Maire S.p.A. (MAIRE) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Maire Tecnimont First Quarter 2020 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pierroberto Folgiero, CEO of Maire Tecnimont. Please go ahead, sir.

Good afternoon, everyone. Thank you for attending the first quarter 2020 financial results conference call. There is no doubt that the COVID-19 pandemic has greatly impacted our daily lives. This situation requires a group of our standing to think outside the box, implement innovative solution and proactively adapt to change in order to pursue its goals. This is what we need by having a resilient business in these challenging times. Our group has started to implement a series of measures and procedures at a very early phase in January in order to cope with this situation. This has helped us minimize the impacts from COVID. As we started to implement the smart working model back in 1917 (sic) [ 2017 ], we could quickly extend it to all our global operations. And now more than 5,000 people are successfully and efficiently working remotely. In these difficult times, however, we can rely on a steady order intake, with new awards worth over EUR 1 billion up to date, a very solid backlog, which at EUR 6.1 billion represents 2 years of work, providing a very good visibility. Our focus on downstream, which has always been more resilient in these times, is evidenced by very strong commercial pipeline of EUR 50 billion with several concrete opportunities, which are going to be converted into new projects over the next 6, 12 months. We are entertaining a very constructive dialogue with our clients, with whom we enjoy a longstanding relationship and who are eager to continue investing in downstream activities. The months ahead will prove challenging and will continue to impact our operation. But as countries are reopening and restarting activities, we are confident that our leading position in our sector is making us very well equipped to face what will lie ahead. Even prior to the government in post lockdown in Italy, which took place between March 8 and 10, our group had already reacted to what at that time were only news coming out of China about COVID-19. An HSE Crisis Coordination Team was set up on January 24 in order to assess the situation in China and its potential impact on our employees and activities around the world. We started communicating all relevant information throughout our organization in order to keep them up-to-date on the COVID situation as well as to inform them on all the guidance that we -- that were deemed essential at that stage. We look at a series of measures concerning our daily activity, including an increase in all offices cleaning and sanitization and partial travel ban to certain countries that were affected to the COVID spread. We also established a medical helpline in order to support all our employees with any medical-related questions and concerns they could have. We also ramped up our smart working model, which at the time was already involving thousands of employees in Italy. Let me go into more details about this extremely important modus operandi, which is giving us a competitive advantage. The current situation has not found us unprepared on this front, quite the contrary. The group started to invest in smart working model in 2017, when we launched a pilot program. The rollout to the organization in Italy took place in 2018. Under the Be Adaptive! motto, our aim was to provide our employees with a flexible way to work virtually from anywhere as if they were in their office. This made possible by building and developing an infrastructure having functionality and cybersecurity in mind. With about 3 years of smart working experience, it was, therefore, quite easy for us to move almost the entire organization to this model. Today, over 5,000 employees are working remotely over the world using the infrastructure that we have already put in place, communicating with each other virtually, the number of meetings in Microsoft Teams has increased to over 2,000% in less than 2 months. As a result, we had no material disruption in our internal operations. The endeavor was made possible, thanks to our Digital Advantage Smart Platform, the engine behind our smart working model and the significant source of competitive advantage in a world which has been and will continue to change going forward. The effectiveness of our smart working model is evidenced by our engineering workforce of over 3,000 people, who have been efficiently working remotely. All the infrastructure and software has been made available to our human resources as if they were in their office. All the engineering work has continued seamlessly with no impact on the daily operations and the timing of the project deliverables. We all know how important the engineering activities are for a technology-driven group such as