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

Good morning, everyone, and welcome to TR's first-quarter results presentation of the year. This session will be conducted and led by our Chairman, Juan Lladó, and our CEO, Eduardo San Miguel. It should run approximately 20 to 25 minutes, and you'll be able to pose your questions after the final remarks. Now, I leave the floor to our Chairman, Juan Lladó.

Thank you so much. Thanks, Antonio. Good morning, everybody, and we appreciate you being with us today. On this slide, you'll notice that our presentation has been organized in a somewhat intricate way, though I believe it's quite easy to follow. To begin, as usual, I'll give you a quick look at the main highlights from how we performed during this first quarter. After that, Eduardo will come in to walk through the ongoing situation in the Middle East and the way TR is handling it. First, he'll take you through the near-term commercial picture and the highly relevant awards we expect. Then he'll cover the disruptions that some projects currently being executed in this region have experienced, along with how those are being managed. To wrap up this second part, I'll return to share the mid-term opportunities that we believe this current situation will create for the sector and for TR. As he always does, Eduardo will then cover the financial portion of the quarter, and last, I'll offer the closing remarks ahead of the Q&A. Eduardo? I'm not sure — is it my turn? Thanks. I believed I was done — apparently not. Let me begin with the key highlights for the quarter, which are quite important. Looking at this slide, our first quarter has shown a solid business performance at TR.

Good business results showed up in revenue growth, cash generation, and underlying EBIT. Sales came to €1.6 billion, which means 21% growth compared with 1 year earlier. Net cash has risen substantially, reaching €360 million — or, to put it better, a solid €112 million of cash generation versus the first quarter of 2025. That level of sales and cash reflects the underlying EBIT. Our underlying EBIT is strong, showing TR's performance at €76 million, which implies 36% growth year-on-year. On the other side, we must be prudent and realistic, and that is how we are acting. Our execution has been delivered amid disruption to some projects in the Middle East. We have estimated those disruptions and impacts at €45 million, and for that we have chosen to book a provision in our accounts. Once again, we must be prudent and realistic. So, after taking that provision, first-quarter EBIT remains at €31 million. Our strong performance also shows in the highly significant awards expected within the very short term, and Eduardo will add some color on those awards, which will confirm the full confidence we hold in the short- and mid-term outlook.

We feel confident and are fully aligned with our strategic plan. Eduardo, over to you.

Thank you, Juan, and good morning to all of you. Before we move into the section on the Middle East conflict, I want to begin by voicing our solidarity and our steadfast backing for every client, subcontractor, and supplier we have in that region. Given the current situation, all of them are not merely business partners to us — they are friends as well. This section is going to address both the effects and the opportunities that the conflict is creating across the Gulf countries. It will also look at how the reshaping of the energy landscape that this conflict will likely set off helps generate opportunities for TR across a number of geographies. There are three topics we want to discuss: opportunities, project disruptions, and global impacts and opportunities. Let's begin with the positive side. Let's begin with the near-term opportunities. The Middle East was, is, and will remain our primary market. Commercial activity in the region stays solid and strong, since we see not even a hint of hesitation among our clients about carrying on, as planned, with the developments they have coming up. If we turn to the figures, our commercial pipeline in the region stands at close to €40 billion, and out of that we expect awards in the very short term within a range of €4 to €8 billion. Four to eight. As you can appreciate, I am not able to give any further disclosure today beyond what appears in the slide.

We're discussing three projects across three separate countries: an oil field project, an offshore development, and a power generation facility. These three projects — and this point matters enormously — we expect to see awarded most likely prior to June 30th. That means within the coming 45 days. You might say, and you'd be correct, that the €4 to €8 billion range is somewhat too broad, so allow me to put that range into words. Anything under four would come as a complete surprise, and our chances of landing around six are very high. Eight billion represents the ideal scenario and shouldn't be dismissed. Also, as you can imagine, the present conflict has brought us closer to our clients than ever before. Not only do we continue carrying out our ongoing projects in strict coordination with them, but we are also helping and examining ways to restart damaged facilities. Our Middle East clients are strong and dependable, and the message they've given us is unambiguous: finish existing projects as quickly as you can and launch a huge wave of new investments together with us. Let's turn now to the second topic: the impact on existing projects.

