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Edited Transcript of TLGO.MC earnings conference call or presentation 27-Feb-20 6:00pm GMT

Full Year 2019 Talgo SA Earnings Call

LAS ROZAS DE MADRID Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Talgo SA earnings conference call or presentation Thursday, February 27, 2020 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alvaro Segura Echaniz

Talgo, S.A. - Finance Director

* Javier Oriol Piñeyro

Talgo, S.A. - IR Director

* José María de Oriol Fabra

Talgo, S.A. - CEO & Director

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Conference Call Participants

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* Beltran Palazuelo Barroso

SANTALUCÍA Gestión S.G.I.I.C., S.A. - Equity Analyst & Equity Portfolio Manager

* Bosco Ojeda

UBS Investment Bank, Research Division - Executive Director, Head of Small & Midcap Research and Analyst

* Jaime Escribano

Grupo Santander, Research Division - Equity Analyst

* Jose Maria Canovas Garcia de Blanes

JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst

* Pablo Cuadrado

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Javier Oriol Piñeyro, Talgo, S.A. - IR Director [1]

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Good evening, ladies and gentlemen. Thank you very much for joining us again in this conference today to aim to present the results obtained in the year 2019.

José María and Alvaro will go through the presentation. And at the end, as we usually do, we will open a Q&A session and -- to answer and clarify any questions you may have.

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [2]

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Thank you, Javier, and good afternoon, ladies and gentlemen. Alvaro and I would be glad to present the final year results and company performance during the year as well as answer any questions you may have regarding the results or business performance.

Prior to going through the year 2019 results, I would like to comment that Talgo has implemented a protocol for taking action in the current situation related to the coronavirus, complying with evaluation related to operational risk and in accordance with the instructions given by the Ministry of Health; in addition, comment that Talgo has also implemented measures in order to regulate activities related to trips and visit to facilities, either Talgo's facilities or those of our suppliers. With respect to the supply chain, Talgo's exposure to suppliers in the most affected areas is limited. This is between 5% and 6% of all our purchases.

In addition, after the exhaustive analysis of all our suppliers that have been undertaken in those markets exposed to the virus, such as China and Italy, we have concluded that the risk as of today in the delivery of components is low.

On top of this, the factories of our suppliers in China have been in a standby between weeks 6 and 8 of the year, although since last Monday, week 9 of the year, they restarted operations. In this regard, an exhaustive analysis of all our suppliers has been carried out. Alternative measures are being implemented to mitigate the impact it may cause. Let me remark that our purchasing platform, both in Spain and in China, is monitoring in a daily basis the evolution and the status of the different suppliers.

Now going through the company as an overview to what aspects should stand out from the year 2019. On the one hand, the unprecedented commercial success demonstrates Talgo's commercial capacity as well as the several benefits of its technology and solutions for customers. On the other hand, the beginning of a new cycle in terms of industrial activity. The results, revenues and profits growing strongly and new orders securing the backlog for the medium and long term, therefore, we must consider that the business performance has been a resounding success in the year.

In addition, Talgo has shown over its 75 years not just its proven capacity to win high-quality contracts but also to execute them with attractive margins and to deliver our clients a leading service with the highest operational ratios. The 75 years of track record delivering excellence in project execution with the best financial guarantee to our clients or the outstanding performance ratios of our trains under operation are the evidence that shows the excellence of our products. On top of this, proven commercial success in international markets demonstrates long-term business sustainability.

Getting to the results in more detail, Talgo is in a good commercial momentum, and this is reflected in a strong order intake produced in the period, which amounted over EUR 1 billion, of which 95% corresponds to international markets.

In terms of project execution, all ongoing projects were executed in line with company expectation and [establishing the schedules], adapting at all time to the client requirements. In addition, resulting EBITDA margins reflect the success of both manufacturing and maintenance projects' performance.

Working capital management during the period was satisfactory, closing the year with a stable working capital and resulting net cash position of EUR 59 million and over EUR 300 million of cash balance to finance those projects and the share buyback of the current shareholders' remuneration program.

On top of this, it should be noted that there is a relevant upside with regard to the cash flow profile in certain projects due to the available optimal financial structures that ensures the strength and healthiness of the balance sheet in the following years.

