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Edited Transcript of TRE earnings conference call or presentation 27-Feb-20 3:00pm GMT

Full Year 2019 Tecnicas Reunidas SA Earnings Call

Madrid Mar 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Tecnicas Reunidas SA earnings conference call or presentation Thursday, February 27, 2020 at 3:00:00pm 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

* Juan Lladó Arburúa

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

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Conference Call Participants

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* 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

* Lillian Starke

Morgan Stanley, Research Division - Research Associate

* Luis de Toledo

BBVA Research SA - Chief Analyst of Oil and Materials

* Michael Brennan Pickup

Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst

* Michael J Alsford

Citigroup Inc, Research Division - Director

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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 full year 2019 results presentation that will be conducted by Mr. Juan Lladó, CEO of the group. He will take something like 15 minutes, and you can pose your questions in the Q&A session that comes after the speech. And now I give the floor to Mr. Juan Lladó.

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

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Hello, everyone. This is the end of the year results. So therefore, let me summarize here in this presentation. I'm going to try, as always, to be brief and leave room for questions. Let me summarize the important highlights, which somehow are summarized here in the content of this presentation.

We are going to be talking about market recovery. And market recovery signifies quality of awards and signifies that we are repeating with customers. Customers invest again and they want to do business with us, and us with them. That's good news.

This market recovery is translating already into a strong backlog. I'm going to talk a little bit about that. Strong backlog that is somehow better balanced today than it was 12 months ago. And it's definitely being reflected into a very positive and dynamic pipeline as the awards take place, also pipeline gets renewed. That's also good news.

This year, as I said on my last presentation, by the end of the year, we're very much focusing as we deliver the large and big projects into derisking our balance sheet and optimization of our business. And I think this is very important. We have to de-risk our balance sheet in the future, and that's why we reached an agreement with our tax authorities, which I think is the path of the future. And as we are deliberately taking large projects, we're focusing, as I said before, with our external advisers and consultants to improve and have a better-run company, and we're very positive about that. And so I'll finish with the financial results. The financial results from operations, the real underlying results of TR. And with quite similar message, as I said today, what is our outlook, my outlook and our guidance.

So as we move forward with last quarter and the first quarter awards. A number of you have read it before, or you're reading it right now, so I'm not going to go one-by-one, just to be brief.

But here, again, I'd like to stress that you have to see the quality of the awards. The quality of the repeating business is something [it is]. We're repeating business with Sonatrach. We like to work for Sonatrach, let me stress that. We've done well with Sonatrach. And we're going to do well in this new job, which has already come enough -- they've already given us enough to proceed. So we are already working with them.

It is very important, when you see the new Canadian job, it is very important also to stress that we again are repeating with the shareholder, which is a Kuwaiti customer, for whom we're working successfully in Kuwait. And also this is very important. As you see the Olefin Complex FEED, the FEED that we're going to be managing -- large FEEDs down in (inaudible) are in [Indonesia]. These are energy efficiency jobs for Suncor, which we are repeating. You have to see that there is quality, there is credibility with our customers, and it is a strong capacity of delivery. This is the message on this slide. I'm not going to spend much time on Sonatrach. Everyone has read about this. And this is -- all I have to say is that we're proud of -- we're going to be leading the job together with Samsung. And I think TR and Samsung, we're going to be making -- and we make already the best fit for this large and important client probably with the 2 companies with a stronger experience in achieving with Sonatrach.

The Canada-Kuwait job. I think probably the important thing here is petrochemicals. This is a quality job, very much a quality job. In this case, it's a reimbursable service job. We're working with new and sophisticated technologies and we're repeating with our Kuwait customer. And its strength is our know-how in our petrochemical business, which is very important today in our pipeline.

The last 2 jobs, Termocandelaria. At the end of the day, this job is to close the combined cycle -- I mean, to close the cycle for more efficient power generation. It's something we've done many times, we're good at it, and we'll do well. And INEOS is one of the largest petrochemical investment in Europe. And again, trust on TR for a competitive FEED. So we have developed the utilities for power and infrastructure package, which is -- I'm proud of having INEOS as a customer. This is the first time working for them, and I'm sure we'll be doing a good job.

