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

Good morning, everyone, and welcome to TR's Nine Month 2026 Results Presentation. Our Chairman, Juan Lladó, and our CEO, Eduardo San Miguel, are going to conduct it. It will run for approximately 25 minutes, and after the final remarks you will be able to post your questions. I now hand the floor to our Chairman, Juan Lladó.

Hello, everyone. Here's a quick look at what we'll cover today. I'll begin with the financial highlights for the first nine months of 2026, and after that I'll go through the three major awards from this third quarter. Then Eduardo will bring you up to speed on the Middle East situation and describe how we're expanding our business and opportunities outside the Middle East. He'll go over the financial results as he always does, and I'll finish with my remarks and guidance. All right. What you see here is just a table — very straightforward — and I won't get into the details. Let's begin by looking at the third quarter on a standalone basis. That's straightforward too. First, we're seeing sales growth. Then comes EBIT growth. Then there's cash growth; and fourth, we have quality — and I really need to emphasize this — quality order intake amounting to EUR 1.7 billion. That's essentially what stands out for the third quarter on its own. When you consider the full nine months, once again, sales are up. We're reporting EUR 203 million in EBIT, and that figure already reflects the EUR 45 million hit from the Middle East conflict. Order intake came in at EUR 7.5 billion; by the close of this quarter we're already quite near the EUR 8 billion we had projected. Very near indeed. These figures produce a substantial and well-balanced backlog exceeding EUR 14 billion across a range of work — a solid quarter overall. Let me now walk quickly through the quarter's key contract wins, since each one merits individual focus and lets me convey something significant about TR's strategic direction. Turning briefly to Dorra: that award is valued at EUR 1.4 billion and covers onshore gas processing facilities — receiving, processing and exporting the gas within the wider overall environment. The customer is KJO, and notably the paying parties at the very top are Kuwait's KPC and Aramco, both well known to everyone. Two clients who know TR very well have put their trust in our technology and our know-how once more—doing business with our biggest customers is welcome news and fits our strategy. The project is already underway. Client teams are already on the ground in Madrid, working alongside TR's task force. On average, our task force will need to reach roughly 300 TR engineers. That, again, is good news. We are collaborating with our main customers in the Middle East. Award number two. If you think back to July, Eduardo mentioned that one of the service agreements we hold in North America was expected to be converted into EPMCM — Engineering, Procurement Management, and Construction Management. The plan was for that conversion to be completed by the end of the year, and the value needed to be above EUR 200 million. That's now happened: we have won a contract worth over EUR 200 million to deliver the full scope of Engineering, Procurement Management, and Construction Management services for Coastal GasLink Phase 2, located in British Columbia, Canada. To my mind, this stands as the strongest evidence that our strategy in services is paying off — and paying off in a big way. We are in a very strong position; during the past four years, we have been delivering services on this project and to this customer. You may not recall, but we began nearly four years back with pre-FEED, carried on into FEED, and today we're engaged in the big project — all of it under a cost-plus service business. This project matters to us, yet above all it is a highly strategic one for the country, for Canada. It links North British Columbia with the Pacific Coast so they can double the natural gas transportation capacity. Shell and Petronas are leading it. Once more, that's significant — two very important customers for us. Then the third project, Greenlight; we presented it to you already in July, but it deserves mention again, since we must remind you how much it matters to us. This marks TR's inaugural venture tied to our plan for breaking into the hyperscaler data center sector. Electricity from the facility is destined for Meta's data centers located in Canada. The unit is a sizable combined cycle plant at 932 MW, designed to be carbon capture ready, built for expansion, capable of being doubled, and engineered so that everything scales up to 1,864 MW. That leaves room for a possible second phase. You'll observe us — and the customer will observe us even more than you will — putting in serious effort to prove we deserve the job of engineering phase two. Having shared those three key points, I'll now turn things over to Eduardo.

