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Edited Transcript of TRE earnings conference call or presentation 13-Nov-19 12:00pm GMT

Nine Months 2019 Tecnicas Reunidas SA Earnings Call

Madrid Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Tecnicas Reunidas SA earnings conference call or presentation Wednesday, November 13, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eduardo San Miguel Gonzalez De Heredia

Técnicas Reunidas, S.A. - CFO

* José Lladó Fernández-Urrutia

Técnicas Reunidas, S.A. - Chairman of the Board

* Juan Lladó Arburúa

Técnicas Reunidas, S.A. - First Vice Chairman of the Board

* Marta Gómez de Salazar

Técnicas Reunidas, S.A. - Investor Relation Director

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Conference Call Participants

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* Alvaro Lenze Julia

Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst

* Filipe Martins Leite

Banco Português de Investimento, S.A., Research Division - Research Analyst

* Francisco Ruiz

Exane BNP Paribas, Research Division - Research Analyst

* James Thompson

JP Morgan Chase & Co, Research Division - Analyst

* Luis de Toledo

BBVA Research SA - Chief Analyst of Oil and Materials

* Patricia Cifuentes

Fidentiis Equities S.V.S.A., Research Division - Equity Research Senior Analyst

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Presentation

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Eduardo San Miguel Gonzalez De Heredia, Técnicas Reunidas, S.A. - CFO [1]

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Hello. Good afternoon. This is Eduardo San Miguel. Welcome to this 9 months 2019 results presentation. It will be conducted by Juan Llado, CEO of the group, and will take 20 minutes. As always, you can pose your questions after the speech.

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

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [2]

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Hi. Hello, everyone. As always, let me start with analysis of the new awards and the backlog. I could talk about the pipeline with our numbers, and then we can spend a few minutes talking about the market outlook and how do I see the business.

With the awards we've announced yesterday, I don't know whether it's well understood or not, a very large front-end design and basic design award to TI -- to TR. This is a joint venture of Rosneft and Pertamina, both of them new customers. Pertamina has been an old customer of TR -- it was 3 years ago, so I take it as a new customer. This is a very important investment. This is a big investment in the island of Tuban, where we have been awarded the basic design. We have to work with all the technologies and the front end of a highly qualified refining units as well as petrochemical units.

We have to work with, as I said here, state-of-the-art, most advanced licenses. As you know, the petrochemical business moves and moves forward. So you have to be -- this allows us to be at state-of-the-art of the new petrochemical products.

And this is very important for us. This shows we are very well positioned, which was part of our strategy in Asia Pacific. We started in Asia Pacific with a very important job, which was for PETRONAS, which, right now, is done. It's finished. We still, in some of the units, we still -- because the feedstock is changing, working on what we call the test runs with different feedstocks.

It's a fantastic job. We did very well. We had a good customer with a good country, and we were doing our best, which is refining. After that, we worked with -- in Asia Pacific for Exxon that we worked for a whole year on a front-end design. They happen to be competitive. And that Exxon decided to award it to us and we've been started to launch a very large project in Singapore, and this is the third one. This is important for us. We have to deploy an average of 500 engineers designing all these units for the customer. So after that, the customer Pertamina and Rosneft can go for EPC offers. EPC offers, that is important to say, we're also qualified in this case to bid the units that we are good at. And some of those units, we're very good at. So this is important for us because of the size, because of price, because of the trust that Pertamina and Rosneft has given to us, important to us because of the region. This is -- for TR, this is a success story. I'm very, very proud that Rosneft and Pertamina trust TR for this very important investment.

And the second one is Canada. And in Canada, it's Suncor. A lot of people, the investors as we had years ago a bad experience in Canada could worry saying, TR is back in Canada. Now we've never abandoned Canada. That's the message. We've delivered to Suncor about a year ago a cogeneration plant, and we delivered Suncor, which is quite nicely. We work very hard with them hand-to-hand, shoulder to [shoulder] for the complex delivery in Canada in Alberta a cogeneration plant. And today, Suncor is trusting TR with TR's partner Ledcor, which is probably in that region one of the strongest construction companies, to deliver to them again another cogeneration plant, quite big. $200 million is our stake, we will take the 50% of the whole investment.