And having talked about quality of our work and repeating business, I've already -- a very similar slide I presented to you before. I don't want to bore you with this one, but I think it's very important, this is the last 18 months. In the last 18 months, what do we see here? What we see here is that we are repeating with top-class customers. And we -- and the new customers that we've got, Pertamina and Rosneft, again, a definite top-class customers. So what we're seeing here is quality of the job, repeating business and in markets that from a second half of 2018 to today is recovering, and we are reacting well to this new and fresh demand.

All of this translates into a backlog, obviously. And if we look into the left pie, again the message here is fresh, more balanced, very important, which most balanced and fresh backlog has to translate and will translate into better margins and quality, which is very much linked to the previous slide.

And if you look to the [right] one, what we have here a well-balanced backlog and distance in terms of products. It positions us very well into the new trends of gas investments that we have worked very hard over the last 10 years to strengthen our know-how. And I think today, we're very good in the upstream gas. Very good. Far better than we were 20 years ago. If you -- some of you don't remember, but this -- we were very strong on petrochemicals. And those are the good trends of the market. So our pipeline is very much -- it's very reflecting that.

And as for pipeline, and that's the next slide. Again, I've read some of your analysis. And some of you said that having a pipeline above 40 is good news. And I have to say it's good news and having been awarded the last 18 months more than EUR 10 billion. And what it shows here in the pipeline is real, the pipeline is very dynamic and the pipeline very much, again, because we [getting invited], reflects the quality of TR franchise in this market that's definitely recovering. So it's positive news.

And in this environment, we work hard, as I've said in the introduction, in order to de-risk our balance sheet, to de-risk our operations and to become a leaner, and as some people say, meaner company. I mean, to do well, to be more efficient. And those things have to be done in good years, not in bad years. And that's why we work very hard this year to improve that.

What does it mean, derisking and having a better company, more optimized company? Let me start with the tax settlement. We needed to have a tax settlement with tax authorities. It very much clears the path for the future. We're a Spanish company, and so we have to work with the tax authority. So we have taken a decision, it's not been an easy decision. We have taken a hit -- a net hit of $65 million -- euros, I'm sorry, which has been somehow -- only somehow compensated by [$60 million] of our stake on Empresarios Agrupados. As I've said before in my previous presentation in December, we have a divestment plan of noncore business, which together with the [$60] million, we'd like to reach, give or take, close to EUR 15 million on capital gains, start us out in 2020.

Number three, preservation maintenance. You might wonder, well, what is that? When we made it public, we've delivered big, large jobs. We're in the process of delivering very big and very good jobs. And probably the 2 largest jobs that we are doing, one of them Peru and the other in Kuwait in this case, we're finishing and we have finished very much ahead of the upstart of the utilities, in [hydrogen] and everything that is necessary to deliver the plan. So as a reflection of maintaining P&L and negotiate with the customers, we have signed something which was not very common in our sector, preservation maintaining contracts with our customers, which would allow us to deliver and to start-up the plants, which are very big, both of them as soon as we get all the utilities. This is uncommon, but it's a reflection of our quality of customers and also a quality of delivery and execution.

And finally, this year -- spring this year, we moved very much focus with our external consultants to develop what we call the TR TR-ansforma plan. And we are already implementing the plan and I have to tell you today, I don't want to get into numbers, because the objective is to be stronger and more efficient company. A very much focused, motivated -- our team is motivated. I think our engineers are very much motivated. And we've already seen positive results. So these 4 points here, these 4 flags here, have been very important decisions and very important initiatives of 2019.

And all of this, having already talked about our tax settlement and our capital gains on Empresarios Agrupados allows me to focus on the real underlying business. In this year, our growth in sales has been 7%. It was very much expected, give or take, and it has to do with -- by delivering of the old and the new business, which shows that we're going to be growing, in terms of sales, definitely with the backlog.

The EBIT has grown 66% from 42% to 68%, reaching -- I mean, it's not definitely ambitious, but it was our target of 1.5%. It's not ambitious but it's definitely our ambition is to go back and -- to come back to natural margins, which have to above 3%, which is the nature of this business.

The net financial result is very similar to what we had last year and close the net profit from underlying operations from our operating profit of EUR 39.4 million, which is improvement from last year. I have to tell you that this is very much within our plans, our ambitions, our focus and our guidance as we're going to talk afterwards, is different.

