Técnicas Reunidas, S.A. (TRE) Earnings Call Transcript

Good morning, everyone, and welcome to TR's presentation of results for the nine months of 2025. As usual, our Executive Chairman, Juan Lladó, and our CEO, Eduardo San Miguel, will conduct it. It will run for roughly 20 to 25 minutes, and afterward, once our Chairman has given his final remarks, you will be able to post your questions. I now hand the floor to our Chairman, Juan Lladó.

Hello, hi everyone. Antonio, thank you, and good morning. Thanks for being with us today for the presentation of our results for the nine months of 2025. As usual, Eduardo San Miguel and myself will take you through the most important matters that have occurred during these first 9 months of the year. To start, Eduardo is going to give a summary of the key highlights from the event we held earlier today. Next, I will go a bit deeper into the commercial pipeline we have at present. After me, Eduardo will take over and walk you through the financial results. Then, as always, I will close the presentation with a few financial remarks as well as our guidance on the financial side. Eduardo, over to you now.

Thank you, Juan. Good morning, everyone. I'm well aware that most of you know what we presented at our October Investors' Day. For anyone who couldn't join those meetings, let me use a couple of slides now to recap the key messages. We'll begin with services and power. As for our new engineering services business line, we're already halfway to our 2028 goal of EUR 500 million in revenues. In fact, we anticipate roughly EUR 230 million in revenues this year, along with more than EUR 300 million of awards. There are two reasons we're prioritizing this engineering service business line. First, it delivers higher margins and carries lower execution risk. The 30% margin we announced in Abu Dhabi when we launched our SALTA strategy matches our actual results. Second, through value-added engineering services, we're repositioning Técnicas Reunidas in the market. Clients see us as long-term partners who help design their future investments alongside them. In the Power Business Unit, we've significantly raised our ambition. From 2020 to 2024, annual revenues averaged approximately EUR 300 million. Now, looking ahead over the next four years, we're targeting more than EUR 1 billion per year.

What's behind this move is a mix of secured contracts, the backlog, and a robust commercial pipeline. Electrification is in enormous demand. Artificial intelligence, along with governments looking for cleaner energy, is fueling that demand. Our know-how, our proven history, our geographic reach, and the tight ties we maintain with the OEMs are firm grounds for confidence that our target of EUR 1 billion in yearly revenues ought not to be a serious hurdle. Turning to North America, what I'd say is that we're advancing well there. One landmark accomplishment was signing a strategic alliance with Zachry. That tie-up, with a firm whose strengths dovetail nicely with ours, will open up opportunities in the LNG and power segments across the United States. We've likewise entered engineering framework agreements with the majority of the big U.S. oil and gas companies. Thanks to those frame agreements, together with the project co-development we're already engaged in and the seed conversions, we anticipate our first large projects landing in the U.S. in late 2026 or early 2027. On decarbonization, Técnicas Reunidas is well prepared for what lies ahead. Only a handful of projects have kicked off this year, but if one deserves particular attention, it's the Yambu Green Hydrogen Cluster, which will supply the green hydrogen corridor linking Saudi Arabia and Europe.

For this project, the biggest ammonia facility globally will need to be built, and ACWA has awarded the FEED—along with the possible rollover to EPC—to Técnicas Reunidas alongside our partner, Sinopec. Then, via artificial intelligence, digitalization, and robotics, we're opening up a fresh revenue stream while also boosting how competitive we are. By 2028, we're aiming for 1% in cost savings. Thanks to more than 150 professionals who bring deep engineering, procurement, and construction expertise and who make up the digital team today, I'm confident we'll hit that target. Juan will now walk through our current pipeline.

All right, let’s turn to the following slide, which is the pipeline. There’s a great deal of detail on this slide — figures, maps, bars. Let’s see whether we can interpret it clearly. The first key point is that our pipeline is very strong, at EUR 36 billion. Sorry — EUR 86 billion. That EUR 86 billion divides into two parts: EUR 84 billion that is EPC or EPC-related, which can be clarified, and EUR 2 billion in pure services. So that’s one segment of the pipeline. We need to keep in mind that the pipeline covers where we are bidding and where we will bid, but we have been selected or invited to bid, or it may even be a rollover from fits that will become EPCs or similar to EPCs soon. These are jobs in which we are participating and where we are close to the customer, which matters. Let me begin with North America, because I genuinely believe North America is a star. Why do I call it a star? Two years ago, we would have been in this slide. The fact that 32% of the pipeline sits in North America, I think, strongly reflects TR’s strategy, transformation, and repositioning, which is very important.