Maire Tecnimont. This resilience is evidenced by the 20 FEEDs and service projects that we are currently working on, providing a solid support to our marginality and future EPC projects. In line with the rest of the organization, our procurement activities have continued remotely on a smart working basis, ensuring a supply chain flow that was as smooth as possible. In this respect, last February, we set up a virtual control tower in order to monitor how COVID-19 would impact our supply chain and, at the same time, gather relevant information about our suppliers and disseminate it within the group. Over the last few months, a weekly war room is taking place among the group and the subsidiaries heads of procurement. The aim is to continuously ensure that everyone is on the same page and identify and solve all relevant issues concerning the supply chain. We also implemented innovative and creative solutions in order to bypass potential logistical roadblocks, such as, for instance, how to carry out video inspections remotely. Finally, we are working with certain suppliers to provide our help in obtaining bank and other financing to safely continue their operations. Making sure that each work site runs as efficiently as possible given the circumstances is critical to successful delivery of a project to our clients. We, therefore, proceeded to assess each site at the outset of COVID-19 pandemic and immediately established a set of rules aimed at ensuring the health and safety of our and the subcontractors' personnel. In certain cases, we managed to seal the site from the outside world to ensure additional safety. As a result of these initiatives and also thanks to the precious help of our clients, we managed to keep the sites up and running with virtually no positive cases among the workforce. Obviously, the situation remains challenging, but we are confident to be able to successfully cope with what lies ahead. While our operations are running, albeit, as I just mentioned, with several challenges being faced on a daily basis, in the month of April, we started planning for a very gradual and partial return of certain resources to our offices. This is happening of course within the limits and regulations provided by the government. We issued new setup of procedures aimed at ensuring the safety of our employees as they return to our offices. First of all, we put a limit of about 25% of the Italian workforce on the number of people who can safely be in the office at this stage. Body temperature is measured at the entrance of each building as we set a maximum limit of 37 degrees Celsius to entering the office. Entry and exit flows are separate and no more than 2 people can be in the elevator at the same time. Cleaning and sanitization has been greatly enhanced. Workspaces have been redesigned as social distancing has become the normal. We also provided personal protective equipment, masks and gloves to those who need it. These and other measures have been implemented in order to allow a limited number of our employees to safely be in the office. We will be gradually expanding this limit as we expect more people to safely return to the office over the next few months, while smart working will continue as we have been implementing it over the last few years. And talking about economic and financial savings, in addition to the measures that we outlined in the previous slides, we also took a series of steps aimed at saving cost and preserving cash flows in these times of uncertainties. We have identified about EUR 60 million of cost savings across the board whether it is G&As, commercial or operating costs. The savings will originate through 120 initiatives that have already been identified and targeted. As an example, we already cut our travel budgets by 30%, and we are prepared to do more if necessary. The current period has demonstrated a certain activity can also take place remotely without losing their effectiveness and goals. This will remain less travel, even our daily lives will go back to normal in the future. In addition, we have already identified and are implementing significant compensation-related savings. The last month, we also announced the suspension of the fiscal year 2019 dividend for an amount of EUR 38 million as well as the share back (sic) [ buyback ] program related to the employees' incentive plans. All these measures, which have been designed to be as fair as possible, will increase our economic and financial flexibility and allow us to better face the next few months as we will be slowly going back to a relatively normal life. Despite of everything which is going on, however, we can still count on a number of strengths, which show our resilience and the resilience of our core business. Our commercial efforts have not slowed down in the first few months, leading to an order intake way in excess of EUR 1 billion up