We ended up the year with a better than expected, I have to say, net cash position. In many cases, we name a reduction in cash and our working capital issues, not problems, issues that 70% of the backlog is [indiscernible]. But this again is a reflection that even being in the Middle East, we're always working with prime world-class customers, okay? And we're getting paid, and we are delivering well. And this reflects -- has been reflected very much this in these last quarters into our cash [booked.]

So I think I've gone fast -- very fast. So let me finish with the outlook. So at the end of the outlook is that we have been successful delivering large and complex projects, which has very much strengthened our franchise, even in very difficult years, extremely difficult. Probably the most difficult environment with subcontractors having problems, with suppliers delivering late, with other [ruts], with customer discussions, which doesn't impact -- which has translated in repeating business with most of our customers, which has translated over the last years and today it has been reflected with new awards that we recognized stronger company with stronger technological skills.

We have been recognized in our pipeline, which is a reflection of the new investors and the old investors who invest in Reunidas today. And it has translated and is being translated and we're working on it into a far more efficient year. We still have to work on it. And all of that translates into a sales figure, which is a reflection obviously of the backlog, which increases and it has to increase. Difficult to set the [entire] year as somewhere in between EUR 5.2 billion and EUR 5.5 billion. That's, give or take, our guidance and with a serious objective and guidance and having margins above 3%.

And well, that's it for me. Thank you. Thank you very much. This is it, and now I'm more than happy to answer any question.

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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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And my question -- I have 3 questions. The first one is that, if you could give us detail on this cash improvement? If the cash from the recent disposal is included in this cash or is it going to be next year? And also, you commented in the press release at the end of last year that you expect EUR 40 million of disposals. So how much of this is already done? And when do you expect the remaining amount? The last question is, if you could give us more light on the cost-cutting or efficiency program that you have implemented? I don't know, any figure of cost savings or efficiency? Something that gives us a light.

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

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Francisco, let me -- thanks for the question. I have the first one, and I have the last one and I got lost in the middle. But let me go from the first one. Cash from tax settlement. Is that the question? The answer is not in this number. We have agreed with -- we have agreed to settle. And as soon as we have agreed to settle, we have to take the settlement into the P&L. So the cash disposal will be reflected somewhere in between 2020 and 2021. So it's an account number, but it's not a cash number.

What is -- what was the last question? Let me go on the efficiency -- details of cost efficiency. Obviously, we're not giving detail. I mean, it's too early to give details, but the message is cost saving, it's optimization of operations, it's a better delivery; everything translating into obviously stronger company and translate into dollars -- obviously translating into dollars, which are going to be there to protect our margins. I mean, you do not -- you don't want to be -- I don't want to announce before we're done, our optimization plan. I mean, if we are successful and very much I think we will, is the objective is to strengthen our margins, and go back to where I think we have to be, reaching to this steady engineering company with margins above 2%.

And there was a question in the middle, but I'm totally lost? So Francisco, maybe you...

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

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Yes. I was -- on the disposals. You have already announced one, the disposal of Tecnicas' minority stake in the (inaudible) company. But in December, you also announced around EUR 40 million of disposals to come in the short term. So I would like to know the timing as well on this disposal.

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

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Our objective is first half this year, but you know how things are. It could be June, it could be September, right? I cannot -- the objective is June, but I don't know. I mean in disposal, you have to negotiate and they have to get paid. So I'm being -- by the end of February. Today, I think June could be, but it is difficult to say. I'm quite comfortable that we're going to see it this year. Quite comfortable, very comfortable. But I think it's too aggressive to say it's going to before June.

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Francisco Ruiz, Exane BNP Paribas, Research Division - Research Analyst [6]

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But in the cash in December, is this already included the disposal of Empresarios stake?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [7]

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Cash-wise? No. Only one of part, but I don't think it's -- a small part. When you sign a contract and whatever, the finished small part, but it's not relevant.

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Operator [8]

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The next question comes from Filipe Leite from Caixabank BPI.

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Filipe Martins Leite, Banco Português de Investimento, S.A., Research Division - Research Analyst [9]

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I have 2 questions, if I may. First one on working capital. If you can give us any visibility on the evolution of working capital for this year, what should we expect stabilization or a potential deterioration, considering the strong evolution of this year? Second question regarding shareholder remuneration. And when do you expect to resume the dividend payment? And also, if you are considering any buyback program considering your current net cash position and stock price?