Getting to the commercial activity undertaken throughout the year, the company has been very successful in winning contracts in both national and international markets with a diversified set of solutions, both. Such results confirm the successful implementation of its commercial strategy, strengthening the business visibility over the long term with a resilient business model based on our lean structure and a selective approach over potential opportunities.

The order intake registered amounted EUR 1.1 billion in the period on the back of international awards in Germany, Egypt, U.S. and Uzbekistan and favorable renewals of maintenance contract as the case of the contract extension signed in Kazakhstan or Spain.

As a result, backlog significantly increased in the year to reach EUR 3.3 billion by the year-end with the highest weighting of manufacturing and overhaul projects over the backlog of the company. On top of all of this, I want to highlight the recent award of projects achieved in Denmark for the manufacturing of 8 Talgo 230 compositions for approximately consideration of EUR 140 million and upside to increase the scope to up to EUR 500 million. With this contract, Talgo penetrates new high-quality markets where the company, once again, proved its capacity to offer an adjunct product to meet the client needs.

As a result of the recent awards, manufacturing and overhaul projects have increased to represent 42% of total backlog. In addition, the industrial capacity initiation and providing revenue growth in the following years while 58% still relates to maintenance activity that ensures a sustainable growth in revenue, margins and cash generation in the long-term basis.

Within our manufacturing projects, the Spain Very High Speed project is in full industrial execution phase, integrating underframes and body shells of coaches and locomotives and assembling units. These projects stayed as the main revenue contributor for the period 2019 to 2021, and it's executed in line with client expectations.

Uzbekistan project signed in 2019 confirms the client commitment with its plans to piecemeal increase its high-speed fleet backed by the good results delivered by the Talgo trains already being operated by the client. Also, in 2019, Talgo was awarded by the Spanish infrastructure manager Adif with a project to manufacture a new [transportation] train, with together -- which together with the maintenance services required for a period of 5 years, which is a contract value amounting EUR 39 million. The project is expected to be delivered by 2022.

Deutsche Bahn project was awarded and signed in February 2019 through a framework agreement that comprised up to 100 trains for an approximate value of EUR 2.3 billion. This contract stands as the definitive entry of Talgo in the main European markets by the hand of a worldwide-leading railroad operator, benefiting indeed Talgo's commercial scope in other European countries. The project is currently on the engineering phase and in line with client expectations.

Egypt project awarded in 2019 by Egypt National Railways [enhances] the company position in Middle East, North Africa countries, where Talgo is already a company of reference for national operators. In addition, European Bank of Reconstruction and Development financed this project, which adds value to the project from a financial standpoint.

Lastly, the Danish state operator, DSB, recently awarded Talgo with a framework agreement, signing the first order to manufacture 8 composition of Talgo 230 coaches, which together with equipment and materials reached a project value amounting EUR 134 million. The project was signed last week in Copenhagen, and deliveries are expected from 2023.

Talgo is also succeeding in its objective to enter into the overhaul and heavy maintenance segment, where the company is already executing 3 projects, two of them in the U.S. comprising metro and commuter trains and a third one in Spain for the conversion of light Talgo coaches into very high-speed compositions. We expect the company to deliver successful results on these projects and continue growing within this segment.

Within the light maintenance projects, Talgo continues executing maintenance services for the 2,800 vehicles being operating in a daily basis, delivering best-in-class results and of reference for operators all around the world. The maintenance activity continued benefiting from the increasing fleet and from the improvements in operational efficiencies while the current manufacturing projects will increase and maintain fleet size all throughout the next years.

Within the maintenance projects, it must be highlighted that successful execution of the Mecca-Medina maintenance activity in its first full year of activity, which confirms the high-quality product developed for the project, comprising a wide range of technologies incorporated to the train in order to perform with the weather conditions of the country.

On top of [the ready] book orders, Talgo aims to continue taking advantage of the [foolproof] commercial momentum with a proactive approach guided by the company's strategy aiming to selectively spreading its presence across international markets with a diversified product offering. About 60% of the pipeline remains on the core segments of the company, this is high speed and long distance, where our aim is to continue focusing its commercial approach, leveraging on the well-developed and proven solutions adapted to clients' needs.