to date. The EUR 1.2 billion Amurski 2 contract, which was announced last Tuesday, is a testament of the relative strength of downstream within the oil value chain of our leadership position in polyolefins and of how much our clients value our relationships. It further confirms our ability to win follow-up projects in our core business. More details about this project will be provided in the next slide. The Total and Gemlik projects contribute to the diversification of our commercial success. While in the case of Gemlik, our positioning throughout the entire value chain pays off as we will be building a urea plant that will run on Stamicarbon's leading technology. As you may remember, we were awarded a EUR 3.9 billion contract for the execution of a package related to the Amur gas-processing plant complex. This has represented the first milestone of a large industrial development that would also involve downstream petrochemicals in order to create one of the largest petchem facilities in the world. The EUR 1.2 billion award, in consortium with another partner, represents the start of the second phase, which will entail the petrochemical development of the Amur gas chemical complex. We will be developing several polyolefins units whose feedstock will be a tail coming from the gas-processing plant. Mechanical completion is expected by 2024. This award is important in several aspects. It represents the resilience of our business model as well as of our core businesses, which allows our group to win billion dollars contract even in the most difficult times. Second, it is a testament of our unparalleled and undisputed leadership in petrochemicals and in polyolefins, in particular. Third, it is evidence of the long-lasting relationships that we have developed with our clients, sometimes over decades; for example, we have been active in Russia since 1930s; and of our ability to follow up business. We are very proud and -- with this award, which is proving a key strength in these volatile times and the stepping stone for further awards during the course of this year. Our economic and financial strength is also supported by a strong and solid backlog of EUR 6.1 billion. It continues to be of a very high quality and with a good diversification across various geographies around the world. For the avoidance of that, the phase 2 of Amurski is not included in the backlog at the end of March. In our main business unit, the proportion of higher-margin E and EP project remains high at over EUR 900 million, providing a good support to our marginality. The backlog cover has remained stable at almost 2x, giving a very good visibility on the work we need to perform over the next few years. The resilience of our business has already been demonstrated in the recent past. When the oil price started to collapse from June 2014 onwards, oil companies started to cut their CapEx. The vast majority of the cuts, however, impacted upstream and offshore activities, while investments in downstream and onshore were relatively unscathed and, in some cases, were even increased. As a consequence, our backlog doubled in size over the following periods, while the oil price was halved. This is actual proof of the resilience of our core business and will represent a source of competitive advantage for our group in the years ahead. Another consequence of what we've just stated is represented by the ongoing increase in our pipeline, which has now reached over EUR 50 billion, up EUR 3 billion in the last -- in the first quarter. While the tendered activity has remained stable, we have seen a marked increase in the pre-tendering and tendering activities, both in petrochemicals and oil and gas refining. We are in constant communication with our clients in order to understand any impact that the current situation may have on the timing of future projects. That said, let's focus on the projects in the tendering and tendered phases, the ones that have a higher probability of being awarded over the next 6 to 12 months. The chart in this page shows the value of this project broken down by geography. CIS, the Middle East and Africa continue to represent a source of new business, both in terms of greenfield projects as well as follow-on or revamping and upgrading of existing assets. Moreover, all of our core businesses are included in this chart, an additional sign of the resilience of downstream. We have already demonstrated our capacity to win business in this challenging environment. With a total expected value of over EUR 24 billion for these opportunities, we believe our leading position in downstream, together with a strong track record and experience, would lead to additional awards that would further strengthen our backlog and our future visibility. Now let me hand over the microphone to Alessandro, who will discuss our financial performance in more detail. Alessandro?