Alright, Juan. Thanks. Good morning, everyone. I'll begin with the Middle East. To start, I want to explain in a little more detail what our actual exposure there really is, since it's certainly smaller than one might assume for a company holding roughly 75% of the backlog in that region. Backlog in the Middle East totals EUR 11.2 billion. This can be divided into three separate groups. The first consists of projects whose procurement stage is finished. The bulk of equipment has already arrived on site, and what remains is purely construction work. This group's backlog comes to under EUR 0.5 billion, and the war's effect relates only to site disruptions that may hit our productivity. We are less efficient, but the impacts are modest. A second group covers every project still in engineering or at an early procurement stage. That means we are still tabulating suppliers, issuing purchase orders, and in just a few cases beginning a fabrication process that runs for months; those projects represent EUR 9.7 billion of backlog and are unaffected by the closures or moves, and clearly face no disruptions, since most of the work happens at our Madrid engineering hub. The third group, where real exposure lies, is made up of projects far along in procurement that have also begun construction. Those projects are experiencing serious logistical problems bringing equipment in through Hormuz or the Red Sea, and as a result construction work is delayed and less efficient. We are referring to three projects with combined backlog of EUR 1 billion. For them, we have put together a dedicated logistics plan with our clients that is already in place and is greatly easing all the difficulties I just described. That plan involves making maximum use of safe ports in Oman and the Emirates, determining the fastest and safest overland routes, locking in shipping capacity and container availability with carriers, and setting up two strategic warehouses in India and the Middle East so we can optimize on-time delivery of equipment to the Arabian Peninsula. Clients are also using their influence in their own countries to back us up on logistics for delivering equipment to sites. Beyond that, we are right now negotiating with our clients to recover the additional cost we have incurred, and we are confident these talks will produce successful results in the very near future. Two closing points. First, the EUR 45 million provision taken months ago to reflect the conflict's impact remains our best estimate of that impact, and no additional provisions will be booked this year provided the actual scenario stays unchanged. Next, and this matters a lot, the Middle East remains tough in the near term, yet we must not ignore the enormous opportunity sitting in front of us. A majority of clients in that region intend to commit heavily over the coming years so they can move past this devastating conflict. TR is present, and has been present through the past 25 years, as a faithful contractor. We anticipate the Middle East becoming a source of large and profitable activity going forward; and it is not just the Middle East. Let me turn now to the rest of the world and the good news there. 2026 is the year our sales strategy began producing solid results. In Abu Dhabi, two years back, we set out three pillars for growth: services, power generation, and America. We are already achieving success. Over EUR 2 billion of backlog has been secured this year outside the Middle East on the strength of those three pillars. That number, EUR 2 billion, might seem modest next to what comes from the Middle East, but trust me, it is merely the tip of the iceberg. It is the tip of the iceberg since we have won more than EUR 320 million of services across America and Europe. Certain of these projects, such as the decarbonization of ArcelorMittal steel mills or the Coastal GasLink of British Columbia with the Pacific, are flagship projects that will help cement our reputation for first-class contracts in entirely new sectors and geographies. It is the tip of the iceberg since there are another 50 small services consisting of feasibility study for FEEDs and FEEDs that could potentially turn into larger projects in the near future. They are the seeds of next year's backlog. It is also the tip of the iceberg since power generation, driven by electrification in Europe and artificial intelligence in America, will demand massive investments; we expect to receive the notice to proceed on two RWE combined cycle projects within weeks, and the project for Meta in Canada is already under construction. Finally, it is the tip of the iceberg since, with challenges, with a focus on power and midstream, and with investments in LNG, we can say today that we already hold a solid franchise in North America that can only grow. For all those reasons, a pipeline of EUR 53 billion outside the Middle East lies ahead of us. That is a huge figure representing almost 60% of our total backlog. Now, it is solely up to us to convert it into a more diversified backlog. Sorry, it is 60% of our total pipeline. Sorry, I made a mistake. It is solely up to us to convert it into this, into a well-diversified backlog. We can only feel optimistic about the future. Now the financial results. Let's begin with the EBIT margins. I've noticed lately that some peers have been discussing adjusted EBIT margins and pro forma margins—and even we at Técnicas Reunidas, a few months back, were referring to underlying EBIT. From now on I want to steer away from those messages, since I think they create confusion. Today I'll speak only about plain EBIT. EBIT. This chart illustrates how EBIT has moved quarter by quarter over the past two years. The takeaway is obvious: it has improved steadily across this whole period, with just one exception—this year's first quarter, when we recorded the estimated impact of the Middle East conflict, EUR 45 million. In this third quarter, EBIT came in at EUR 98 million. That number includes the positive effect of the arbitration award on the Teesside project, minus a provision we have booked for potential litigation liabilities. The net effect of those two items gives an extraordinary profit of EUR 7 million, which has lifted our quarterly EBIT to 5.7% over sales. That's why the 5.4% we expect in the fourth quarter sits slightly below this quarter—this third quarter result. On the balance sheet, I can only say it is among the clearest KPIs of TR's transformation. Let me begin with equity. We have raised our equity by around 60% over the last two years. That increase has let us return to a solid shareholders remuneration program, which began with the purchase of treasury stock for an amount of EUR 50 million announced a month ago. I would also like to highlight EUR 668 million—it is the largest equity in our history. Net cash position has risen to EUR 628 million at the end of September. Three factors drive this growth: the down payment from Upper Zakum amounting to EUR 450 million, the cash outflow from the surprising and unfair bank guarantee call by Bapco amounting to EUR 133 million, and the impact of the shares buyback program. Absent those three extraordinary inflows and outflows, we would have reported a cash figure almost equal to the figure we had in the previous quarter. This means we have not been able to convert our quarterly EBIT into cash. That is no surprise, since we have always been very assertive about our policy of supporting suppliers cash-wise to enhance the execution of projects. In the actual scenario, and with record levels of net cash on our balance sheet, it is the best way to secure projects are completed on time and with the expected profit. Saying so, we are talking about record levels of net cash and equity. My main conclusion can only be this: this balance sheet gives us the financial strength to support the growth we have ahead of us. With this, I pass the floor back to Juan.