On top of this, we will continue to selectively analyzing opportunities in new segments, targeting those meeting required profitability. Good cash flow and low-risk profile to ensure not just growth but sustainability of the business in the long term. In this sense, Talgo has already submitted offers amounting approximately EUR 5.2 billion, of which the most significant is the High Speed 2 project in the U.K. for the manufacturing of 50 high -- 54 very high-speed trains and their maintenance throughout the period of 30 years and a project for up to 200 high-capacity commuter trains in Spain.

Overall, we have built an integrated pipeline of potential opportunities for a total value of EUR 8.4 billion expected to be awarded in a 2-years period. However, as I commented in previous occasions, the pipeline is not static, and therefore, opportunities may suffer delays or cancellation as well as new opportunities may arise.

Let me now hand you over to Alvaro to take you through the financials in more detail.

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [3]

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Thank you, José María, and good afternoon, ladies and gentlemen. Firstly, I would like to highlight Talgo's continued objective regarding its commitment to financial discipline in the line developed so far as well as a detailed and strict financial analysis of new projects and opportunities, key [towards keeping] the resilience of the business in the long run.

The revenue existing in 2019 reflects the expected ramp-up in manufacturing activity and consolidates the upward trend to continue the new manufacturing cycle that will generate increasing revenues in the coming periods. As a result, revenues substantially increased by 17% over the previous quarter, closing the year with revenues amounting EUR 401 million.

The performance of the projects is measured based on meeting deadlines established with the client and the fulfillment of the budget set for the project. In this regard, Talgo is performing well within across all projects being executed.

Geographically, revenues from international market dropped from 48% to 42% in 2019 mainly due to the Spanish RENFE Very High Speed manufacturing project, which stands as the main revenue contributor for the year Overall, 95% of the total order intake in 2019 came from international markets to ensure diversification of the backlog and future international growth.

Considering the split by business line, it is remarkable that current contribution of the maintenance activity, which represented 50% of the last 3 years' average revenues and stands at a solid pace of revenues, providing stability and empowering the company to remain always selective in the commercial approach even in periods with weaker pipeline.

The increase of the company investing activity resulted in a drop in accruing quarterly EBITDA contribution throughout the year, reaching EUR 22.4 million in the fourth quarter of the year. With this, the mix of projects executed throughout 2019 and a good performance in the period resulted in an adjusted EBITDA of EUR 73 million, reaching margins above 18%, meeting, therefore, the company target for the year. Such successful operational profitability is supported by the high-quality and low-risk profile with attractive margins delivered by the projects of the backlog.

Regarding the registry adjustment, we have included nonrecurring items, mainly bank guarantee fees, considered financial expenses and adjustment amounting EUR 2.3 million to offset the impact of IFRS 16. Below EBITDA, the activity increased together with reduced financial expenses registered in the period and a lower effective tax rate resulted on a strong 50% increase of the net profit reaching EUR 40 million by the year-end.

In this regard, financial expenses decreased on the back of senior debt loan payment and a sharp decrease in the guarantees of the Mecca-Medina project, where the guarantees were reduced by more than EUR 500 million, reflecting the successful delivery process and explanation of guarantees. A lower effective tax was registered in the period due to a tax extension in Saudi relative to the maintenance activity undertaken in the country. Such extension should, in fact, be expected for the following years.

In terms of shareholder remuneration, Talgo is currently undertaking a share buyback program with a commitment to acquire up to EUR 100 million of shares. The objective of the plan is to redeem the shares that will result in a significant increase of the profit per share.

As of December 2019, 11 million shares were acquired for an approximate value of EUR 63 million, and the first capital redemption is expected in 1st Q 2020 prior to continuing executing the program until completion. Within the balance sheet, working capital performed successfully over the period, registering the starting manufacturing cycle with increasing inventories and in concession of advances relating [up to 2021] presently awarded.

On top of this, significant collections registered from Mecca-Medina trains in the year together with a good management of suppliers resulted in a stable working capital and delivering an expected [solid] performance throughout the second half of the year, driving that the aforementioned Saudi collections were useful in the last month of the year. In this regard, 2 factors impacting the working capital must be highlighted.

During 2020, the company decided to finance with own resources the first phase of DB project, seeking financial efficiencies and taking advantage of the strong financial position of the company. This decision implies higher working capital in project. However, the possibility of having an optimal financial structure by using the AAD facility, for which Talgo may receive in advance up to 60% of the value of the contract, confirms a sound financial profile [are] due to the huge upside in the project and (inaudible) in the company.