Thank you. Thank you, Pierroberto. First quarter operational activities, which have generated EUR 706 million in revenues, have been affected by 3 major elements, out of which 2 expected and 1 totally unpredictable. The first 2 issues were already anticipated in defining the production planning for the first quarter and related to the status of completion of some EPC projects in our backlog, and to the adverse climate condition prevailing in the first months of the year in certain geography where we have under-execution of the construction activities. Coupling the same situation already experienced in 2019, when EPC projects are in their completion phase, the volumes of production are quite low, since our engagement is limited to the commissioning and the start-up of the plants, a type of service which requires few specialists, thus generating reduced volumes of revenues. Then even if our backlog has a wide geographical spread, the most important EPC projects are under execution in areas whereby, in particular, in the first months of the year, operational activities had to cope with adverse climate condition, thus reducing the standard production efficiency. As already stated, these 2 elements were part of our internal planning, and for this reason, we were prepared to face reduction of the volume of production compared to the previous quarters. COVID-19 was not predictable. The restriction imposed by the governments of the various countries starting from March have progressively introduced limitation to the mobility of the personnel, shutdown of the production cycle of the factories, part of the supply chain as well as to the logistic services. For the same reasons, operational activities in certain geographies slowed down and in limited circumstances we have been obliged to close the operational sites. These resulted in an additional factor, which has negatively contributed to the revenues generation of the quarter. However, thanks to our digital platform and a flexible business model, we have been able to maintain a close cooperation with our partners and clients, thus mitigating as much as possible the impact on the operational activities. As a result of such efforts, we have achieved a marginality of 9.1% in terms of business margin for the quarter compared with an 8.7% of the corresponding period of last year. G&A for the quarter were EUR 19.7 million, EUR 1.1 million increase if compared to the last year corresponding quarter. However, the comparison is not meaningful, since the cost incurred in the quarter factors some elements which were not present last year, i.e., the strengthening of our presence in U.S.A. and Far East as well as the reinforcement of the organization belonging to our Green Energy's most important subsidiary, namely NextChem. Finally, thanks to the cost-savings initiatives, which have already launched and widely disclosed by Pierroberto, we expect a reduction in this cost line in the incoming quarters. EBITDA was EUR 42.5 million, representing a marginality of 6%, in line with the current backlog mix and considering also the negative concurrence of the COVID-19. Net financial charges were EUR 15.4 million. It is important to point out that the pure financial costs associated with our financial exposure have not changed significantly compared with the previous quarters. The most important elements, which have affected the financial performance of the quarter, came from the negative valuation of certain derivative contracts for EUR 9.6 million and the lower financial income driven by lower time deposit in foreign currencies. Since the settlement of the derivative contracts in place extended beyond 2020 and considering that the current valuation has been adversely affected by the turmoil caused by the COVID-19, it is reasonable to expect that this phenomenon could be reversed in the incoming quarters. Tax rate was 31.2%, in line with our historical average. Consolidated net income was EUR 10.9 million. Without considering the temporary negative extraordinary effect of the derivative valuation, the net income of the period would have been EUR 17.6 million. COVID impacts have been more remarkable on the cash flow generation of the period, since the reactions of clients has been quicker than the impact on the operational activities. The collapse of the oil price has lowered significantly the cash flow of many clients spanning from majors to national energy companies and to our privately owned companies. As a first reaction, some reputable clients have postponed the program of the payments. Others have extended the timing for the settlement of certain activities under negotiation and also have deferred the approval of the services rendered. The latter, in particular, is a consequence of their inability to operate remotely. Lastly, the timing for the award of new project has been extended, thus extending the timing of the monetization of the relevant advance payment. All this phenomena attributable to the unpredictable consequences of the coronavirus have contributed negatively to a cash flow of a quarter for which was already expected a swing in the cash flow generation compared to the last quarter of 2019. In the 11th of March conference call, it was already anticipated that the phasing of certain EPC projects under completion and other in the construction phase would have requested to inflate part of the cash generated in their early stage. In particular, for some EPC projects entering their construction phase, we have recognized advance payment to suppliers and subcontractors in the first couple of months of the year. Those payments would have been counterbalanced by the cash expected in the quarter, but deferred because of the COVID-19 impacts. Finally, another effect generated by the COVID-19 related to the turmoil, which has affected the exchange rates of many currencies at the end of March and, in particular, the exchange rate of the rubles against euro, which has registered a devaluation in excess of 20% compared to the exchange rate prevailing at the end of 2019. The mark-to-market of the hedging contract in place at the end of the quarter led to a negative valuation of EUR 42 million compared to a positive of EUR 21 million at the end of 2019, thus resulting in negative valuation of EUR 63 million. Considering the average tenor of this instrument, a significant portion extended beyond the end of current year. And taking into account that the exchange rates have been affected by an extraordinary event, it is reasonable to expect that a significant portion could be reabsorbed in the incoming months, according to the normalization of the global situation. Having analyzed the reasons of the shortfall at the end of March, let's analyze the maturity of our medium, long-term debt. As you can appreciate from the graph on Page 19, the group is not facing any immediate major maturity of its medium- to long-term debt as more than 2/3 will expire after 2022. Of these, more than half is represented by a bond expiring in 2024. This maturity profile is giving us some important financial flexibility to face the current period with less constraints. As far as the short-term financing is concerned, which is the leverage utilized to optimize our working capital, we can count total credit lines of approximately EUR 500 million, out of which EUR 150 million are not yet utilized. And now I hand over the microphone to Pierroberto for his final remarks.