Two-thirds of the backlog we currently hold sits in the Middle East, and it seems that every project across the region is taking a hit. It's also true that just a small set of projects — four, I'd say — that are well into the construction phase are being seriously affected. Those four projects account for roughly €1.5 billion of our backlog. The main effects, clearly, relate to safety, logistics, and disruptions at the sites. Starting with safety: we're seeing impacts because roughly 4,000 of our own people are working in the area, and we've put in place every measure available to keep them protected. Next, logistics: the effects stem from the closure of Hormuz, which has prevented equipment and bulk material from arriving and has pushed us to reroute transportation onto alternative paths wherever that's feasible. As of today, 1,061 shipments already have been affected or are close to being affected, and certain pieces of equipment that sit on the construction critical path are not yet at the sites. Third, site disruptions: the trouble in mobilizing large construction crews, in getting them to work efficiently under these conditions, and the late arrival of equipment and bulk have all reduced the pace of execution.

From the moment the conflict began, clients have worked with us in a collaborative and supportive way. Most importantly, they have stressed that execution must speed up going forward so the schedule impact is kept to a minimum. Even though the conflict has not ended yet, we are working alongside clients to examine ways of accelerating. I would like to remind you that acceleration plans of this type are fairly common, and TR implemented them extensively across the region last year. We need to be cautious. We need to be cautious, and we have examined what the conflict's eventual impact could be across the four projects affected. If hostilities do not restart and the strait reopens during this second quarter, before June, before the end of June, we estimate the overall impact will fall between €40 and €50 million, and we have recorded a one-shot provision of €45 million in our first-quarter accounts. Juan will now walk through how the project is creating fresh opportunities for us around the world.

What's happening right now in the Middle East is, in some way, well, actually, it's speeding up every one of the structural trends across the energy sector — across our sector. It's accelerating certain investments that were already planned in certain regions. I'll concentrate on three, on three business areas, on three, three, and regions. My focus will be America, Power, and Europe. America — you'll notice there are opportunities where they need to speed up their oil and gas, LNG, power, and midstream. All of it needs accelerating, and that's what they're doing. Power, since electrification is an absolute necessity. Europe, because Europe is more focused than ever on cutting energy dependency, on fuel sustainability, on electrification, and of course on decarbonization. Let's begin with America. This is among the clearer pipeline trends. We're seeing fresh opportunities across many countries, among them Canada, the United States, Panama, Venezuela, and Argentina. All of that adds up to a remarkably sizable pipeline of roughly €36 billion in that region alone. We focus on the United States — I think it's worth noting we only arrived 2 years ago, and today we're looking at an extremely significant pipeline. In the United States, we have something to offer.

Regarding the United States, I’ll share a few additional specifics on North America, which is once again plainly turning into one of the most strategic regions — and one full of growth opportunity — for Técnicas Reunidas. Let me begin at the top. We are engaged on a FEED that was awarded for a gas terminal plus transportation facilities; the customer cannot be disclosed, we aren’t permitted to, but I can say that this is a Tier 1 operator in the US. It’s a midstream operator. What is extremely relevant about that client is that he has afterward awarded additional phases within this enormous development to TR. As of today, we are at Phase 4, and we are carrying out additions to that Phase 4, putting in very hard work on that Phase 4, which reflects the quality of TR’s capacity on delivery. We do have something to offer. The second one, the second job, is a cost-plus link where we are already at Phase 2. When we began with them, we were not even at Phase 1, we were being tested. This is another very clear example. This is the LNG Canada job in which we have to support them in transporting the gas from Alberta to the Pacific. It is again another very clear example of how our service-driven strategy is paying off and how TR has acknowledged the client’s philosophy of executing on a stage-by-stage basis.