It shows focus, a clear mind, and a clear strategy. We also need some clarification, because when we talk about 33% of EUR 86 billion, don't assume that this is pure EPC lump sum. That isn't how we work, and it isn't how the North American market operates. It will be a mix of engineering services, or engineering and procurement lump sum together with construction management services. It will be a mix that in any case would not be a pure lump sum EPC, as we have understood — or as you may understand — that we do in other parts of the world, and more so in the Middle East. That is very important. That's why I wanted to begin with North America. We have opportunities, as Eduardo has said, across all the fields: opportunities in LNG, opportunities in power, and opportunities in important jobs related to decarbonization. Now let's move on to the Middle East. The Middle East is where we're strong. This is where we have a strong presence, and this is a place we like to be. We like to be there because our quality and our presence let us be selective and let us be selective and focus on the jobs and on the customers with whom we want to work.

Looking at the awards over the past year, we've done well — really well — with key clients in the upstream offshore segment, which is exactly where we aimed to be. As Eduardo just mentioned, we've had tremendous success in transition energy and green ammonia plants. More recently, we've also done very well in services, which is a direct reflection of our strategy paying off there. In the Middle East, the pipeline is robust, resilient, and expanding, which gives us confidence looking toward the near term. Europe has historically mattered less to us. Right now, it remains significant. It's especially significant when it comes to power. We'll get into that later. Clearly, in energy transitions, we have a substantial footprint. This slide, I think, contains a great deal of information, but it matters a lot. It shows where we stand today and what our near future looks like for 2026 and 2027. Let's go to the next slide. Some of the work awarded to us sits in the pipeline but not yet in backlog — work tied to services, services contracted on pre-FEED and FEED. These have a natural — and this is what we've agreed with the customers — they have a natural rollover as the project advances into detailed engineering, procurement services, and construction supervision.

That is going to happen. It matters a great deal in North America, and also elsewhere around the world and in the Middle East. Our shift toward services translates — and, again, this isn't in the backlog but in the pipeline — into organic growth, into over EUR 400 million in services, on jobs we are already working. It will need to gradually roll over into detail engineering, into actual projects. In power, the same story. In power, and very specifically — power will be the best example, though other products exist too — is Power Europe, and more specifically, Germany and RWE. We have signed three contracts with RWE, the leading power generation company in Germany, and the most recent one was announced recently. The contracts are signed, which means both we and our partner have signed them. The first two involve Ansaldo, and the last one — we'll discuss that later — is GE. That means we have a signed contract. Early activities must begin. Early engineering must begin as well. Engineering must be done for the balance of plant and the coordination, and pre-engineering must be carried out with our partner, Ansaldo in some cases, and GE in the last one.

Down the road, once that contract is completely in effect, it will turn into—we'll have it in backlog. Right now it sits in pipeline, and that pipeline is bigger than EUR 1.4 billion. This slide makes that clearer, since we only announced it last week along with the most recent award. That most recent award I mentioned a moment ago involves GE. RWE has picked us once more, this time for a hydrogen-ready combined cycle. What does that actually mean? It means the combined cycle will at first be able to run on a 50/50 blend of natural gas and hydrogen, and afterward, should it be needed, shift all the way to 100% hydrogen. The contract has been awarded. Once again, we've already begun working alongside them and GE on early activities and early engineering. It isn't in backlog yet, and it will go into backlog at the point when the contract is fully in force. This once more demonstrates both the sound strategy and the successful strategy on service and power that Eduardo walked you through a few slides back. Now, let me hand things over to Eduardo for the financial results.