Thank you, Alessandro. In conclusion, the early and decisive response that the group has taken starting from last January has allowed us to be better prepared to the COVID-19 pandemic. Smart working, together with a virtualization of our core industrial processes, has become a sort of competitive advantage. In these difficult times, we know we can rely on our market leadership as reflected by a steady order intake, a strong backlog and a solid pipeline of concrete opportunities, which are expected to become new projects over the next 6 to 12 months. As a result, we expect the existing backlog, including the purchase which have acquired up to date, to generate revenues of approximately EUR 3 billion in 2020. Given what is known today and based on current assumptions, the net financial position is expected to significantly improve by the end of the year. This concludes our presentation. As usual, Alessandro and I stand ready to answer any questions you may have. Operator, please go ahead.

[Operator Instructions] The first question is from Mick Pickup with Barclays.

Glad to hear you're all well. Three questions, if I may. Firstly, just on the guidance you just gave there, Pierroberto. You talked about marginality not lower than Q1. Is that marginality at the business level or at the EBITDA level, given the carry of the G&A in the first quarter? That's the first question.

We are thinking of EBITDA level.

You're thinking of EBITDA level, so that's at 6% level?

Okay.

Okay. And then the second question, can I just ask about Amurski Phase 2? Obviously, it's very good that you've got that contract. Can you just talk about the working capital terms on that contract given the situation that the working capital terms on Phase 1 have caused you over the last 2 years?

Thank you, Mick, for the question. On Amurski 2, consider that it is part of the same complex of Amurski, but it's a project carried out by SIBUR. So Amurski 1 is carried out by Gazprom. Amurski 2 is the monetization of the gas once separated is managed by SIBUR. And this is very important because we have long-term familiarity with SIBUR. So there is no way for us to get familiar with the procedure as we -- as it happens in Amurski 1. So the level of, I would say, reciprocal knowledge between Tecnimont and SIBUR is unparalleled. This is in terms of getting up to speed. In terms of contractual condition, similarly, the contractual conditions are the typical contractual conditions of the relationship with SIBUR, so there is a positive contribution to the cash flow generation driven by the anticipated payment by the client. So we have expectation that this project will very positively contribute to the cash flow generation.

Okay. And if I just follow up, you talked about the low revenues in the quarter because I think it's probably taken a few people by surprise. You talked part -- you said this is the COVID impact, but part of it was seasonality. I'm assuming you're talking about Amurski. Why didn't we see that seasonality in Q4? Because as far as I'm aware, it got cold around about November.

Let me say that the characteristic of Amurski 1 project is that the project is basically at the end of the EP phase. And from now on, it's driven by the construction phase. So the EP phase typically has a progress recognition that is very much stop and go because when it is EP, in particular, the P means that you can invoice -- you can collect once all the, let me say, formalities of the shipment and of the acceptance at the site of a large equipment is fulfilled. So let me say, what happened to the revenue recognition of Amurski 2 during the EP phase has been very much driven by this paperwork. From now on, the progress will be almost exclusively driven by the progress of the construction. So that's why despite the site is opened, thanks to the great job that my team, the contractor and Gazprom are doing. But the revenue recognition from now on will be linearly dependent on the progress of the construction. So what is going to happen at the site in terms of welding activity, erection activity will condition the revenue recognition on our side. Let me say also that in terms of liabilities, once we have completed the EP phase, basically, we are on the safe side because the productivity of the construction company is not creating liabilities on us. So let me say, the EP conclusion of Amurski 1 is a great achievement, not only in terms of revenue recognition, but also because on the liability side, to the extent we feed the site with drawings and materials, we are on the safe side. And since basically, engineering and procurement are almost finished, we don't have liability for the way forward. Obviously, the possibility for us to have revenue recognition will depend on the speed and on the progress of the site activities, which is today a result of the hard work that all the team did in order to keep such a large site in operation, considering that only on our package there are 17,000 people -- sorry, 17,000 people working at site. So we are working in conjunction with Gazprom and EP in order to keep this 17,000 people safe. And despite all the hurdles of the material delivery and logistical issues, the project is opened and it is productive.

Okay. And just to confirm then, so you're saying that Phase 1 is now in a reimbursable phase.

Now the contract is, let me say, kind of reimbursable phase in the sense that to the extent we deliver, as we are doing all the drawings and all the material, then we are on the safe side in terms of contractual conditions.

The next question is from Massimo Bonisoli with Equita.

Pierroberto and Alessandro, 2 questions. One, if you can give us an indication for second quarter for revenues, considering the stoppage of activity in many projects given the COVID-19 pandemic. And also about the second half, what are your assumption to get to those EUR 3 billion revenues, if you have any allowances or flexibility for the second half, considering the low visibility on COVID-19 today? And the second question, what would be the maximum stress of your balance sheet in terms of leverage you are willing to sustain? Any reference on net debt to EBITDA or gearing would be helpful.