Having a construction company of Ledcor as a partner, it allow us to manage construction, obviously, much better, allow us to manage construction risk in Alberta much better. But also the contract we've signed with our customer, Suncor, is very much derisked. We have found schemes with Suncor to share some of the construction risks. So again, it's something we're very good at. We're repeating business with Suncor, and we -- and if the customer they will like to retain. So again, we're extremely proud that Suncor, once again, trust on TR for this important job for them.

And after those 2 awards I have here more creative slide, and this is the $7.5 billion is how much has been awarded to us over the last 12 months, that's fall against fall 2018, 2019. And as I was reviewing that, I said, okay, let's put on [shake] the jobs that customers are repeating with us. And to our surprise, with the exception of a new customer, a very important one, which is Pertamina and Rosneft, with all of them, we are repeating business. And we not only repeated business with most of them. We are, today -- I mean starting up -- I'm not even going to say delivering, starting up major jobs in Saudi Arabia, in Abu Dhabi, in Malaysia, we repeated business with them. At the same time, we're starting up all jobs, which is good business.

And here, I have to -- I'd like to send 2 messages. Very good delivery and that very good delivery in a good market. You have to have a good market, and we have a good market. We have a recovery market. It's translating in very good quality and solid awards. I mean both -- one thing goes after the other. You have to deliver first, but at the same time, and then retain customer trust, and we have. So what you see here in this picture is prime customer, solid product, the things that we're very good at, and solid regions, Asia Pacific, and very important, the Middle East. And what -- and there is no pre-activity either on customers or regions. We don't need that. We need to focus on the customer we're good at and on the customers that we can grow with them in this, I say, more recovery market.

And after you say that is how much we've got as backlog. We have already been a -- you've already seen it. And after -- getting an after sales, we see this quarter that our backlog, if you compare it with the last one we have, quarter against quarter, we have improved from EUR 8.7 billion to EUR 10.9 billion. So that product delivery and fresh, new healthy awards with customers that we know, allows me to say that, today, a year later, third quarter of 2019 I'm far more comfortable than I was a year ago, far more. I was optimistic a year ago. And today, as I'm going to say before, I'm guessing, I'm going to say later on, I'm comfortable. Again, as I said before, this is a solid backlog. It has nothing of too reactive backlog and difficult customers and unknown regions.

Again, there is always -- how is this backlog splitted. And here, probably, the important message is that more than 85% of the backlog, 86% to be precise -- I'm being criticized here. To be precise, well, let's say, 85% of the backlog has been awarded to us over the last 2 years. And I have to repeat because I always like to send a message to my team. Over the last 2 years, it has been our peak years also in delivery. The number of delivery highlights, let me stress on that. I mean today, we are at the very final stage. Some of the units we do the last test runs. Some of the other units we do in the test runs of the utility and finalize the process units, but we are delivering to our customers, say more -- they awarded to us more than $15 billion in projects, upstream gas and refining as well as power. So that's I feel -- once you see the reality, once you see the big jobs starting up. And there is you're gaining the trust of the customer again allows me to -- allows me and my team, my production team, my commercial team, my control team to feel comfortable about the strength of our franchise. And this translates, obviously, into awards. And obviously, we've got a pipeline that will not be awards. But again, you have to have a strong franchise to retain part of this pipeline.

And after the $7 billion awards we've talked before, our pipeline, if you compare with last year, with 12 months ago, is a bit stronger. I mean it's difficult to measure what is $41 million versus $39 million. Let's not get into details, but are the investments being sanctioned, projects that we're bidding, projects that we've been invited to bid and projects that we've already bid, and we're waiting for our customers' decisions today is bigger than it was a year ago. And after being quite successful with more than $7 billion of awards. So it's a positive market. Probably, I don't want to get into detail why is this pipeline big because probably you guys are better analysts than I am. I have to focus on having the best production team really -- I mean and deliver. And if I do that, this pipeline that you're probably better than market -- reasons of market -- of the market, you're probably better analyzing, will translate into new jobs. There is obviously having to do -- have replacement issues, demand growth issues, upgrading issues, environmental reasons, many reasons that support the increase of the pipeline. But you have to have a strong franchise and having been able to deliver mega jobs and we have, and we're doing it, to retain part of this market, and we are doing it. So that's the reason that I'm not only optimistic, but very confident. And now we see the financial results.