Thanks, Eduardo. I had a lengthy discussion about positive remarks and this and that, but this morning I chose to get straight to the point. Back in 2023, as some of you might recall, we came to the market with a capital increase so that TR could expand and seize the market, drawing on TR's know-how and engineering capacity. From that point, 2023, quarter after quarter, across the past four years, our performance has been strong. Now, following this third quarter of 2026, we are coming back to the market once more, though this time it is to fulfill our pledge to deliver returns to the shareholder. First, as Eduardo mentioned, through the EUR 50 million buyback program announced last September. Second, and very important now, through the EUR 21 million interim dividend paid this January. That dividend is fully backed by average guidance of EUR 295 million by the end of 2026, a bit above what we had announced, which comes from revenue exceeding EUR 6.5 billion by year-end. With that short message of confidence in TR's future, let's open the floor for Q&A. Thank you very much.

Hello there, and thanks for the presentation and for taking my questions. First off, I'd like to ask about the North America outlook. The strategy in that region genuinely seems to be advancing quite significantly. Could you share some detail on the partnerships already established there with Zachry, and on possible awards you'd expect to firm up over the coming months? My second question is about the outlook, since once again we've seen a substantial improvement in the profitability of the business. The backlog is at a record size. Could you give us some sense of what 2027 might look like, since we're wrapping up the year — those are the two things I wanted to ask. Thanks.

All right, Ignacio, I'll start with North America, and then Eduardo will take your second question about profitability in 2027. I was actually down in Houston with Eduardo — we spent a few days there this month, or last month, I can't recall, two weeks back — and we're feeling good. I really think you'll be seeing — this is a long story, but I mean, we're trying to lay it out. In the case of Zachry, we conduct workshops together and jointly submit bids, and we're developing the plan for how to build out the projects that you'll be seeing very early in 2027. The same situation applies in Madrid, where we're assembling the workshop and the strategy alongside other large electromechanical firms to line up the power-related projects that you will be seeing—I can't state it with certainty, but quite likely as an outcome in 2027. One success leads to another. Midstream companies we already work with, and who have already put us to the test through pre-bid and bids, are asking us to bid on some of their United States investments. We care about the how and the which — specifically, which risks we'll be taking on when we bid. Even so, they're eager to partner with us, and that feeling goes both ways. My sense is that our current position in the U.S. is much stronger than before — thanks to the power business, thanks to midstream (what we refer to as the midstream market), and thanks to the success we've achieved. It's not as though we're simply parked in an office somewhere pushing marketing these days. At this point, even within the U.S., we're a success story. We’re eager to serve certain customers, and plenty of them travel into TR—right here in Madrid—to meet with us and get a sense of who we are. They’re already offering us modest opportunities that we aren’t able to announce. There’s $1 million, $2 million of pre-FEED work, aimed at helping them understand us better. I’m referring to large, significant customers. I feel extremely positive—which is what Eduardo was trying to convey in his slide—extremely positive about our venture in America, in both power and midstream. We’ve had success already, but I believe more is coming. I can’t provide figures, but this is only the beginning. Eduardo, I think, said something like “This is the tip of the iceberg.” And that really is just the tip of the iceberg. I have to say, we’re quite pleased — and now, Eduardo.

Your question is much more complicated than mine, honestly. And first off, I won't be giving you a very detailed answer, so I apologize for that. Let me say a little more about what we expect going forward. In all my time, I've worked 35 years here at Técnicas Reunidas, and I have never faced a situation like the one we're in now. It's really hard for me to pin down which awards I want to pick next year, because when we call the opportunity massive, that isn't just a figure of speech. I mean, it's a fact. I mean, we have more opportunities than we can afford. To start with, the new projects coming are big, and we have to do very thoughtful work, since we need to choose the right projects. That will certainly affect profitability; that's exactly what we want. We want to pick the best ones, the most profitable, with the least possible risk. It also matters to see what the final size of Técnicas Reunidas will be, because even though services are growing fast, the mix of services and the size of the EPCs still has to be defined. We've spoken many times about how through services, we can deliver around 30% margin. Through EPCs, it's 8%, it's 9%; it varies from project to project. So the final mix is absolutely relevant for defining what profitability will be for 2027. But I have no doubt it will be better than the profits we've had this year. Not only in absolute volume, but the percentage will be higher as well. I think it's fair for you probably to wait until the end of this year, when we'll have a better picture of what's coming in 2027, and then we'll deliver good, solid guidance. I'm sure we'll try to be conservative as always. I'll try not to send a message that we can't honor later on. So give me a couple of months, and we'll probably come back to you with this new guidance; but we need to understand the market opportunity very well, because we've never seen anything like it, we have no experience in a situation like that.

<<foreign_lang>>, Juan and Eduardo.

<<foreign_lang>>

<<foreign_lang>>

Hello. Thanks for taking my question. I've got a couple. First, can you share any updates on the UAE power project that was near an announcement in late October, November? Whatever you have there would help, and on top of that, anything you're seeing on the power tenders in Germany would be very useful too. My understanding is they happened recently, so any news there, helpful. Thanks a lot. Second question, more of a modeling one. Sorry about that. On working capital, clearly a big inflow this quarter from the Upper Zakum project. How should we think about Q4? A full reversal of that inflow, or just partial? Any color would help. Thank you.