On the first point, we are taking a view that the second quarter will be the quarter in which all the hurdles on the progress of the project will be the peak -- will be at the peak. So we are assuming that gradually from the third -- let me say, from end of June onward, the situation get normalized. So this is our best understanding of the overall normalization curve all over the countries. So the second quarter, in a sense, will be the most difficult one. What we are observing is that apparently, the situation is going in that direction. So for sure, there are a lot of hurdles. For sure, there is an accumulation of certain delays. But we see light at the end of the tunnel. So that's why we are taking this view that the -- basically, the second half will gradually go to a productivity of the job sites that gradually get back to the original one. So this is the kind of view we are taking. Taking this view, basically, we are envisaging a rollout of the existing backlog plus the contribution to revenues of the already acquired new projects to take us to the estimated level. So that is a scenario we are taking. So very tough second quarter on which I think it will be unappropriate to give, obviously, guidance. And then at second half in which after the peak, everybody will be eager to recover and gradually go back to normality. So this is the reason of the -- this is the assumption underlying the reduction of volumes we are disclosing today. Sorry, the third question was about?

The question was about the balance sheet strength and the leverage. Considering the increase in leverage you had in the first quarter, let's say, clearly, it looks like it's temporary. But in case it would progress like this over the next few quarters, what is the maximum leverage of the balance sheet you are willing to sustain in terms of, I don't know, net debt to EBITDA or in terms of gearing?

Let me say that what you see today is the result of a period in which we gave the maximum priority to business continuity. So we put all our effort in keeping the machine running and in keeping the project going on and avoiding to block projects. Because if you block projects, it could be good because you could, in a sense, ask for force majeure, you could stay at home, but then the remobilization -- the demobilization and remobilization of a site will be a big burden. That, for sure, would create a kind of confrontation with clients. So let me say, as of now, all our efforts were on the production. This is the reason why we end up with this extraordinary cash absorption. Conversely, that's why we strongly believe that the -- after this emergency, we will get back to the proper financial discipline and normalizing our working capital. So that's why we are giving a guidance that the net financial position will significantly improve. About your question on which is the maximum leverage we can live with, I think it's about the typical metrics of the industry. What I can tell you is that we don't like to be negative in terms of net debt. So we would like to be in this condition. So whatever is the metric that is sustainable according to the market standards in terms of, for example, multiple between net debt and EBITDA, I can tell you that we are positive on the fact that we will improve this level of leverage because it is totally abnormal and direct consequence of having given the priority to the productivity rather than to the typical discipline that in normal times we apply. So I give you an example. It's very difficult that you find ourself having this abnormal ratio between advance to vendors and suppliers and down payment for clients. If we are in this very, I would say, peculiar situation, it is because we wanted the project to go rather than to give privilege to financial discipline. So as soon as we get back to normality, there will be a number of countermeasures that will rebalance to the normality of working capital. So sorry for not giving the exact metric, but I think it is something standard and academic. Let me tell you that we are truly believing that the situation will improve very fast with the normalization of the COVID-19.

But -- excuse me, Pierroberto, just to add something, as I have already disclosed in my part of the presentation, I believe that it's quite important to look also at the average maturity of our debt structure, which, for me, it is very important to note that in the current year in 2020, we have a very, very limited maturity to reimburse. It is limited to an amount close to EUR 26 million, which is very, very limited. And the remaining portion of our medium, long-term debt has a very long maturity date. So considering the temporary extraordinary effects, which have influenced the situation by the end of March and considering the positive elements, which Pierroberto has already disclosed in terms of new awards, in terms of progressive return to the -- to a normal standard level of production, I believe that in order to evaluate our resilience also from a financial standpoint, also those elements must be considered. So just to say that considering that we have a limited commitment in front of us, I believe that this is the element which provides the flexibility that we need to cope with additional effort that we have to face in these weeks.

The next question is from Kevin Roger with Kepler Cheuvreux.