And some of you may ask me, "Well, I mean if you're so optimistic and so confident, why such humble margins?" Well, I was -- our target for this quarter was -- we miss the target by, I don't know, the neighborhood somewhere in between EUR 3 million to EUR 5 million, I mean in this quarter, and we missed it. But it is also true that in this quarter and the next quarter, we are starting up, not only delivering, starting up big jobs, very big jobs. We're doing the test runs of big units for facility. We're doing the test runs of the refinery unit for Jizan in Saudi Arabia. We're doing the last test runs of the last unit with different feedstocks for SOCAR. We're doing the last test runs of the last units with -- again, with different test runs for PETRONAS. So -- and we -- and those are the numbers. And sometimes, and the message here and the message to my team, at those stage is there is no negotiation. I mean we have to run and start up. And being the volume as it is missing for EUR 3 million or EUR 4 million can happen, and it happens, but it doesn't change at all.

And I'd like to underline that, it doesn't change at all my message of optimism and confidence. It doesn't change at all our message and guidance that we are in the trend of margin recovery and a stable margin recovery. I mean the last million, when you're starting up a job with your prime customer, goes for him. I mean here, it's his time to put the job into revenue. The money will come afterwards with new jobs or even when you settle the final numbers. But everything is coming at the same time and the message is a very positive message. It's true that we have humble margins, but it's true that we've bounded the risk by delivering the jobs correctly. Our risk, despite the size of our jobs, is very much limited. The quality of our delivery is very good and very important. We're launching with those customers, most of them old customers, extremely well the new backlog, which, again, happen to be mega projects.

Our position in cash stays more or less stable, slightly above EUR 200 million. We have to take into account that some of our very good customers, and I have to underline, again, very good and trustable customers, having got the best payment terms. They have a lot of retentions and complex milestones in order to have positive cash flow. So despite of that, we've been able to maintain the balance sheet with a net cash of EUR 200 million, slightly above.

And now quick, the outlook because somehow through this presentation I have anticipated the outlook. I've said before that in many presentations, see enough of this deep crisis, I was trying to send an optimistic message to the market. I was optimistic, more than optimistic, optimistic of market recovery, optimistic about delivery. So -- and I don't want to use the term optimistic anymore. I think because I've already shown that I'm delivering and I have already shown to the market that I'm able to retain this and repeat with the same customers, even bigger jobs. Today, the message is a message of confidence. And I'm very strong, and I'm very confident about the future because of our backlog, because of the pipeline that I do believe that we're going to be able to retain substantial part and very important because now that we are doing good, and I have to say we're doing good. We have put together a very strong cost and efficiency plan. We -- I didn't want to do it before. Before I have to manage prices, now I have to manage growth. And to manage growth, you have to revise all your cost structure and efficiency and production. And with the help of consultants, we're putting together very strong cost and efficiency plans that are from the first engineer to the senior management, everyone in TR is motivated and happy with it. And the result of that, I do believe we're going to be growing. If the market allow us to grow, we're going to grow, and I do believe the pipeline is going to allow us to grow. But we have to grow with operating margins. And thus, operating margins will start to see an improvement for quarter 2019 to stabilize during 2020. And that's -- there is pure mass, some of the jobs have been delivered and some others are just starting. And on average, 2020 is going to be -- I mean, as I'll say, a healthy year.

In a healthy year, what I'm optimistic -- because I'm comfortable. I don't want to use optimistic. It shows -- I'm comfortable that today, TR is one of the strongest franchises in this market, having to do with onshore oil and gas, refining and petrochemical and some particular power jobs. So all of that together, that's the message, confident and margin -- stable margins for 2020. Thank you very much.

And now you can pose me any question you may want.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Francisco Ruiz from Exane.