Collection from Mecca-Medina project were successfully registered throughout 2019, reaching 98% of collections in the overall project. However, the remaining EUR 20 million initially expected for 4Q 2019 shall be collected during the first months of 2020. In this sense, we are quite comfortable with the clients and do not identify the relevant -- a relevant risk at this stage.

The cash flow of the period performed soundly, reaching EUR 35 million with a 47% cash conversion ratio in 2019 and a cumulative ratio of 167% in the period 2017 to 2019, reaching over EUR 370 million of free cash flow generation in such period, in line with the manufacturing cycle and a successful project management.

As a result, company successfully registered a 3-year strong cash recovery cycle as it was expected and guided to the market. Regarding the CapEx, EUR 19 million were registered in the year, comprising mainly R&D development related to new projects, technology adaptations and improvement aimed to rise cost efficiencies and spread product offering. Considering the free cash flow generation, the debt repayments and the cash invested in the share buyback program, the net debt of the company remained negative in the period with EUR 59 million of net cash position that's providing the company a healthy balance sheet.

The smooth debt maturities of the -- of financial debt with low interest rates providing to the company a strong capacity with over EUR 300 million of cash to finance projects in the short and near term. On top of this, we keep EUR 75 million on current facilities fully available, which provide us additional short-term flexibility as well as the commented financial facilities offered by certain projects.

As a result, Talgo has a healthy balance sheet with a sound financial profile that provides the company a comfortable position to successfully undertake the coming new factory -- manufacturing cycle.

And now I hand over to José María to get through the financial remarks and guidance updates.

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [4]

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Great. Thank you, Alvaro. By looking to the guidance review, we must highlight the outstanding performance of Talgo in 2019 with a special emphasis on the commercial success, where Talgo has already exceeded the target for the period 2018, 2019, reaching EUR 1.3 billion or 1.8 book-to-bill ratio. Moreover, 95% of the new orders came from international markets, and the addition of these new projects adds high value to the company backlog in terms of diversification, internationalization, quality and risk profile, driving the company to a strong momentum with a clear view of the potential to this technology and its commercial capabilities.

In addition to this, projects were successfully executed in 2019 in line with the client requirements, resulting on a strong revenue growth in line with expectations, reaching 24% growth in the year. From a profitability standpoint, EBITDA margins reached 18% in the period, in line with company targets and, therefore, demonstrating company excellence in its operation and strict cost control.

Working capital also performed well throughout the period with an exceptional project management that resulted in a stable and contained working capital.

However, cash flow has registered certain valuation with regard to the guidance provided, although with no impact on the real performance of the company and projects. In this regard, too many factors caused such variation on final cash position. On one hand, the self-financing of DB project is the result of a company decision with the clear objective to optimize the use of available cash in balance sheet and seek financial savings by using such available cash and avoiding the use of the provided facility. Therefore, the self-financing decision is financial riskless and cost-efficient at this stage and, therefore, prevails with regard to a better working capital balance.

Having said these, it is important to take into account that through the financing facility provided by Deutsche Bahn, by DB, this project provides Talgo with the capability to receive advance amounting over EUR 300 million at any moment. On the other hand, collection expected to be received from Mecca-Medina project were finally transferred to the 1st Q 2020. However, Talgo does not identify a significant risk regarding this collection.

On top of this, it's noticeable that Talgo has already collected over 98% of the total project and has canceled over EUR 500 million of bank guarantees, which significantly reduced its risk related to the project.

Finally, regarding the shareholders' remuneration, Talgo has shown its commitment with the shareholders with [its strong program] and its pace of execution. And we expect to undertake the first redemption in 1st Q 2020 prior to continuing its execution until completion. As a result, we can see that Talgo has successfully performed in 2019 in all lines driven by a resilient business model and a solid strategy which seeks sustainability growth in the long term.