We're succeeding, and we're set to shift from Phase 2 into Phase 3 and back up our customer. We're executing that effectively. Lastly, the Coastal Bend LNG phase development, awarded to the KBR and TR joint venture, which puts TR once more in a front-runner position on LNG investments. To conclude, those three projects make it very clear that we possess the quality to deliver to our clients, and we're reaffirming their confidence in TR by awarding, progressively, every one of the later phases of their investment plans. It's a success story, and keep in mind that we only landed this 2 years ago. Growth opportunity exists. If we quantify it, we need to put numbers to what the final investment of our stake in these jobs is — that doesn't mean it will be EPC; it could be cost-plus, it could be EPCm, it could be lump sum in certain parts — the value to be awarded to TR across all of this, the project, reaches up to €7.7 billion. This is for the America, and this is for the US. Now let's turn to Power. Artificial intelligence is emerging, and everyone knows it is a dominant driver of future demand and electrification trends.

We've gotten to that point. A spin-off has been announced. Some folks were confused by that spin-off. What the spin-off means is focus — focus plus resources aimed at capturing this market that's expanding. The AI-dominant driver behind it translates into new power generation capacity, and that requires a reliable power supply. Many sources could provide it, yet one of them must be reliable, and combined cycles will be that source. This trend shows up clearly across a €27 billion pipeline in this segment alone. As of today, our positioning in this sector is stronger than it has ever been. Taking a closer look at that €27 billion figure — breaking it down matters, I believe, since it's a big number — we see a highly diversified pipeline. North America plainly stands out. Artificial intelligence players want to take the lead, and take the lead they will, and they account for more than €15 billion of upcoming investments. In Canada, for example, we expect during the third quarter of the year to be awarded a combined cycle project featuring carbon capture, with our stake at €400 million. Second comes Europe, where we've identified roughly €4 billion of new opportunities. Those mainly tie to electrification and energy transition projects, and there we're advancing very quickly.

To give one illustration, every one of the combined cycles that RWE has in Germany — those are anticipated to come through as EPC gradually starting in the second half of 2026. Power is a market and a region where we previously had no presence. Once more, this is a growth story. The Middle East, too, continues to be a highly significant contributor to the Power business, with roughly €7 billion of opportunities. As Eduardo has noted previously, we are following a sizable combined cycle in the United Arab Emirates worth approximately €1.5 billion, with the financial investment decision on it anticipated very shortly. Last, let's look at what Europe offers us. As we can see, there is a distinct push from both governments and industrial players to lessen reliance on energy sources from outside and to shift toward an energy system that is more secure and sustainable. Within that setting, electrification plays a central role. It enables countries to move energy consumption toward a solution that is more controllable and domestically supplied, while at the same time backing decarbonization. That is Europe. This Europe is generating a substantial quantity of opportunities for this industry, and quite specifically in projects tied to power generation and energy infrastructure. We have discussed this in the Power section previously.

Simultaneously, we’re witnessing quite tangible progress in quite distinct industrial areas. Alongside the RWE projects in the Power business that we’ve already mentioned, we are working—and have been for some time—but now we’re truly kicking off the job for ArcelorMittal on decarbonization within the steel sector, one very specifically. On the next slide, I’ll explain further this highly significant milestone and highly significant award, which I believe we announced yesterday or the day before. It also matters to note that we are working, and we anticipate investment decisions shortly, in Spain on sustainable fuels, and SAF and e-methanol. Every one of them has raised the probability, and today’s turbulence in the Middle East is raising the probability of reaching a final and full financial investment decision soon, very soon. I think it’s worth taking just a little time, because there have been rumors, we spoke about it, people weren’t very sure where we stood. We’ve consistently said we were very well positioned, and we wanted to position ourselves in Europe and in the world leveraging our technology, our engineering capacity to transform and to support our customers in the steel industry to decarbonize.

We’ve been collaborating with them—and in this instance, quite specifically with ArcelorMittal on this project. Two days ago, we announced that we’ve been awarded the EPCm contract for decarbonizing a steel facility, a highly significant steel plant located in Dunkirk, France. That project encompasses a new 2-million-tonne electric arc furnace plus all related facilities, allowing output to be cut threefold while CO2 is three times lower than with the conventional route. This is an extremely important award for TR. We’re eager to get started. We’ve been engaged with the customer, and we take pride in having worked alongside them for nearly 2 years, identifying ways to enhance and deliver this highly important investment. It affirms our company’s position as a key participant in this sector, and it is fully consistent with the strategic plan we have presented to the market on multiple occasions—namely that we must advance our service contracts and our decarbonization business. That’s it. In summary, it is clear to conclude that the present conflict will reshape—and is already reshaping—the energy investment approach across many regions. As a result, substantial investments will certainly occur among all the major players in oil and gas as well as the power sector.