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Francisco Ruiz, Exane BNP Paribas, Research Division - Research Analyst [2]

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Juan, when you talk about normalized margin, could you give us an idea of what is the figure that you are thinking for next year? The second question is on capacity. Because after such a big increase on backlog, can you tell us how the capacity is? And how much do you need to increase in order to tackle with -- to cope with this increase in backlog? And last, you have commented on this cost-reduction plan. But if we look at the corporate center or the central services cost, it has continued to grow and growing almost 10% year-over-year. So could you give us an idea on why these costs are still increasing?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [3]

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I mean normalized margin, I mean I think this business deserves, and that's what we're targeting for. I mean to be way above 3% and have a stable 4%, and that's what we're aiming for. And -- and that's taking into account ups and downs. I mean that's we do believe the -- our plans, our jobs, that when we're getting the jobs awarded, that when they're being delivered, we can normalize, way above 3%, and in the neighborhood of 4%. Difficult to be precise, that's the objective.

Capacity of engineers, there is always initial capacity of engineers that having grown and having very strong specification on the science. We're very good at it, having had the experience of working in joint ventures with Sinopec with Enap with GS with Samsung with Technip. I do believe that the capacity of engineers of this time is not an issue. I mean something that we can grow. We can grow in India. We can grow in Spain. We can grow in Oman. We can grow in Chile. We can grow in Saudi Arabia that we have strong presence. There is solid for me, and there's the message that I say, yes, there is -- I mean the -- I don't want to run into a shortage of capacity of good managers. And we will continue internal training more than hiring, internal training of all the young engineers, which some of them are very good. They have already done 2 or 3 projects to move into a project engineer, deputy project manager to project manager, same of construction managers. In this business, the risk is not lacking capacity of engineer. It is lacking capacity of management, a good team to manage, say, the excellent job. And -- but I think over the last years, we've done quite well.

I'm not going to say it's not an issue because it has to be an issue in this business and we are a service business. But I think we're managing quite well. I think the quality of our managers, some of them quite young already -- they're very good, they're extremely good. And cost and efficiency plans. It's true that on growth and awards, delays of jobs having to retain people for jobs have been delayed, we have run into inefficiencies. That's true. And you have to realize that over the last 6, 7 months, we have launched tremendous jobs, which has not allowed us to move. We have launched the job we have to deliver and launch before getting into cost reduction and efficiency. But I'm pretty sure that once we stabilize this plan, we'll see a reduction in an overhead for sure. (inaudible)

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Francisco Ruiz, Exane BNP Paribas, Research Division - Research Analyst [4]

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Just a follow-up. Could you quantify on the savings of this plan?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [5]

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I mean I cannot -- I mean let's not -- I don't like to start playing around with that. There is a number with on TR. There is a plan within TR that everybody knows. But I mean publicly, I don't want to start quantifying this in and being measured against the numbers that I've said, but will be embedded in all those steps as margin or as contingency, obviously, which is what you do when you manage a business like this. We have to make sure -- better to make ourselves comfortable with our margin objectives.

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Operator [6]

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The next question comes from James Thompson from JPMorgan.

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James Thompson, JP Morgan Chase & Co, Research Division - Analyst [7]

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Just really wanted to ask you around the guidance. I mean on your prepared remarks, you've given us what I think is a very optimistic, very bullish outlook, which is good to hear. When I look at consensus, it's currently calling revenue growth for around about 5%, 6% year-on-year, which is EUR 300 million, something like that. Should I be reading into your outlook statement that, that is just too conservative at this point in time?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [8]

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James, the answer is yes. It is conservative, but it is conservative. I understand, even ourselves, when we make sales projection, we have to be depending on awards, you have to be conservative. But being conservative, you see growth. And I do believe we're going to do better.