All right, and thanks once more. So, we finished the third quarter with sales of EUR 1.8 billion, which is 29% above the second quarter. As we announced at our investor day, this huge rise comes from the acceleration plans that we are right now putting into practice throughout our portfolio in the Middle East, together with growth in revenues tied to the power division. EBIT for the period came in at EUR 84 million, with an EBIT margin of 4.5%. That makes it the 12th consecutive quarter in which the EBIT margin has kept increasing. On top of that, this third quarter EBIT — EUR 84 million — is 78% above the EBIT we posted a year ago. I'm proud to say it again: 78% above the EBIT from one year ago. We are not blind. We are not blind. Conditions in the existing market are handing us solid chances to lift our margins. I'd also like to stress that this strong performance stems from two key factors. First, outstanding execution of projects across our backlog. Second, the rollout of robust policies for mitigating risk. Taken together, these results strengthen how confident we are in the path we have laid out for Técnicas Reunidas. We aren't growing just for the sake of growing. Our growth comes with clear targets and is done efficiently.

Allow me to restate my Investors' Day message today. The best is yet to come. So, here are our balance sheet figures. Net cash stands at EUR 427 million — a level that has clearly proven more than sufficient for us to grow while running our business efficiently. As you know well, our policy is to direct as much liquidity as we can toward our suppliers and subcontractors. On equity, we closed September in a strong position of EUR 698 million. With both the equity and cash figures where they are, we are able to repay in advance the full CPPPL and the ordinary loan next December the 1st, as we announced a month ago. Now let me hand the floor back to Juan.

Alright, a few closing comments from me. Fine. I do think this has been a brief presentation, yet a highly significant one. In my view, both our pipeline and, clearly, our results for the year to date fully mirror how well the TR strategy has worked — the transformation strategy and the repositioning strategy. As Eduardo mentioned, we are expanding, but that expansion is quality growth. We don't expand just for the sake of expanding. Our growth is focused, aimed at world targets, and — crucially — it is quality growth. Quality growth that lets me, lets TR, lets TR's team put before you a 2025 guidance showing revenues above EUR 6.025 billion, holding a 4.5% margin, which translates into an EBIT figure in the neighborhood of EUR 280 million. For 2026, the coming year, our revenues will again be north of EUR 6.5 billion, with a margin above 5%. With those figures, with this presentation, the floor is now open for whatever questions you may have. Many thanks for listening.

Thanks. Ladies and gentlemen, we're beginning the Q&A portion at this point. Should you want to pose a question, kindly press star one on your phone's keypad. In case you're on a speakerphone, do lift the handset before you press any keys. To repeat, that's star and one to submit a question. Thank you. Our first question is from Kévin Roger of Kepler Cheuvreux. Please go ahead.

Yes. Good morning, and thank you for taking the questions. If I may, I have two. The first concerns, perhaps, how the backlog is phased. You raised the top-line guidance implicitly yet again, and while it was already enormous months ago — considering the midpoint, plus 17% — could you give us a bit more detail on why the top-line is once again accelerating for the full year, now seen as EUR 6.25 billion versus EUR 6.1 billion a month ago, just to understand the dynamic here? The second is broader, and tell me if I'm wrong, but I have the feeling that in the press release and in the comment that you made today, you are even more optimistic than a month ago, with quite some strong quotes in the press release, in the presentation that you provided today. Just also first, am I wrong saying that you are even more optimistic today than a month ago? If it is true, what has, in a way, maybe changed? Is it the official award for RWE that is coming? Just to understand also the tones that you have today, in my view. Thanks.

Kevin, this is Eduardo. Thanks for those two questions—both are really solid ones. On the first, I'm not sure whether you're asking about the figures. We had a backlog of EUR 3.5 billion, I believe. We've delivered EUR 1.8 billion. And to that backlog we added some volume. I don't know the exact number. I think it was roughly EUR 600 million. That relates to those acceleration plans, the pulling forward of timelines we discussed at the Capital Markets Day, or Investor Day, here in Madrid. I think your question is a good one. Why are you delivering more revenues than expected? One month later, my answer is that I have to tell you about my last two trips, one to Abu Dhabi and the other to Saudi. I went to Saudi three weeks ago and to Abu Dhabi four weeks ago. In both cases the message from the clients has been that there are another two projects they want to accelerate. Those projects that are already being accelerated have to move faster. We'll see. It's a bit hard for me right now to predict the immediate figures, because the pressure we're getting from our clients to accelerate and to finish the project is huge.

