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

Good afternoon, everyone, and welcome to TR's first half 2026 results presentation. As usual, our Chairman, Juan Lladó, and our CEO, Eduardo San Miguel, will conduct it. It will run for roughly 25 minutes, and after the final remarks you will have the chance to ask your questions. Now I hand the floor over to our Chairman, Juan Lladó.

Thank you. Many thanks, Antonio, and good afternoon, everyone. It is a pleasure to have all of you here and to be able to begin with this highly significant second-quarter presentation. Let me now briefly take you through the agenda for today. As usual, I will begin with the main highlights covering these first six months, and after that I will take you through two very significant awards that occurred during the last quarter. Eduardo will then come in to discuss our company TR Power and its impressive first step in North America — our North America momentum, which matters a great deal — along with our services and digitalisations, AI, and robotics. Finally, I will close with a few remarks and our guidance. Let me begin with the key highlights. In this case, the key highlight — I suppose the most significant one — is this second-quarter performance. I would like to keep it very brief. The number that matters here is 73. EBIT of 73 represents 5% of our sales, a decent sales level of 1,478 million and net cash of 344 million, and crucially here, zero provisions. This is the key passage here: the fact that we have decent cash, no provisions, and decent sales levels also demonstrates how the Middle East projects are progressing and gradually returning to normal.

When we look at the whole semester, both quarters together, we need to compare it against the equivalent stretch a year earlier. So what you're seeing is that sales for the semester rose 12% versus the same semester a year ago, reaching €3,061 million, and net cash, if you set last year beside this year, is up by nearly €100 million. Of course, in this first semester our EBIT stands at €104 million, since we have to carry the €45 million provision. Then a few points that go along with those figures. Execution in the Middle East is returning to normal — that's one point. It is coming back to normal, and that's well understood, because payments from our customers remain unchanged and on time. That's one message. The third point, and this one matters a great deal, is that we're handling a very robust order intake of €6 billion, with a high likelihood of finishing the year at €8 billion-plus. That €8 billion-plus is driven by the investment mood in the Middle East, the Power strategy, and North America. Three places, three businesses that I'd say are very important within our strategy and our future growth. Now let's turn to the two most important awards that have taken place this quarter. That covers part of what I've said before.

The first item is a major one. It's a $5 billion job that we're handling on our own. This is the Abu Dhabi job. We have two customers, two highly important customers: ADNOC and Exxon. Here, quantity matters, obviously $5 billion matters, but quality matters a great deal. It's very important if we want to be part of this big investment momentum happening in the Middle East. It matters because we need to have — and we do have — the trust of the most important investors, in this case, Exxon and ADNOC. Both of them know our capabilities and they distinguish them well. They understand our engineering capacity and our engineering quality very well. They understand our modularisation capacity and technology extremely well, which is very much needed to bring this job to a safe harbor. They understand very well our capacity and quality to manage construction on islands or very complex sites. The quality and the quantity of the job are both very important, and we're very proud, extremely proud of this job, and we're extremely proud that both customers have entrusted TR as a sole contractor. The next job is different in size, but in terms of our strategy, it's as important as the previous one.

This is a power job — we're handling the engineering and the procurement. It's in Alberta, in Canada, and the client is EPC Power, and here we're working with Siemens turbines. This project strongly confirms the power strategy we've laid out to you a number of times; it confirms our North America strategy; and it confirms our Power strategy, which is largely fueled by the massive demand coming from the hyperscalers — Meta just happens to be the one in this case. You may be asking yourselves, why TR? We have the strategy, and you should know that Deneb? / DBNA? is a long-standing customer of ours and knows well the quality of TR's services and engineering capabilities. Same with Siemens — this won't be the first, second, or third project we've done together. You're all aware that we're now well positioned not only in the United States but in Canada too. This job is good news, and you should be optimistic — you'll see more coming, there will be more coming. With that, since we're on the subject of Power, I'll hand things over to Eduardo, who will certainly add some color to this.

Thank you. Good morning, everyone, and definitely, as Juan says, many other power projects are to come. Let me first elaborate about TR and the power generation business. During the first half of this year, we successfully completed the spin-off of TR Power, our power unit. This was a critical milestone that provided TR Power with a dedicated and focused structure to capture a huge opportunity of growth. Because the key message I would like to emphasize today is the size of the opportunity ahead of us. Historically, our power business generated a few hundred million euros of revenues per year. More recently, at our Investor Day held in Madrid last October, we were targeting this business could deliver around €1 billion of annual revenues. Today, however, the outlook is significantly stronger. If we continue securing awards at the pace we are currently doing, €2 billion revenues per year should not be a great challenge. In other words, we are potentially looking at a business that could double the size we forecasted only a year ago. This is why we are investing heavily in capabilities and talent. We are going to double our power workforce by the end of the year, ensuring that we have the engineering resources required to support this growth.