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

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I mean -- Filipe, I mean, working capital. I mean, we're discussing here as we do not know whether you were talking about the past or the future. I think you're talking about the visibility of the future of the working capital. And our business is different today. I mean, we have machines that have been today does jobs and does big -- and delivers big and large construction jobs. So we are up and down the working capital. You've seen it before and that's the way it goes. I mean, we pay well to our suppliers, and we have to pay the construction and equipment correctly, and we get paid when -- I mean, our customers as I said before, are prime customers. And we get paid by them.

The evolution should be positive. I do believe it -- should margins improve, the quality of a contract that we start, I think, better in terms of payments. But we see today, one payment because a customer -- or because one of the milestones get delayed or because one of the equipment gets delayed and we don't get these outcomes, all the same quarter (inaudible). Which is a delay of one equipment or 2 equipments, [fobs], reactors or whatever, which happens very often, but altogether, the message is about [the key message].

And shareholders. I mean shareholders, as I said, we were talking about repeated business, we have to have repeated -- I mean, to build credibility in the business, not only with shareholders. There are shareholders who want dividend, but we have to also build credibility and to strengthen our balance sheet for the large jobs we've been in, to and with partners who are customers. So I think we have to show to them and to the market, 2, 3 quarters of sustained improvement. And that day, we should have said they we will go back, we should be very soon, I believe, we go back to however long it's been as a dividend-paying company and not -- this is a business that we have to pay dividends. We understand that, and we will. But we have to strengthen our balance sheet. But more than the balance sheet because we have the cash, we have to strengthen the credibility with our customers which is very important. We have to realize today that we are bidding very large jobs and to very demanding customers, and we want to be in sort of, call it a chance. Thank you. I don't know if I've -- probably you're not very happy with my answers, but that's all I can tell you.

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Operator [11]

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The next question comes from [Sanyo] Mick Pickup from Barclays.

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Michael Brennan Pickup, Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst [12]

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It's Mick here. A couple of questions if I may. So first, can you just talk to the market conditions? Obviously, you've been very good at winning backlog. I've seen the LNG players printing record backlogs in the last 24 hours. And then you've got some other contractors out there who seem to be in financial difficulties. So I'm just wondering the conversations you're having with the clients and whether that market -- you can be more selective and possibly aim for better terms and conditions?

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

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Definitely, the market and the competition that we have over the -- or with, is improving. I mean our investors, our customers from the Kingdom, from the Middle East, big, large integrated customers, they have large investments. And today, we have become one of the big players. And not because some of our competitors are having problems but because they have more business and we're delivering well. I think our conversation, so you've seen it with the [front-end] designs, will be a competitive FEED. With some of the awards that we had this year with Exxon Mobil, with some of the FEED we're already presenting to other big multinationals or big integrated oil companies, with [some tough] conditions on the relationship, it was -- the market is shifting a little bit on the positive side, is definitely improving.

Definitely, we do not talk about how we like to -- well, we don't talk about the problems of some of our competitors. We're very much focused on our capacity to deliver. In terms of our customers, which are getting to know TR now, are definitely exploring our capacity deeper and better than couple of years ago. I'm not going to say that we have more bargaining power. We're not using bargaining power when things -- in healthy discussions, we're talking about a deeper involvement of TR in some of the big projects.

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Michael Brennan Pickup, Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst [14]

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Okay. And then can I follow up? You mentioned FEED studies there. Obviously, that business you've grown quite strongly over the last couple of years. If you could look at the FEEDs that are in your hands at the moment, in aggregate, how much could they bring into backlog if they convert?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [15]

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I don't know. But if we -- if I looked in aggregate, it will be more than $4 billion.

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Michael Brennan Pickup, Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst [16]

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Okay. And then how do you see that going forward as a proportion of your business?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [17]

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I'd see -- I mean, by the way we're bidding and by conversations we're having with customers, I don't know whether your question [faces] moving forward, whether we're going to be converting or whether we're going to get more FEED. So in those cases, the answer is we definitely have to see over the next 18 months conversion. I'm going to say $4 billion, but we definitely see conversion. And if not, conversions, we'd be in better place to be with a more knowledge of the job.