This is a big deal. Seeing the fourth quarter come in quite close to the third quarter on revenues again wouldn’t be unreasonable. Keep in mind that the US dollar is stronger now than it was three months back. That’s going to affect revenues and the cost side too. Ultimately, it will also raise revenue volume. This business is dynamic. Things shift every week. To be completely candid with you, I feel a lot of pressure from my clients to speed up beyond what’s feasible in many cases. I mean, we’re making every effort to hit very ambitious targets, very tough targets. We’ll see how the numbers, how the revenue number, develops over the next three to six months. On the optimism point, perhaps Juan, would you like to take that.

I believe that's accurate. On the few slides I showed, I did try to convey optimism. Likely more so than in the past. Likely more so than in the past, since it genuinely reflects reality as we travel extensively the way we do. Our footprint in North America is beginning to firm up the discussions, the frame agreements, the invitations to bid. The wins on the pre-fits — we are ready. We are ready to finish up and shift into fits. The fits we are completing with our customers are turning into actual projects. They will be turning into actual projects, meaning detail engineering, procurement, and construction, one by one. I'm referring to North America. Our business, our invitations to bid, how large the market is, the strong ties we hold with our customers, the market we must confront ahead of us, our standing in a very significant region that at times drew criticism because some would claim we carried too much risk. Once you are well positioned — I'm speaking of the Middle East — our ability to expand in the Middle East with whom we wish to grow, to move and to grow in services and to grow in transition, it matters greatly that we have gotten into transition and power in the Middle East.

Once more, the partners we choose to grow with and the freedom we give ourselves—all of that is paying off and lets us feel optimistic. We look at 2020—well, the end of 2025 is already here—but we look at 2026 and 2027 with much greater optimism than we held, I won't claim two years back, but definitely two years back. What I mean is, even three months back.

Alright, thank you very much for joining the call. I appreciate it.

Thanks. The next question is from Juan Cánovas of Alantra. Please go ahead.

Good morning. I’ve got a couple of questions. First, how are you able to pull off that project acceleration? What impact does it have on your costs? If you could share some specifics on that, I’d appreciate it. And just to confirm, is this contract in Germany with RWE, and is some of the services pipeline also expected to be signed into contract and added to backlog in the fourth quarter of this year? Thank you.

On speeding the project up — really, the places where we can genuinely move faster are procurement and construction. On the procurement side, over the past six months we've put in a great deal of effort so that we're ready the instant the client at last chooses to move forward with the acceleration plan and pay for it. That explains why you're seeing such rapid acceleration within such a brief window: plenty of work done earlier is now delivering returns. Take one example. If a particular piece of equipment has already been fully designed by me and I bring it to the market in a single day, that work is already complete, yet how much this design affects a project's execution progress matters a great deal. It matters a great deal. Many tasks that were invisible to you earlier are now showing up in our accounts. The cost of acceleration relates to — pardon me, accelerating projects means speeding up procurement. You must also compensate your suppliers for building the equipment more quickly. Naturally, they require additional resources. They need to obtain the raw materials more rapidly.

You also have to give them a substantial amount of money up front, but that's just how it goes. When it comes to construction, the basic idea is that 1,000 people can accomplish twice what 500 people can. So what you need is more people. The idea is that we're in discussions with all of our contractors. We're instructing them to boost the human resources at the sites as much as they possibly can. When they lack the capacity, we're speaking with other contractors who will take on the required capacity. We're dividing the original contractors' scopes among different new contractors. That's how it works. I mean, we also have to scale up the number of Técnicas Reunidas personnel overseeing the construction. Everything carries a significant cost, and that's what the clients are paying for. I mean, that direct cost for Técnicas Reunidas and for our contractors and suppliers. As for Germany and the other service projects, will they be signed for Q4 2025? No. No. No. In the end, no. It would happen in the second or third quarter of 2026.

All right, thank you very much.