By the end of June 30th, TR Power's backlog was roughly €2.2 billion. On top of that, we have solid visibility into projects that haven't yet been added to the backlog. The first is a €1.1 billion power project in the Emirates, where early works are already underway and we anticipate the final notice to proceed will come by October. The second involves the three combined cycles awarded to us by RWE in Germany, worth about €1.5 billion. We hope to receive the final notice to proceed at some point over the next 12 months. Artificial intelligence in the US, electrification in Europe, and industrialisation in the Middle East — those are the three drivers behind the enormous growth cycle we are already confronting. You can be sure we are more than prepared to be among the leading players seizing this momentum. Let's turn now to North America. North America is increasingly one of the most strategic growth regions for Técnicas Reunidas. During 2025, we landed roughly €70 million in early engineering services awards. In just the first half of 2026, we have already hit €52 million. What matters more to me is seeing how the projects we won a year ago are already moving from the pre-FEED and FEED stage into the engineering stage.

We anticipate a number of these projects moving into the EPC phase shortly as well. As a matter of fact, if all goes according to plan, a first project will be converted into an EPCM prior to year-end. The contract value should come to roughly €200 million. I want to stress that this is an engineering, procurement management, and construction management project, since our approach is to keep construction risk in America to a minimum. Additional early engineering services currently underway could grow into EPCM awards of about €8 billion across 2027 and 2028, which clearly gives us solid visibility on future growth. Finally, I'd like to highlight the robust ties we are establishing with many of the clients you see on this slide — clients that let us seize opportunities in the US and also in numerous other countries throughout America. The US, alongside the Middle East, is the biggest investor in tomorrow's energy infrastructure. We genuinely think we've managed to establish a franchise in the United States that remains small yet is very solid. We're confident the US will be the region where TR achieves the greatest growth over the years ahead. Let's move on now to services, digitalisation, artificial intelligence, and robotics.

When it comes to services, digitalisation, robotics, and AI, these are instruments that help raise our efficiency and profitability, and they also help sharpen our market positioning, because they deepen the ties we hold with the top management of our clients. Taking engineering services first, the momentum is still very strong. Across the first half of the year, we booked €130 million in awards, and we expect to end 2026 at roughly €375 million. A meaningful share of that number will originate in North America, as we laid out on the previous slide. This result leaves us more confident about reaching our goal of €500 million in annual revenues by 2028, while keeping gross margins near 30%. As for digitalisation, artificial intelligence, and robotics, we are likewise advancing considerably. Our view is that digitalisation and robotics will transform our industry, yet in the interim they represent an endless well of productivity gains and cost efficiencies that can potentially be turned into a competitive edge or improved margins. Two years ago, we set our target for cost savings at 1.5% of our revenues, and based on what we understand today, that is not a major challenge at all. That is why we plan to invest about €40 million in 2026 and grow the dedicated workforce to as many as 400 professionals by year-end.

Before we get into the financial figures, let me share one final point about our operations. We recognize that the Middle East, power generation, and America present a distinctive chance for expansion. Growing merely for growth's sake is not our intention. Our commitment to boosting profitability stands. Services and digitalisation will certainly help enhance both our margins and our efficiency. Our conventional EPC business will stay focused on delivering strong margins. Now, turning to the financial results. Juan covered revenues right at the start of the presentation, so I'd like to concentrate on margins at this point. This chart shows one of our most significant accomplishments across the past 18 months: steady profitability gains each successive quarter. I also want to stress that this progress has consistently been entirely in line with our guidance. Better margins stem from a structural enhancement in business quality, propelled by stricter project screening throughout commercial phases, delivery of our SALTA strategy, and disciplined execution with rising operational efficiency. Against that backdrop, we are managing the fallout from the Middle East conflict. During the first quarter we carried out a thorough analysis, and we determined that the €45 million provision represented our best estimate of the war's impact, and we communicated that impact to the market transparently.