It's good, but then if we lose, it's because we're not so good. We know what we're bidding for, and we'll win it because we know what we're winning for. And we're going to see more of this definitely. Definitely today, we're bidding more competitive FEEDs than before. There is more FEED scheduled in, which means there is a FEED that might be translated into negotiation or rollover. The market is in that sort of a trend.

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Michael Brennan Pickup, Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst [18]

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Yes. I was just thinking, obviously, if you've done the FEED, you've derisked one of these projects and then whether you had any ambitions for a certain proportion of your backlog to go down the less risky route given margin concerns over last couple of years.

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

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Obvious, Mick -- I mean it's a mix of ambition and objectives. I mean, we work very close with our customers in order to gain that FEED, in order to roll over that FEED on the jobs that we understand very well. I do the FEED with the customer. We have already derisked. And then we have to put a price, a negotiated price that has [a variables fund]. And my ambition, and that's why we're working very hard and we have delivered well the last project even with difficulties, is to be part of that market.

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Operator [20]

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The next question comes from Lillian Starke from Morgan Stanley.

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Lillian Starke, Morgan Stanley, Research Division - Research Associate [21]

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I just have 2 questions. The first one is if you can provide a bit of color on the geographic mix that you have on the pipeline? You recognize right now over 70% of your backlog is in the Middle East. But are you seeing something similar when it comes to the pipeline? And then the second question is just on tax. Is there anything we should anticipate in terms of charges similar to what we saw in fourth quarter in 2020? Or you -- sorry, what we saw in 2019? Or we've seen all of the impact from that tax charge in the fourth quarter?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [22]

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Okay. Let me start by the second one because you see here, and you've seen everything. So you don't assume -- expect any other tax impact on -- end of '20 -- over this year, which is a relief. I mean, that's why we've done it.

And as you were asking for whether I can give you some color on geographical spread, I think it's going to be above 50% Middle East as we are negotiating, having FEEDs involved with customers in other geographical areas like Turkey. We're working as well in Russia. We work in Canada. We're work in other places. This is somehow an investment from the Middle East to other regions. It doesn't mean we want to move out of the Middle East, but that has always been. I mean, we're very much well positioned, as we have always been, in Russia, Azerbaijan, Turkey. And I believe we're going to be seeing some business from there.

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Operator [23]

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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 [24]

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Just a couple for me, please. Just wanted to go through guidance in 2020. I mean, obviously, as we went into 2019, you were talking about a sort of gradual recovery in margin through the year, which didn't really play out as such or at least to the level you wanted it to. Just thinking about the 3% guidance for this year. Kind of 2 questions really. One is sort of, how do you feel about the evolution? Is there kind of sort of one more quarter of relatively low margins then it's better through the rest of the year? And then the second part around the guidance is really, obviously 3% isn't the aim. You'll have some costs from TR-ansforma this year. But in terms of what's in the backlog, do you still sort of have ambitions of sort of 4% plus type margins as we go through that backlog?

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

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I mean this is an ambition. I mean, it doesn't -- obviously, you've never seen and we have never seen in this business big jumps. We continue delivering this first quarter very large jobs in Saudi Arabia. We don't expect big [overruns] that are very big. We're doing well. We've been along with the customer. We're starting up most of the units. We are on the commissioning stage in this business, but it still has a lot of weight in the business. So that makes it very difficult to have growth in margins in the first months of a quarter of this year, 2020.

So we'll see a positive as our backlog move forward, the new backlog move forward, and we have said before all the engineering move forward and we get into procurement. And we delivered on those large projects. Then we are in this kind of phase. We'll see a margin improvement. We're reaching average over the year very close, if not, above 3%, which is the objective. But it's going to be -- it is a trend. It's going to be a chunk quarter after quarter.

And the answer is, if we're going to be 4%, obviously we're always targeting to reach the 4%, which we needed to make the average of 3%. So it's on a monthly basis. I think this business deserves the 4%, which is TR's business before. And we are in the market that, I understand, has to pay us to have that margin, and we have to be efficient enough to get it. And I think we'll be seeing through the end of the year or second half of the year, we have to be very close to those margins.