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James Thompson, JP Morgan Chase & Co, Research Division - Analyst [9]

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Okay. Okay. That's helpful. And then just sort of following up. I mean obviously, you now sound very confident in the recovery in margins. Just 2 points there. One is maybe short term, just in terms of what is the effect of not having the sort of Jizan overhang in the fourth quarter, I guess, it's kind of a material step-up just from that? And then secondly, just what's the latest in terms of the dividend? Obviously, you've taken a more conservative step there, but it looks increasingly clear that you're going to be generating good profits in 2020. What -- how should we be thinking about plans for the dividend and the return of that in the near term?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [10]

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Okay. I mean delivering Jizan obviously is -- it'll be a big relief for us. And we very much focus TR and Aramco team in having, first, the refinery deliver and then the utilities for the GICC, which is going to be delivered refinery now and the utilities first 2 months of next year, that's, I do believe, final test runs and everything. I cannot start talking about our numbers, but it's going to be, let's say, a big relief in terms of focus and headache. I mean it definitely will be like taking a full bottle of pain relief. But I do believe that despite of the pain, we've focused on the job. We're doing well and that's why Aramco has trusted us with more jobs. And having finished those jobs will definitely help to consolidate our margins. Because there is -- they're very big. They're costly. And if 1 month is $1 million here and next month is another $1 million there. So it would help us to consolidate margins. Of course. And then I move into dividends. And let me repeat the term margin consolidation. I mean if there is someone that wants to have dividends, it's, I don't know, myself as I do represent part of the shareholders. But being confident, I'll have to say that I'm confident that we're going to be back on the dividend trend, but we have to see profits first. I mean I don't want to start saying dividend as a sign of our recovery. But I'd like to propose dividends when we have recovered. So we'll have to wait next quarter and 1 or 2 more in order to make sure that investors, customers, banks, everyone feels comfortable that we pay dividends with profit, and we don't pay dividends ahead of profits, which I do believe is not a good manager.

A lot of people are saying in this market, everybody pays dividends. It doesn't matter whether you make money or not. And I said, "Well, that will be great, but I've been a shareholder and manager, I don't think it's good style and good business practice to pay dividends if you're not making money." So we'll pay dividends. We'll make money, that's the second, and we will. We'll pay dividends and we will -- but we'll have to wait a couple of quarters with solid -- doesn't have to be solid, with real money to go back to our dividend trend. But I mean we're a dividend-paying company. So be sure that once we're in business, and we are very close to being in business, we'll pay dividends, and we'll pay dividend with a much stronger, obviously, balance sheet.

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Operator [11]

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The next question comes from Patricia Cifuentes from Fidentiis.

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Patricia Cifuentes, Fidentiis Equities S.V.S.A., Research Division - Equity Research Senior Analyst [12]

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Two questions, if I may. The first one regarding the margin. I think that you've always said that you were targeting 4% as a normalized EBIT margin. And this time, you seem to mention that you want to reach a stable 4%, in the neighborhood of 4%. I don't know, maybe it's just a matter of wording, but I believe that you are being a bit more conservative in your message. Is that correct? And my other question is regarding the awards. I believe that in the last conference call, you mentioned that obtaining between $5 billion to $7 billion awards this year was not challenging. How do you feel about that now?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [13]

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And let me start by being more conservative or less conservative. I'm not being more conservative at all. But I am being realistic. If we are -- I'm showing to you today 1.3% in margin. I cannot tell you that I'm going to have in 2 weeks 4% margin because I would not be -- that will not be the optimistic, that would be very optimistic, unrealistic. I mean the message there, I mean the level of comfort is that we're going to reach the 4%. And that's true. I feel very comfortable of reaching the 4%, but it takes a quarter, next quarter and probably the following one, and then we'll start reaching the 4% as we deliver and new jobs start up and other jobs because, I mean we are at the brink of getting new jobs. So not more conservative at all. And not even more prudent at all, it's just being realistic. We are where we are. But I'm not being more conservative; if that's the impression that I gave you, it's not what I have tried. I mean that 4% is very much embedded in the delivery and the awards that we already have. Not the ones that we expect to come.

And you were asking me that I have said, I'm a little lost, that having awards of $5 billion to $7 billion was challenging.

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Marta Gómez de Salazar, Técnicas Reunidas, S.A. - Investor Relation Director [14]

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But possible.