For 2020, we expect a strong increase with regard to the industrial activity engaged by the manufacturing projects in the backlog and supported by the recurring maintenance activity. In this sense, we expect a robust degree of progress reaching circa 35% of the backlog execution in the period 2020, 2021. Regarding the commercial activity, our objective lies in the targeting of high-quality projects to drive a sustainable growth of the business. The current socioeconomic and environmental needs and positive industry trends are beneficial for the manufacturers, and we believe Talgo's technology, differentiation and competitiveness should continue supporting the business growth. Therefore, we target 1.2 book-to-bill ratio for the period 2020, 2021.

In terms of profitability, we expect limited erosion of margins driven by the mix of projects in the backlog with [high manufacturing rating] over the total expected volumes. In this regard, it is noticeable, the high-quality profile of the projects and the client base that makes up the backlog, where all projects, both manufacturing and maintenance, are expected to deliver attractive margins. With this, we expect these projects to contribute with circa 16.5% adjusted EBITDA margin in 2020.

In terms of cash flow, the new manufacturing cycle will preliminarily require cash in 2020. However, the [advantages] financing facilities available in some of our projects give us room to implement the most cost-efficient and optimized financing profile while limiting the related credit risk.

Regarding the CapEx requirements, 2020 is expected to be more intensive, and the extraordinary increase is partially aimed to adapt current capacity to provide the company with the required capabilities to undertake all projects on the backlog. In addition, a number of R&D developments aimed to reach cost efficiencies, mainly in the maintenance activity, are expected to deliver attractive returns on the maintenance projects. We reiterate the commitment of the company with shareholders through the ongoing buyback program. On top of this, based on the approval of the board meeting celebrated today, we expect to execute the first share's redemption in 1st Q 2020.

Lastly, we also wanted to highlight within the financial and operational objectives of the company the full commitment of Talgo concerning ESG practices. Talgo already undertakes its activity in line with guidance -- guidelines provided by standards of reference in the market, and the company is already a reference in the industry given the environmental friendly technology offer. However, our commitment goes further, and therefore, we will continue developing and implementing measures with a long-term objective to neutralize the company environmental footprint.

With this and just to conclude, we believe Talgo has registered an excellent performance in 2019, and we expect to continue doing so in 2020, meeting time expectations while delivering best-in-class returns to shareholders, maintaining a healthy capital structure and continue strengthening the backlog with high-quality contracts to ensure a sustainable growth of the company in the long term.

With that, ladies and gentlemen, we conclude our presentation, and Alvaro and I are pleased to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Jose Maria Canovas from JB Capital Markets.

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Jose Maria Canovas Garcia de Blanes, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [2]

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I have a few. First of all, I would like to know if you could give us some color on how much did you -- were you able to collect from Saudi Arabia? And how much is still left to be collected? And on my numbers, more or less, I was predicting some EUR 40 million, of which maybe you could have collected half of it. So is the remaining EUR 25 million that is away from your previous target of net debt, was that -- was this amount destined to the Deutsche Bahn project? Or was there anything else? Or is this amount smaller? If you could give us some color on that, it would be great.

Also, if you could provide some color on the net debt guidance for 2020. Especially when you say the implementation of most efficient use of cash, is the -- well, more or less, to know in which range could we be. Or if you could give us some more color there, it would also be helpful.

And finally, regarding the tax rate of 2019, just wondering why it was so low. I don't know if there was any special impact there.

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [3]

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So Jose Maria, for the first question, from Saudi, the pending amount to be collected is around EUR 20 million in the first quarter, more or less (inaudible).

For the first -- to the second question, the option here is that we have the option of the DB project to advance up to 60% of the total project to regulate on the cash flow position during the year.

And the third one is...

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [4]

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Tax rate.

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Jose Maria Canovas Garcia de Blanes, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [5]

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Yes. Following up on that one. This is exactly my question. So here, you are saying -- with this sentence, are you saying that you will use this in order to -- well, to get the advancements? Or are you saying that as you have a very healthy financial position still with EUR 60 million net cash as of today that you will keep financing the project for the next year? Just wanted to clarify if you can.

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [6]

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The idea is to not use the AAD until we need it. The idea is to finance the project with our own cash.

And regarding the tax question, the...

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [7]

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Tax rate.

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [8]

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The tax rate is due to the -- we have the -- I don't know how to say -- the benefits from the subsidiaries outside Spain on the [permanent establishment] that we have outside.