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James Thompson, JP Morgan Chase & Co, Research Division - Analyst [26]

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Okay. Okay. So we sort of see that trend through the year. And separately, just wanted to understand a little bit more what you're talking about when you talk about preservation and maintenance contracts. Can you just help us understand a little bit more about what that means in practical terms in terms of kind of risk in the contracts, timing that you're going to be on location, things like that? And are there any specific geographies where you're negotiating these contracts? Is it principally Saudi for example? Or is it sort of wider through your order book?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [27]

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James, when you do -- and it happened in this business before when -- and it happens when you're in a crisis environment. If you finish early and if the off-site utilities, hydrogen, all the services needed to start on the plant and already you can faze customers, which they don't need or they don't want the plant because they cannot start up. And that becomes an issue of discussions, claims, change orders, and sometimes it depends on the customer. That's why I always say that we only like to work for prime customers and serious customers and not new customers.

And that is -- it becomes a very difficult issue. In these cases, in both, we have finished way ahead of time. In both, we've done. It could have very well happened that the customer, if they were not serious, if they were not professional, they would have found excuses to, first, just to be there until the services were ready. In this case, it's a message for both, for TR, which is doing very well and for our customers, which are very professional. And we have both decided, signed contracts we have called preservation maintenance, which they pay us to preserve and maintain the units month after month to be ready and start up the plant when those services are ready, which is to show that the market is good. The market is better. Customers are far more serious because they need the product and they need a good product. They need a quality product. And that has translated into those 2 contracts, which, in our case, they happen to be the largest jobs that we are delivering.

And that's why we made it public. We made it public because, both cases, customers are good, Petroperu Talara, and I have to say, it's very professional. And Kuwait. And Kuwait companies are extremely professional. We're done. We're finished. We're working with them on a detailed basis. And they agreed to retain TR to preserve and maintain the units, so we're ready to start up as soon as the utilities are ready. And very recently, somebody -- Marta has put in a note here, so I have to say. So I'll have to make it public. But to be honest, we just got an email that today in the Middle East, we get awarded -- this job in Kuwait has been awarded as the #1 job in our awards as the largest and most complex job in the Middle East and the best run job in having to do hydrocarbon refinery work. And I don't know the details. We just got an email. To be honest, I was focusing on this presentation. Everybody here in TR is very happy about it.

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Operator [28]

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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 [29]

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My first question relates to Fadhili positive surprise that it has already come to a completion. I don't know if you were expecting this solely in the year and you have some sort of financial incentives happening to the customer? The second question, also on projects, the power is still underperforming. Is it something only related to the size, cost dilution of the unit? Or is something that worries you? And maybe a follow-up on the margin progression that you previously discussed, is regarding the weighting of the backlog for projects launched before 2018. In the past, I mean, we related the margin progression to some difficult projects maybe dating earlier than the launch time on ['20]. I don't know if that's besides the projects that you have agreed to maintain with the customer. There are some other smaller contracts, which you're still having established.

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

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I think -- I mean Fadhili has been a good job. I mean the 4 big trains, huge trains and 3 of them are under operation by our customers at Aramco, we're very proud of. The fourth one is being delivered hopefully now in a few weeks, is looking very good. But there's no financial incentive. It is a job that shows that we, again, have -- we're having a professional customer and having a professional TR, has worked well. As we have delays, I have to say, you say it's too early. We have months, not years, whatever, of delays. But through this job, we've gone through financial problems together of big Spanish shops. We have seen financial troubles, so some of the big subcontractors, some survived. We have to survive through some difficult -- on delivery of local deliveries. But I guess having a strong customer who wanted the plan and a very strong team, we have finished very much within review as scheduled and the quality of the job is very good. But I think that we're not getting a financial incentive. I think the best is that at least here, we have been awarded by the same customer, Saudi Aramco, a $3 billion job -- large job. I mean I think that was probably the most important incentive we're getting from a customer.

Margin progression is very much the answer of my previous question. Obviously, we have to finish the jobs. Obviously, there is an issue in Fadhili, which we hope will not -- there is -- and there is no incentive. We're finishing the jobs, which is always difficulty to improve margins, very difficult, and we have been delivering close to $15 billion on jobs. I say successfully because customers are coming back to us. But margin-wise, as I said before and as I said over the last presentations, we've been having problems. Those problems is being reflected in today's account, and those problems will continue being reflected little by little, every day less. This first quarter 2020, the first few months until it gets compensated by the new backlog we just be fully delivered and the new backlog becomes fully into force and we move into a procurement phase. But I will -- we're going to be seeing and we do expect some improvement.