During the past week, we revisited our analysis, and assuming the conflict concludes in this third quarter, we believe the €45 million provision remains appropriate, so there is no reason to change that figure. Now let me conclude with one of the clearest KPIs of TR's transformation over the last two years: the strength of our balance sheet. Our financial figures continue to improve. TR net cash hit €344 million in the first half of 2026, versus €332 million a year earlier. Equity has tracked the same positive path, rising from €564 million to €622 million, the highest level ever reached in TR's history. Finally, as we announced in previous quarters, we remain committed to our 30% payout policy. The first dividend will be paid from our 2026 results, and the payment date will be communicated after summer. Now, Juan, I hand the floor back to you.

Thank you. Thanks, Eduardo. I'll give a quick summary. In this short wrap-up, the points I think we've tried to make clear during these presentations: €8 billion in awards for 2026 isn't a challenge — that's one message. Another message is that Middle East projects are progressing, and we've been executing well. Third, profitability relies heavily on the service division, and digitalisations is extremely well focused. Those have been important messages. As we run the business, there's a key message I'd like to convey here to investors and analysts. That message is that we are extremely well positioned — very well positioned — in three very important business cycles, extraordinary business cycles: well positioned in the Middle East investments that are taking place; very well positioned in the power investment cycle — Europe, Middle East, and most important, North America; and very well positioned, extremely well positioned, better than expected when we began two years ago, in North America overall. That message matters, and I wanted to make it very clear in my closing remarks. On guidance, I believe this quarter's results and keeping the 2026 underline — and let me underline the underline — guidance demonstrate that we're delivering a good performance.

Naturally, this strong result has to be seen alongside an adjustment, just as we did in the first quarter, through the €45 million provision we booked three months ago. That is the key point: our guidance stays unchanged, and I want to wrap up on an upbeat note, since there is more to come — and now I'll open the floor to whatever questions you'd like to raise.

Thank you. Ladies and gentlemen, we are now going to start the question and answer portion. If you have a question, kindly press star then the one on your touchtone phone. A prompt will sound telling you that your hand has been raised. If you would like to withdraw from the polling process, please press star then the two. In case you are on a speakerphone, please pick up the handset before you press any keys. Our first question is from Mick Pickup with Barclays. Your line is now open.

Good evening, gentlemen. Strong results. I have a couple of questions, if I may. First, on the power side, you mention doubling head count. What kind of numbers does that involve for power, and what scale are we looking at? Second, clearly big awards this year. You mention €8 billion of EPCM across the next two years, plus the Middle East moving in the right direction, plus Europe. Thinking back to your medium-term guidance, the EPC target was only 4.5 billion for 2028. We must already be further along in hand than that, aren't we?

Thanks, Mick, for those questions. On power, we’ve got roughly 800 people in that business right now, and we need to double that—get to nearly 1,500 people. That’s the scale of the operation. You might be asking where we intend to find all those people, since clearly we don’t have enough resources here at home, and the answer is straightforward: India. We’re recruiting right now, specifically people with expertise in that business. As for the second question, yes, that number is completely out of date. We need to revisit the 2028 guidance, and probably by the end of this year, once we have full visibility into what’s coming, we can likely give you the right figure—but obviously it won’t be 4.5.

On that point, it's obvious the lower-margin portion of the mix is expanding relative to the services component. Do you remain confident about that 8% margin over the medium term?

No, that margin needs another look. What we communicated to the market was 10% from EPCs and around 30% from services. Should EPC growth run higher while service volume growth lags, then plainly the average margin comes out smaller. We remain committed to the 10% target out of EPCs and roughly 30% out of services. The total number — the net global absolute margin — is certainly going to be considerably larger. That goes without saying.

Thanks.

Kevin Roger from Kepler Cheuvreux has the next question. Your line is now open.

Yes, good evening, and thanks for making the time. I have three questions, if I may. The first concerns an interesting remark you just made — that if things in the Middle East normalized in Q3, the €45 million provision would be sufficient. As a sort of sensitivity analysis, since some of your peers such as Technip and Saipem issued guidance assuming the situation lasts through the end of the year, if we put ourselves in that scenario, situation until the end of the year, what additional provision should we assume? The €45 million, the €45 million figure you took, does that assume Q2 and Q3 split by two, or can you give any color on the potential extra costs that would, in a way, arise from the Middle East? That would be the first question. The second question relates to the possible sequential improvement you expect on the top line in H2 versus H1, because we are still near €1.5 billion-something of revenue in Q2. Is there any pick-up we should expect in H2? The third one relates to working capital. Working capital has been quite negative in H1, a triple-digit number.