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Jose Maria Canovas Garcia de Blanes, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [9]

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Okay. But for the coming years in terms of tax rate, we shouldn't be expecting any reductions for any reason now. This is just some one-off or some accounting measures, I guess.

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [10]

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It's more or less the same.

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Operator [11]

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We have a following question from Bosco Ojeda, UBS.

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Bosco Ojeda, UBS Investment Bank, Research Division - Executive Director, Head of Small & Midcap Research and Analyst [12]

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If I could follow up on this last comment. I'm not sure if I understood correctly, but have you mentioned that you could get around EUR 260 million or EUR 300 million. Is that from the Deutsche Bahn project? And if I understand correctly, I mean, so you basically mean that you could get that inflow next year, so in 2020, but you wouldn't apply for that. And a question on that is, would that imply better margins? Or is it just purely a financial impact below EBIT?

And also, I have a second question on your margin guidance. You're guiding for 16.5% EBITDA margin. Is that a good level for the long term considering your current backlog? Is that a good reference value for not just 2020 but generically a little bit more long term?

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [13]

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Thank you, Bosco. Regarding your first question, we can use the financial when as -- when we want. We decide when we -- when can we use it, and it's only to adapt the cash flow, and this only has an effect in the financial part.

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [14]

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And regarding the...

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Bosco Ojeda, UBS Investment Bank, Research Division - Executive Director, Head of Small & Midcap Research and Analyst [15]

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And the EUR 300 million?

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [16]

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It's -- more or less, it's EUR 300 million to EUR 330 million. It's 60% of the total contract.

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [17]

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Okay. So regarding the market guidance as we gave this 16.5% for 2020. As you know, we are now pursuing projects in low-risk countries compared to others. And that's why we presented this guidance. We expect to be in a similar situation on the next future, that's also depending on whether we stand on different projects or on different markets.

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Operator [18]

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We have a follow-up question from Jaime Escribano from Banco Santander.

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Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [19]

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So 3 questions from my side. Regarding the net cash position and related also with the Deutsche Bahn contract, I know you have more or less answer to this, but maybe I'll ask in a different way. To what level of leverage would you be comfortable in using your cash and lever up the balance sheet? This would be my first question.

The second question would be regarding your guidance in terms of sales. So if we take your backlog and divide by '20 and 2021 and multiply by 35%, it gives around EUR 580 million sales average for 2020 and 2021. My question would be how should we think about this EUR 580 million sales average in 2020, 2021? Will it be even, so the same in the 2 years? Or should we think about a little bit less in 2020 and more in 2021 or the other way around? So if you can give us some color on that?

And finally, regarding the pipeline. So if you could give us some color on some of the most relevant tender bids that you are now applying and that could happen in 2020, in particular, maybe you can give us an update on how the Spanish and their bids are evolving? And when can we expect some outcomes?

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [20]

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Thank you, Jaime. Thank you. For the first question, we will maintain like a very strong level of leverage. And the idea is to optimize as much as we can the cash position.

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [21]

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Now regarding guidance of sales, number two; and pipeline, number three. As we see, we gave a guidance for the next 2 years. This is pure mathematics. So we don't -- we can -- we cannot say there's going to be same average in 2021. We just gave these guidance for 2 years and this 35% of the backlog we just gave within those 2 years.

And now regarding the pipeline, we explained that we're involved in several projects that we have offered already. Biggest one would be the High Speed 2 that we expect certain decision by year-end. Regarding RENFE, or Spanish operator RENFE projects, there are 4 -- about 4 different offers or projects that will be presented during this year. Again, according to our customer, we expect some kind of decision by the 3rd Q, 4Q of 2020 as well.

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Operator [22]

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Our next question is from Pablo Cuadrado from Kepler.

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Pablo Cuadrado, Kepler Cheuvreux, Research Division - Equity Research Analyst [23]

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Apologies because I think I'm going to be asking a question that I think you have already answered a few times, but I've been some connections problems. And today, it's not the best day for the analysts. We are having so many results. It's difficult to be at all places.

Just on the net cash position. I think you have properly explained that you are going to have higher CapEx this year. You have explained as well the working capital consumption and the facility that you have on the Deutsche Bahn contract, the Mecca-Medina pending stuff to come in Q1. I wanted just to clarify if you are expecting for this year, 2020, still to maintain the net cash position that you have currently on the balance sheet.