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José Lladó Fernández-Urrutia, Técnicas Reunidas, S.A. - Chairman of the Board [15]

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But possible, and today, obviously, to get awards within margin. I mean to get awards with our margin is not a real challenge in the big market. They have to get awards with margins. There is always a challenge. We have to bid well. You have to have the right cost structure. You have to have -- we have to deliver, having -- have the customer, being selected by the customer. But I think today, $5 billion to $7 billion, again, this is always a challenge, but it's more possible today than it was a year ago. I mean it's less challenging, so to speak. So I mean we've proven that we get in the awards, and we're getting the right type of awards. And so we're very close to the $5 billion. The year is not finished, wait and see. But you do a moving average of awards, we're definitely above the $5 billion. Okay. I don't know if I've answered, Patricia?

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Patricia Cifuentes, Fidentiis Equities S.V.S.A., Research Division - Equity Research Senior Analyst [16]

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Yes, yes. Sure.

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Operator [17]

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The next question comes from Filipe Leite from CaixaBank.

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Filipe Martins Leite, Banco Português de Investimento, S.A., Research Division - Research Analyst [18]

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I have 2 questions, if I may. The first one is actually a clarification regarding backlog evolution. Because at 9 months, you reported a EUR 4.4 billion intake, which is EUR 1 billion above the reported revenues of 9 months. Although since year end your backlog increased by more than this EUR 1 billion. The increase was roughly EUR 1.9 billion. Can you explain the reason for this close to EUR 900 million more backlog than the difference between intake and reported sales? I'm wondering if this is related with FX or any other adjustments in the amount of your initial year one of the projects. Second question is on working capital that reached roughly EUR 330 million this quarter. Do you expect any significant change until year end? Or should it be roughly the same amount? I'm asking this because in the fourth quarter of last year, there was a significant change in working capital of more than EUR 200 million.

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [19]

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Filipe, let me start to do -- try to -- I cannot get into details into the -- trying to match the backlog when you have a mismatch of -- if you did that -- you had awards and you did that sales now. It is very difficult. It is very difficult to assume right now, but there is an issue in all the jobs, the jobs -- I mean for instance, Talara, we have increased the size of that by agreement with the customer, but it could develop to big amount. I don't want to get into details because the customer has not made it public. Some of the jobs sometimes you sign for $1.3 million, and a year later, you get deducted to $1.1 million, $0.5 million because one of the units decides not to do it. Very often through the job, the size of the job increases by 5%, 6%, 7%. And out of that, little by little, it gets embedded into the backlog.

So that's why it's very difficult to have the mathematical match. It is also the impact of our exchange rate. I mean our contracts are in dollars. So -- and they're measuring dollars. And so backlog is not an accounting number, it's just a number that is very difficult to have a match. And usually, to be honest with you, we are on the conservative side. I mean most of our services and things that we sell and whatever we don't include into the backlog. And there's small jobs and fees and whatever. They're never included into the backlog, which is pretty big chunks. And then we add up with our changes of contracts. Some contracts increase by 5%, 6%, 7%, 8%, 9%, 10% because customers add up things while you're doing the job and then has to be included because the contract changes. So I don't know, maybe if you wanted more detail, you can talk to Marta. And she can explain to you the mismatches in backlog from one quarter to another.

And your second question was working capital. I don't know if I have to answer that or I'll let Eduardo to answer you because -- probably Eduardo, you can answer that. I don't think it's going to be a drastic change, but Eduardo is more strict than I am.

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Eduardo San Miguel Gonzalez De Heredia, Técnicas Reunidas, S.A. - CFO [20]

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I think working capital has not significantly changed from last quarter to the actual one. I think accounts receivables have grown EUR 50 million more than what the accounts payable have grown. So working capital has deteriorated around EUR 50 million. It's a fact that I think that's the most relevant trend that both accounts receivable and accounts payable are growing above the figures we have in the past. And maybe that's the main trend we are facing now. And it has to do with the fact that working in the Middle East, it's very difficult to invoice as fast as we wish. We need to wait till the milestones arrive, and then we can invoice. The point is that if you have a concentration of procurement in the Middle East, and that's the case today, both in Fadhili and Haradh. What you do is you pile large amounts of services rendered that you cannot invoice. So you need to reach the milestone, and that's what it is currently doing. And that's why we have such a big amount of accounts receivable. And well, probably, we have less cash than expected.

