel it has been more challenging than before. So this is a trend. We are basically cutting off a period of the year which is simply not significant in a business with a life cycle, with a time span that is 3 years. So taking photographs is never indicative. So that's where we are coming from.

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Operator [4]

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The next question is from Kevin Roger of Kepler Cheuvreux.

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Kevin Roger, Kepler Cheuvreux, Research Division - Research Analyst [5]

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I have 2 questions, basically, that will be related to the movements in the working cap. And the first one is, you say in the presentation that you have 10 projects that are expected to reach the PAC phase in the next 6 to 9 months. Would you say that on the majority of those projects, you get the final payments at the provisional acceptance or the final acceptance? And then it's related to the 3 major projects that are currently in your backlog and expected to be completed soon, so ADCO, Socar and Kingisepp. On those 3 projects, can you make an update in terms of execution and reminders if there is any -- if any of those one is subject to discussion for variation orders at completion, please?

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [6]

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Let me say that we don't disclose details on projects simply because -- not because we don't want to be transparent, but because we don't want to affect in any way existing negotiation and discussions with client. So let -- ask you to be indulgent if I don't give all the details you may like to receive. All in all, what I can tell you is that, typically, any contract retains money at the end. So in certain practices, for example, in India, so to mention contracts that are not today going to be negotiated and discussed, in India, this amount tend to be bigger than in other geographies. In other geographies, it's smaller, but in all geographies, the client tend to retain money until you receive the PAC. This may vary from 5% to 10%, which is a kind of a normal amount, to higher percentages, for example, in India, in other geographies. So let me say that this is a matter of fact.

PAC is most important because PAC means that the project is ready to produce revenue, one. So it is very key because it's the moment in which the client starts to collect money, which is, at the end of the day, the ultimate goal of the CapEx. So PAC is very important. PAC means that the plant is not only producing, but is producing at spec, meaning a certain amount of commodity, so certain volumes of commodity with a certain energy consumption and efficiency. So it's a combination of throughput and throughput at certain economic parameters. So PAC is very important. So typically, money is attached to PAC for this reason.

Final acceptance test. It is a different story. It has to do with warrantees. It has to do with continuous effective and efficient production. So it's less key, less important vis-à-vis PAC. So let me say, in this concept of retention of money, PAC in a typical contract is the most important step.

Let me say that on all the 3 projects we have mentioned, the plant is working and the client is happy in the sense that they are producing. So ADCO is producing, Kingisepp is producing and making money, and Socar is producing -- Socar polymer is producing and making money with a polypropylene unit.

So let me say that clients are enjoying the fruits of our hard work. So this is a fact. I don't want to get into any other detail vis-à-vis those contracts because, again, this is not compliant with our policy because we don't want to affect any kind of relationship with clients.

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Kevin Roger, Kepler Cheuvreux, Research Division - Research Analyst [7]

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Okay. That's clear, Pierroberto. And maybe one follow-up on my side is, in the presentation also you say that the mix in your backlog is, I would say, very toward E and EP contracts at a very high level. How should we think in terms of impact on the marginality for the next 12 months?

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [8]

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Let me say that for sure, the mix of products in our backlog, i.e., the quality of the acquisitions of the first half, gives you a strong message in term of risks. So let me, first of all, capitalize on the fact that the less is EPC, the less are, obviously, construction and execution risks. So I would say that the first advantage of this quality of backlog is a certain risk profile for the way forward. Let me also say that, typically, smaller volumes means higher percentage margin, which is the kind of basic rule of this industry. Gradually, we have a view on percentage marginality, according to which it's the relative weight of EP and EPC -- sorry, E and EP project will increase. There will be also some positive impact on percentage marginality. So our percentage marginality, obviously, is function of the mix of products. So the more the mix of products is pushed in the E and EP, the more this fact will affect the blended marginality positively.

Most importantly, this FEED, as we said, FEED positioning will create very good prospects for healthy EPC award. Let me say, for example, that Exxon-Baytown project, on which we made a focus on the presentation, went exactly along those lines. So we started with the FEED. We started with the FEED that were -- that was awarded to us, thanks to our technological distinctiveness, then was translated into EPC, and the execution is being very smooth because of this early involvement. So it is a matter of percentage marginality, as you rightly highlighted, but it's even more a source of healthy business and less risky business.