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

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Maybe on power, something -- the same thing reflects?

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Operator [32]

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(Operator Instructions)

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [33]

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Luis, are you there?

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Operator [34]

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(Operator Instructions)

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [35]

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I was trying to answer Luis, but...

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Luis de Toledo, BBVA Research SA - Chief Analyst of Oil and Materials [36]

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Yes, I'm still around.

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [37]

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You're still around, okay. On Power, I mean, obviously, it's already within our budget. We have some problems in some of the -- and I have to say, the U.K. jobs, and we have some quality, the problems that we're working as we have some payment issue as we're working on one of the units that we work in Finland, so we're working with our customer to solve it. Those are the 2 bad news. In a way, the good news, the other jobs, both Mexico and the Emirates are doing quite well. They're doing quite well. So it's a mix of everything. Everything has been identified with both customers -- with all the customers working very closely, very transparently, and we don't see that it will be reflected as an iteration of margins overall in TR in 2020.

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Operator [38]

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The next question comes from Michael Alsford from Citi.

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Michael J Alsford, Citigroup Inc, Research Division - Director [39]

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Sorry, I was a little late on the call today. It was maybe said before, but I just wondered, of the $41 billion of pipeline, how much do you expect to be awarded in the first half of this year? That would be my first question. And then just secondly, following up a little bit on the working capital questions that people have asked. Clearly, there's a large player in the market who's in financial difficulty. I'm just wondering whether the customers realize that and those sort of better terms given to you on new contracts around payment terms, et cetera. Or is that not happening?

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [40]

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The award is slow in this business. I'm not going to -- it's very difficult for me to anticipate how much is going to be awarded of the remaining pipeline. On the pipeline, we had already some reductions for $41 billion this year. Some of it is prequalification. Some other jobs have already been bid. I don't know if they have opened or not, those bids. I have no idea whether we're first, second or third. And some other of the pipeline also reflects conversion as we're working on FEEDs and then eventually, if the market -- I mean, if we [go forward], it gets converted. It's difficult. I cannot anticipate you how much of that is going to be awarded this year. It doesn't work like that.

All I can tell you that this first quarter, we already got -- and it's not in pipeline anymore. We get more than $2 billion. We get Algeria and we get up a very important petrochemical cost plus job in Canada. I mean that's the good news in terms of awards. Remaining pipeline, $41 billion. From here to June, difficult for me to anticipate that, Michael. Thank you, and I'm sorry about that.

And working capital, we've talked about that before on earlier questions. Obviously, I'm not going to say the market is 100% shifting, but it is more markets. There is more demand. We're working and having conversations and negotiating contracts with our customers, I have to say, slightly better. Customers often offering us as they need either investing far more intensively and with more necessity so to speak, more today than 2 years ago. So little by little, it's being translated in better terms obviously as it was before. But I mean in better terms for TR means that maybe milestones get split in 3. That's better terms. Better terms is that we get rid of some milestones and we get paid another basis, which means as we move forward on the job.

Now there are marginal things, which shows an improvement -- marginal things. It is very difficult to negotiate when the market is under crisis and if everybody wants the job. There are a number of important issues that has -- reflects definitely a big improvement on our cash. And the answer is, on average, yes. And on average is we do better and we have better contracts with -- slightly more demanding. Obviously, we wanted always to work for quality customers. I'd rather work for a customer that has tough in terms that pays well -- pays all the time, than for a customer that are -- teases you with good payment terms and then they're running away with the last payment, which also happens. So you trade off. So the answer, the overall in today's market conditions, terms are slightly better.

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Operator [41]

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There are no further questions in today's conference. Dear speaker, back to you for the conclusion.

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Juan Lladó Arburúa, Técnicas Reunidas, S.A. - First Vice Chairman of the Board [42]

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Okay. Thank you. Thank you very much for all of you listening to me about where we're going. I understand it is difficult week for you, too, as you have many calls and many presentations. So thank you very much for being here, and I'll see you on our Capital Markets Day, which is going to be in 4 weeks or something like that. Thanks a lot. Thanks to all of you.