What can we expect from now until the end of the year? Well, I think that -- well, we will see some projects basically in the Middle East in Kuwait and also in America, in South America and in Peru, where we will be allowed to invoice that month that can be invoiced now once we have signed the addendums to certain contracts. So what we will say is that amounts to be invoiced, hopefully, that's part of these new invoices will be collected, and what you will see significant reductions of amounts to be collected from the clients so accounts receivable. Consequently, we will be paying our suppliers, and we will see also a reduction of accounts payable. So the figures we currently have are very big. They will become a smaller by the end of the year. But the overall -- I mean the working capital, it always depends if I have to advance some money to my supplier or if I can collect something quicker from my clients. But I think -- well, we haven't seen major changes. It's stable from last quarter to a quarter. It's not a major difference. And I think the point is and where we are very focused on now is how to reduce this amount of accounts receivable and of accounts payable. I think that's the target.

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Operator [21]

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The next question comes from Alvaro Lenze from Alantra Equities.

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Alvaro Lenze Julia, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [22]

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I had 2. But first, if we can take a look at the guidance for 2019. You were guiding for flat sales and margins approaching 4% towards Q4. I understand that the margin approaching 4% in Q4 is out of the question, probably not going to happen, but I wanted to know if the sales guidance of flat year-on-year would remain, which would imply a significant decline quarter-on-quarter in terms of revenues?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [23]

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Okay. Alvaro, I mean we're sorry to delay on the answer. I was just getting a bit confused. But I mean the message is sales are going to increase a little bit, obviously. We're delivering, but we are starting new jobs and not a lot that we're going to grow in sales, just a little bit. Obviously, the 4% for the -- is -- as the job has started late, and this has taken from -- a little more to deliver the 4% for the -- as I said, for this year. It is challenging. I mean we're going to see an improvement in margins for sure. I mean that's a fact. But I had growing in sales and delivering the old jobs makes it very difficult and starting out new jobs -- not only delivering, starting out new jobs that are -- only have just marginal cost and practically no margins and our sales makes it very difficult to reach in a very comfortable fourth quarter, but it's going to be better for sure. I mean there is -- I don't feel -- I don't have any level of uncomfort about next quarter. And we're going to see a consistent margin improvement. So you have to understand, it's very difficult to start. This is shooting quarter after quarter when you're launching 8 billion jobs at a time, and your delivery is starting up close to 14 billion jobs at a time. It's very difficult to get the right targets. I mean -- so that's why I wanted to stress level of comfort, a very high level of comfort that we are in the right track, and we are confident that margins are fully recovering.

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Alvaro Lenze Julia, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [24]

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And if I may follow up. Just on the net cash position, if I look the EUR 215 million implies a EUR 42 million reduction in net cash from the figures you had in December. And over this period, you have generated EUR 50 million EBITDA, excluding the IFRS 16 impact. And assuming the EUR 9 million financial expenses and EUR 10 million taxes and the fact that you have not given any -- you have not distributed any dividends, and working capital is flat versus December. This makes a difference of 28 -- EUR 78 million in cash consumption that I would like to know if you could provide some color on where does this come from. I don't know if it's higher CapEx or FX impact hedging derivatives or if you could provide some information on that thing, please?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [25]

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Okay. No -- I mean let me start by the end. I mean no higher CapEx. We have no CapEx, no FX impact. The way we manage our FX is very moderate, no FX impact. I mean for such a -- but you have to realize in this business, I mean it's not very smooth. I mean every quarter, we have to pay and receive more than $400 million -- every quarter, every month, more than $400 million. Just to bill -- and I know one, but I don't want to say names, just a couple of bills that have come on the 28th of September and/or on the 3rd of October change the whole picture. It's just the -- it has to do with the nature of our business. And it's not very smooth. Some other quarters, you see that all of a sudden, you have, according to projections, $50 million or $60 million more cash. So I mean there is no -- the reason there is a mismatch on new projections of cash has nothing to do with investments or CapEx or FX. It has to do with the inflow and outflow of -- from payments to provide to our construction companies, to suppliers and payments from our customers. It makes it very difficult.

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Operator [26]

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The next question comes from Luis de Toledo from BBVA.