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Operator [9]

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(Operator Instructions) The next question is from Francesco Sala of Banca Akros.

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Francesco Sala, Banca Akros S.p.A., Research Division - Analyst [10]

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Just 2 questions. The first one, I wonder whether there is a mismatch between work-in-progress, receivables and payables, or whether, let's say, the reduction of these 2 items would go at the same rate, depending, obviously, on the conclusion of the projects. And secondly, I wonder whether this normalization of the work-in-progress and this reduction of the net working capital would start in Q3 or it's more close to the end of the year.

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Alessandro Bernini, Maire Tecnimont S.p.A. - Group CFO [11]

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Francesco, for sure, as already anticipated by Pierroberto during our presentation, second half of the year will express a significant reduction in our working capital, so leading to the possibility to face the net cash position at the end of the year, which is part of our guidance. When is it due to happen? It is difficult to say if this will happen in the third or in the fourth because, for sure, a significant role is played by the new awards which we expect to get in the second half, and thanks to the advanced payment which are associated to the new awards. For sure, some of them are extremely hot, so we do not exclude that some of them will be already assigned during the third quarter. But then to monetize the relevant advances, for sure, we need some more days but because it is a technical effect. Then in particular, thanks to the planning, we have all those projects which are completed or close to the completion. This is the second phenomenon, which will play positively in order to reverse the present situation. Working capital will contribute to reduce significantly the amount of contract assets. Because as soon as -- as already stated by Pierroberto, accepting -- the test for acceptance will be validated by the client, we'll be in a position to raise the invoices which back up the latest milestones. And this is due to happen more or less in the same size, both in the third and in the fourth quarter.

So for sure, there will be natural moves toward a more standard working capital due to this phenomenon, and this will happen more or less organically in the same size in the third and in the fourth. Then the other element which relates to the advances will depend on when the new projects will be awarded. But let me invite you not to be so rigid to analyze on whether this is due to happen in the third and in the fourth. But for sure, this is due to happen before the end of the year, and this support the confidence -- our evaluation and the confidence to confirm exactly the guidance that we have provided a few months ago, irrespective, in particular, to the net cash expected by the end of the year.

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Operator [12]

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The next question is from Roberto Ranieri of Banca IMI.

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Roberto Ranieri, Banca IMI SpA, Research Division - Research Analyst [13]

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Two quick questions. The first one is a clarification. So my understanding -- it is again on that net increase in the working capital. So my understanding is that the -- one of the major reasons for this increase is that you had lower advanced payment from the engineering and engineering and procurement component of your backlog. So I'm wondering if -- I think that this will reverse in the future when other large projects, including also the construction EPC project basically will be awarded. My question is, thus, it is not because clients' policies for advanced payment for new projects has changed. This is my first question. My second question is on pipeline. You have basically EUR 20 billion opportunities in terms of tendered and tendering projects, increasing by EUR 3 billion versus March. My question is if you can give us some color about the timing of this project would be tendered and that you will bid for this project. And what is your level of confidence of success rate for this EUR 20 billion project?

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [14]

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Thank you. Thank you, Roberto. On the characteristics of EPC contract, I confirm that the down payment practice remains as usual. So whenever it's an EPC project, it is normal to receive the EPC typical down payment. So in the projects we consider hot in the second half, those projects are EPC, and those projects are characterized by the typical down payment of EPC contracts. So this is the confirmation you were asking for.

With respect to your second question on -- which is some more colors about the pipeline of opportunities. As we said during the last conference call -- during the last conference call, we gave you a kind of visibility on a number of EUR 3 billion. This EUR 3 billion, after that statement on my side, materialized for already EUR 700 million. So EUR 700 million is delivered. On the remaining part, let me say that the expectations are not only confirmed, but even more and more likely in the sense that we have evidences -- clear evidences to be selected at the end of the tendering process. So on, let me say, EUR 700 million, for example, we have evidences to be selected as the winner of the tender. What does it mean? It means that it's up to the client to give us a green light on the final award. So this is another kind of evolution vis-à-vis our last contact.