And the second question will be probably, José María, to try to understand better the margin evolution because, clearly, it makes a lot of sense that entering into projects, which are in -- let's say, in more mature markets or more stable markets, but margin-wise, you are going to have some kind of step-down. But when you compare last year to this year, from 18.2% to move to 16.5% is quite a big drop. So I want to understand basically what is entering this year that is damaging so much the margin because I think, clearly, there is a step-up of the Spanish contract in Spain. But I think the German one in terms of bigger steps for this year, there are not that many. So to try to understand what -- which are there -- why they are damaging the margin for this year so quickly?

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [24]

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Thank you, Pablo. For the first question, we made sure that the profile of the project that we are now involved in are -- we had some consumption of cash, but we are not concerned about it because we have -- as we have mentioned already the option of the Deutsche Bahn. For that reason, we are not concerned.

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [25]

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Well, regarding margin -- the margin evolution, we don't agree that we have a drastic drop. It's true that we are involved in much more projects than we used to be in the past. We have a different mix. We have a different type of competitors. And also, we might be in a different segment. Even though we keep on saying that we want to focus and concentrate our activity -- commercial activity on those projects that adapts perfectly to our product portfolio, we also announced some years ago that we wanted also to analyze through a selective approach the possibility of the commercial entrance into the segment of commuter, regional trains, which is the biggest piece of the pie regarding rail traffic. So with all these factors, that's why we gave that guidance: mix of projects, new platforms, new segments.

And also, it's important to mention that, as you've seen, we are now much more focused on Central European markets rather than in emerging markets, in which the risk profile is lower. So the demanding margin in that particular area due to the low risk is not so high as we used to have in other markets.

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Operator [26]

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We have a last question over the phone from Beltran Palazuelo from SANTALUCÍA Asset Management.

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Beltran Palazuelo Barroso, SANTALUCÍA Gestión S.G.I.I.C., S.A. - Equity Analyst & Equity Portfolio Manager [27]

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I have 2 simple questions. The first one is regarding the working capital. Currently, we have an investment of around EUR 50 million with the current backlog. At what point in time and what would be the maximum working capital investment of the current backlog?

Then the second one is more financial. What is the plan to manage the balance sheet regarding a shareholder remuneration? I know there's still EUR 30 million more buyback that is to go. But what is the plan going forward, dividend, another buyback? Or those -- maybe present data on future contracts. Maybe are you looking about -- reviewing another contract that maybe you have to invest a lot of working capital? So if you could give me a little bit more color on those 2 issues.

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Alvaro Segura Echaniz, Talgo, S.A. - Finance Director [28]

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Thanks, Beltran. According to the working capital question, it is the same as mentioned before. It depends on how we want to manage the different projects in the different moment.

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [29]

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Regarding the share buyback program, as you know, we're still involved with that. We still don't know when we will conclude that program. And I think it's early to say or to define. And this is not my competence. I would say with more competence what will be any additional return to the shareholders, but this will happen not before we concluded with the share buyback work.

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Operator [30]

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We have no other questions over the phone.

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Javier Oriol Piñeyro, Talgo, S.A. - IR Director [31]

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Okay. This is Javier. We have another 2 questions coming from the webcast. I'm going to read them. The 2 of them come from [Gabriel Mejias] from (inaudible).

The first one says, "Could you provide guidance on the working capital consumption we expect for 2020?"

I think that, well, this question has already been answered. So please, [Gabriel], refer to the answers already given by Alvaro and José María.

The second question is the following: "The 35% of the backlog revenue guidance you provide, it is based on the backlog as of December 2019 or as of February 2020?"

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José María de Oriol Fabra, Talgo, S.A. - CEO & Director [32]

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All right. Okay. The second one, I guess, that the question basically wants to know -- because the main difference between December 2019 and February 2020 is basically Denmark. So we keep giving the same guidance, 35% of the backlog as of December 2019.

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Javier Oriol Piñeyro, Talgo, S.A. - IR Director [33]

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Okay. Thank you, José María. I think there are no more questions. I think we will end the call. However, please, in case of having any other questions, please do not hesitate to contact us.

And thank you very much for joining us today in the call. Looking forward to speaking with you shortly again. Bye.