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Luis de Toledo, BBVA Research SA - Chief Analyst of Oil and Materials [27]

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Two question from my side. You have referred to the RAPID refinery. It's been 2 years almost already in mechanical completion. I would like to know if -- on the full year you have expressed that you are very positive on this front and so on. If you expect a quick delivery? And if it's having a significant negative impact on profitability? I would also like -- sorry.

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Marta Gómez de Salazar, Técnicas Reunidas, S.A. - Investor Relation Director [28]

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Which project are you mentioning?

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Luis de Toledo, BBVA Research SA - Chief Analyst of Oil and Materials [29]

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It's not -- RAPID for PETRONAS project. And the second question would be a confirmation that you have successfully executed the West Lake project for Sasol. It seems like you're trading off margins for new awards. No, I have the impression that you're gaining contracts on -- with customers in which you've been more sensible to margins. I would like to know if contracts with some of the clients, which you have only had one at the moment, you're having higher margins. Although I know it's very complex questions, but I would like to see that maybe in the future, and considering that you are opting for reimbursable projects, lower risk, that if you're happy trading off margins for risk and volumes.

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [30]

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Okay. Let me tell you where we are in RAPID, which is for PETRONAS. In RAPID, we have settled everything. We're done. We're doing the running tests in all the units, and most of the running test of the unit has -- are okay. And that is just 1 unit that we have to do with the customer, and that's not different running tests because the feedstock, I mean the product -- and I don't want to name other contractors, is not getting. So we have to find ways of testing with other products. So that has nothing to do with our units. I mean our -- it has been a very successful project. I think it's been a fantastic project. We have 0 risk in that project. And we have settled everything with that project, and we may have had now some very marginal -- when I say very marginal, marginal cost because we're still supporting the project, I mean the customer in the test runs one of the units that customer is not able to provide the correct feedstock because some of the contractors have had problems upstream ahead of us. So not an issue with them. I mean it's a pleasure. It has been one, a very good customer and a very good project, challenging, but very successful. And probably, that has been the very good start of our success with Exxon and today, our success with Pertamina and Rosneft. So that's good.

If we are going to be trading less risk for margins, I mean it's a mix. I mean I think we're moving -- this is not a strategy. I mean we're gaining credibility in doing jobs in a more front-end and more engineering and that has to be -- and it's always a trade-off. There has -- I mean we are a very good company to do a fit. And as you have seen over the last 2 years, we have done, awarded and delivered a lot of fits. Now we have been awarded a huge one that we have to do more than 1 million man-hours of engineering. But that's not a tradeoff. That's decision of ourselves in the real market. And so today, we're going to be working in that market. And probably in 2 years, we're going to be bidding for the customer one of the units as we think we know how to run that risk.

So the healthy thing is to be built. To be able to do EPC, if this is a market that you realized construction is too risky, it's not going to be a trade-off. It's going to be a no. I mean -- I'm not going to do construction if I have already thought that it's impossible to do construction in a market, for example, Canada. I'm not going to do construction in Louisiana. For example, Sasol. So I'm going to do EP and support him on the construction. And I'm definitely going to do construction in Kuwait, and I'm doing it quite well. So it's understanding the customer, understanding the market, understanding the risk and trying to have a healthy mix. But I will not -- there is not a strategic trade-off move on TR. I think we're a better company, a stronger franchise. We are getting more demanded for deep fit engineering, and we have to pause, analyze. And if we like it, and we can make money, we'll do it. I don't know if that answered.

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Luis de Toledo, BBVA Research SA - Chief Analyst of Oil and Materials [31]

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No, no, absolutely. Maybe the follow-up on Sasol. The project in Louisiana has been delivered already?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [32]

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Yes. I mean that's -- I mean that job was a job for Sasol with some alcohol plants and whatever. It was not very big. There was no construction with engineering and procurement lump sum. And then once we finish, we've been supporting. And we're still sometimes supporting the customer, rendering them services on construction management. But we never had true construction risk, and our job is finished.

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Operator [33]

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There are no further questions.

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [34]

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Okay. There is no more questions. I always forget to say goodbye, and I'll be talking to you probably February next year with year-end results. Thank you very much for listening. Thank you very much for posing questions and looking forward to next.