On top of it, there is a big tender that we have been cultivating since a lot of time that is closed in the sense that the tendering process is finished. Our offer appears to be best positioned. And again, it's up to the client theoretically, anytime, to tell us that the Board of Director achieved the decision of final investment. So let me say, we reiterate our great optimism on the EUR 3 billion I have highlighted to you last time. And again, on EUR 700 million, it is already achieved and in the backlog. On additional EUR 700 million, we have kind of very convincing evidences that we are selected. And on a big EPC for the remaining part, we are very hot, and we wait for some very good news in the short term. So let me say that we are not talking about year-end, we are talking about short term. Having said that, the beauty of our business, it is that it depends on a number of factors that are beyond our control. But as far as I'm concerned, as far as you want my colors, that's my color. The color is intense red.

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Operator [15]

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The next question is from Giuseppe Marsella with Exane BNP Paribas.

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Giuseppe Marsella, Exane BNP Paribas, Research Division - Equity Analyst [16]

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My first question is on backlog. You acquired a decent amount of orders in Q2 in the green division, around EUR 100 million. Is -- I mean it's still a relatively low amount, but can you give some more color, and this is green at this time, on the inflows of new projects? Second, again, in the division, you have a residual component of infrastructure projects. One is in hospital, where you are also in concession business. Do you already have some exit options at the end of the construction phase to monetize the capital invested in concession? And third, it's again on net working capital, further detail. Do you have any overdue component in the net working capital versus suppliers?

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [17]

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On the first question, let me clarify that -- and this is very important, that when you see our Green Energy components on a certain time horizon, you will find also some tails of our nonhydrocarbons business. So let me say that we have -- we used to have 2 divisions. One division is hydrocarbons, the other division is nonhydrocarbons. So our nonhydrocarbons business has the tails of the past. In particular, on the Green Energy, there are 2 kind of orders inflow. Our NextChem initiative took some interesting orders in term of feasibilities. So we are doing some good feasibilities for our clients, basically concentrated on possible replications of our Bedizzole plant and/or our ideas on how to develop new ideas in Green Chemistry. So let me say, not big volumes, but very promising prospects. The rest has to do with our nonhydrocarbons business, which means, on the one hand, some services we are doing and some renewable energy business like the renewable energy plants. So this is basically what is feeding our backlog. Let me say that in our vision, this mix will change quickly, composition -- in favor of a composition increasingly driven by NextChem kind of order intake.

Moving to your second question, which is the status of our Alba/Bra project. Our Alba/Bra project is finished, as you may have appreciated from the newspapers. So the new, I would say, Governor of Piedmont is visiting the hospital, appreciating this huge infrastructure that was built in Alba region, so in Barolo region.

Your question on which is the future of that hospital, and which is our view on our concession business. The answer is that from the very beginning, we were preparing ourselves for selling it because, obviously, we have no intention to develop a business in the infrastructure and concessions. We have been working, first of all -- we've been preparing ourselves, first of all, putting the project financing on top of it, which obviously is a very good step in order to facilitate the disposal because the new owner will simply have to step in inside a real project financing scheme. Let me say that hospitals are quite peculiar in the sense that there is a lot of demand. There is a lot of interest in hospitals' concession, in particular when the construction risk is finished. So the fact that the hospital is completed, obviously, this circumstance is heavily positively affecting the attractiveness and so the interest of possible buyers. We are in discussions with possible buyers. We are very positive that, I would say, even within year-end, we'll be in the position to finalize the disposal and close the chapter also on the hospitals that is a legacy of the past.

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Alessandro Bernini, Maire Tecnimont S.p.A. - Group CFO [18]

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And finally, Giuseppe, with reference to your question relating to the accounts payable, as you know, since many years ago, we are dedicating a lot of attention in terms of financial discipline to the management of working capital. And payables -- commercial payables are an important step to manage efficiently working capital. Of course, we tend, and very often, we succeed to define with our suppliers, with our vendors and subcontractors payment conditions, which makes possible to balance the collection from our clients in order to finance the projects. Accordingly, what we have basically today outstanding versus our suppliers is something which can be considered physiological, considering the timing and the phasing of the various projects. So we have nothing which is past due from several times. It is absolutely aligned with the payment conditions and, I repeat, aligned with collection of the money from our clients.