If there's anything I need to say, it's that TR today is in the strongest position to capture this growth. Now it's Eduardo's turn.

Our financial figures.

Regarding the initial question, I’d like to provide some context before we move into the details.

Turning to the financial figures. Juan and I have both mentioned this previously: we've recorded a €45 million provision meant to cover what we anticipate will be the full effect of the Middle East conflict, on the assumption that the Hormuz Strait reopens during this quarter. That provision brings the quarter's EBIT down to €31 million. I don't want to lose sight of how we performed — our revenues, our underlying EBIT excluding the provision, our cash, and our equity have all improved once more. Quarter after quarter, across the last 4 years, we keep surpassing the figures delivered the prior year. As you can see, revenues stand 21% above a year ago, and underlying EBIT is up 32%. What matters enormously to me is that our sales and our underlying EBIT line up precisely with the guidance we gave the market. That's why, this quarter, our EBIT margin already sits at 4.8%, extremely close to the 5% we forecasted for the whole year 2026. The cash and equity figures mirror the company's good health. We hold our highest-ever equity, amounting to €591 million, and net cash is solidly above the €300 million threshold we have set as a floor we don't want to go below.

We're dealing with an extraordinary situation here: the Middle East conflict. We've attempted to capture and assess every consequence of that conflict within a provision that is already fully booked in our accounts. We're still posting a net profit of €16 million for the quarter, and at the same time our cash and equity are improving. I don't want to sound naive, and I also want to remain humble, but I couldn't be happier with the figures we're delivering. The company's performance has been solid, and it will continue to be solid this year and in the years ahead. Maybe, Juan, some closing remarks?

Allow me to wrap up with some closing comments. Just give me 1 second so you can take a look at this slide, since this isn't a justification message about provisions or anything of that sort. This is a message about growth. It's about growth because we've delivered on revenue, on cash, and on underlying EBIT. It's about growth because we've successfully handled the disruption in the Middle East. Handling that Middle East disruption has opened up an opportunity for us. That opportunity has involved collaborating with our best customers — the customers we want to be with over the short-, medium-, and long-term future. We've deepened the ties our customers have with our partners and our friends. This lets us and places us in an extremely strong position to seize the very short-term and mid-term opportunities. If you examine our metrics, we are stronger today than ever before. With that message, many thanks for listening to us, and we're now ready to take whatever questions you'd like to pose.

Ladies and gentlemen, we're beginning the question-and-answer portion at this time. Should you like to pose a question, kindly hit star one on your phone's keypad. Our opening question is from Mick Pickup of Barclays. The line is yours.

Morning, everyone. Good to see business performing well. I have a couple of questions, if that's alright. First, regarding the outlook for new awards. If I understand correctly, you're referring to €4 to €8 billion in the Middle East, and then potentially another couple of billion elsewhere later in the year. Is that right? And my follow-up on that is, how are you pricing Middle East contracts at present? €4 to €8 billion is a very large number, and there are clearly some uncertainties around. Mick,

If it's alright with you, I'd rather begin with the second question, since the first one is straightforward to address. I'm not able to reveal today what my approach is when it comes to pricing projects for my clients — we need to be cautious in how we respond to that question. I'd like to share something with you that is highly relevant. The effects of the conflict are already here today. Once you kick off a project, it takes a minimum of 1 year to complete the engineering work, and after that you begin purchasing the equipment. Almost nothing takes place at the construction sites until at least 15 to 18 months have gone by. So don't be alarmed about whether we are adequately factoring the possible consequences of the war into the pricing of new projects, because to be completely frank, those effects will be extremely limited. As you can imagine, our margins are good, in line with what we anticipated a few months back, prior to the conflict breaking out, and we have solid cushions, contingencies. We are handling things the right way, just as we were doing months ago. We remain quite at ease with how the projects are priced, and we continue to believe that the expected margins we are announcing for the future are well protected even under the current scenario.