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Operator [19]

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(Operator Instructions) Gentlemen, there are no more questions registered this time. Excuse me, there is one question from Luca Riboldi of Banor.

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Luca Riboldi, BANOR SIM SpA - CIO [20]

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I have a couple of questions. One is about Green Chemistry. You were before answering a question about some projects, some numbers. If you can give us an idea of which kind of revenue we should expect in the future and also the profitability of this business unit. Second question is about Slide 17, where you're showing EBITDA margin at 5.5%. Having a higher incidence of the services components in the revenue, shouldn't we have expected a higher EBITDA margin? And lastly, again, on the working capital, the delta in cash between now and the year-end should be about EUR 200 million of cash generation. Do you have an idea of how much of the 200 -- of the delta is advanced payment and how much is the rest?

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [21]

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On Green Chemistry -- first of all, thank you for your question, Luca. On the Green Chemistry (inaudible), we gave kind of visibility during our event in Bedizzole, whereby we have explained that there is a business model that is a little bit different from the classical business model. For sure, we are giving a guidance on having EUR 50 million EBITDA in 5 years. We didn't give visibility on the ramp-up. Let me say that we see very encouraging evidences that the curve -- the S curve is materializing and credible. Let me give you some driver. What is driving today the ramp-up of revenues is mainly driven by "2 products." The first product is circular economy through replication, the possibility to do again. That is our plan. And the second product with already existing addressable market is biofuels and, for example, bio-ethanol. So let me say, the more we push on circular economy and the more we push on bio-ethanol, that are the 2 products, we believe, have already market -- addressable market, the more the curve that is taking us from today to EUR 50 million landing point will be steep. On the first of these 2 products, we are very hot in the sense that Bedizzole was [tout] as a reference plant in order for our clients to go, visit, step in and asking to do it again for them. So if I have to judge from the number of visits, from the number of expression of interest, I believe that in a circular economy, ramp-up will be higher than expected. So sorry for not giving an exact number. It will not be the best thing to do on my side because we just started. Nevertheless, I want you to perceive our confidence that we're not talking about -- we're not selling the future. We are not thinking of a PowerPoint initiative. It is the other way around. We are coming from the field. We are simple creatures. If we run after opportunities, it is because we believe that there is a market today. And this is the case for circular economy. This is the case for Bedizzole plant.

The second product I told you that is the first driver of revenue generation is bio-ethanol and biofuels in general. Bio-ethanol market is growing. There are already tenders in India. There are already tenders out in China. There are already tenders even in Europe. For example, in certain European refineries, it is becoming a kind of undertaking to -- a kind of obligation to produce this kind of bio-ethanol. So basically, we are in all -- running after all those opportunities all over the world and simply, we are becoming a kind of partner of choice for licensor of bio-ethanol at the moment of participating to those standards. And in this process, we are being very, very beneficial because, typically, the clients, it's an existing refining. So if you are a bio-ethanol licensor, you need to participate to a tender published by an existing refining, basically you don't know the client and the environment, while we can have a big value because we are long-term partner for this kind of possible clients.

So let me say that I don't want to give you which is the ramp-up, but I want you to appreciate that this is not bioplastic made from bacteria, this is a different story. This is a market that is addressable today, and it is simply, again, in a circular economy, for example, the possibility to do again a plant that is there and is producing revenues, cash flows and every client that is stepping in can verify. On the third question, Alessandro?

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Alessandro Bernini, Maire Tecnimont S.p.A. - Group CFO [22]

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With reference to your question on what will be presumably the concurrence of advances or other elements to return -- to achieve the target that we have in mind, what I can say to you is that we are confident to achieve the guidance because without disclosing a perfect number, I can say that the significant portion of the cash flow that we expected to generate in the second half of the year, which will make possible to achieve the target, will be secured by the monetization of the already ongoing activities. For sure, another portion is expected by the advanced payment, but the advanced payment is just a residual portion. The most significant one is secured by what we have already in our hands. So this provides the confidence to achieve the target at year-end.

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Operator [23]

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Gentlemen, there are no more questions registered.

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Pierroberto Folgiero, Maire Tecnimont S.p.A. - CEO, COO, GM & Director [24]

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Thank you. Thank you for attending.

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Operator [25]

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Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.