Yes. Two questions from my side, basically some follow-up on question that has been already asked, please. The first one is on Amur Phase 2. So the main difference with, I would say, the first 1 is that the project that you secured excludes the construction because this is an EPSS contract. So for me, it was quite a surprise. So I was just wondering if you can explain us what has been the driver for this main differentiation. Why you do not take the construction on hand? And the second question is coming back on the working capital because, clearly, as Mick said, it has, let's say, led to some troubles for you over the past 18 months. Could you -- I understand, let's say, all the dynamics related to the COVID-19 and that it was impossible to predict it. But can you on the, let's say, almost EUR 300 million negative movement that you have in net advance, et cetera, can you try to split the, let's say, part that you were expecting because of the seasonality and the phasing of the project that you were expecting and the element that, let's say, came and that was not expected, please?

Let me answer on Amurski 2 on the second question, so I don't know if Alessandro has a better understanding, but the line is a little bit disturbed. So -- but let me kindly answer to the question about Amurski. The contract scheme -- it's a contract scheme that is, in a sense, capitalizing on the lesson learnt of Amurski 1. So as I told you before, in this restructuring of Amurski 1, we ended up having basically no liabilities once the EP is completed according to the schedule. So this is, for us, the lesson learnt for Amurski 2. So even if it is SIBUR and it is not Gazprom, but the team of SIBUR that is working on the project was also in the NIPIGas team. And you know NIPIGas is the general contractor of Amurski 1. So on the lesson learnt, basically, we have replicated this new scheme whereby we are liable to the extent -- or better, we are not liable to the extent we deliver drawings and material according to the schedule. So to the extent we feed the work fronts of the construction company in the appropriate way. So let me say, in Amurski 2, we have, in a sense, radicalized that approach, and we lost "the volumes of construction," but we have definitely sterilized any pass-through of the construction. So we have to do construction services, meaning, site services because, obviously, even if it is not an EPC, it is very important that we are at site in order to procure a fluid execution of the construction activities in terms of field engineering and in terms of commissioning and in terms of all the technological activity or highly characterized activities. But with this scheme, basically, we are 100% sterilizing any possible liabilities on the construction. So I think it's an evolution of Amurski 1 in the right direction. On the second question, I leave the floor to Alessandro and, if it is the case, to you to clarify the question, please, because the line was disturbed.

Yes. So...

Kevin, yes, you have -- as you have correctly stated because I disclosed this issue in my presentation, for sure, the first quarter has suffered, in particular, from efficiency standpoint because of the decision taken by some client to postpone payments, not to approve in the due date the relevant milestones and, accordingly, we hadn't the possibility to release the relevant invoices and then to be paid. So -- and lastly, of course, also some -- even the Amurski 2, it was supposed to be awarded a little bit earlier than what happened. However, of course, we are very happy about the conclusion. But in our mind, in our program, it was a little bit expected in anticipated way, in order to have the possibility then to enjoy at least partially of the cash flow secured by the early milestones of this project. So all in all, if you -- we have to quantify what could be the effect. The negative effect on the working capital, which has generated a corresponding negative effect on the cash flow, can be quantified in an amount ranging between EUR 150 million to EUR 200 million.

Okay. So that's very clear. So more than half -- let's say, more than 50% of the valuation that you have with clients this quarter can be linked to the COVID-19 situation?

So more or less, if considering that the amount that I have disclosed related to phenomenon, which has been originated basically by the effects generated by the COVID-19, on top of this amount, there is another pure accounting effect, which is the evaluation of our derivatives, which, as you have appreciated, amounts to EUR 63 million. So all in all, if we put together all these elements, COVID directly or indirectly, have affected the cash flow and the net financial position by the end of March with an amount well in excess of EUR 250 million.

[Operator Instructions] The next question is from [ Rafael Murdeau with Anural ].

Two questions on my side. A little one on the working capital, so you've mentioned the impact. Obviously, the figures you've provided at March 31, so it was 5 weeks ago. How has the situation evolved since then? Is it improving or still at pretty bad levels? And on the P&L side, I was wondering the potential impact of the sanitary measures that have to be taken. You have, as you said, a lot of people on the sites, on the construction sites. So should it trigger extraordinary costs? And I guess, especially to accommodate the people? And what could be your capacity to pass those costs to your clients?

Let me answer on the second question. I will leave the first to Alessandro. On the -- on how the -- how do we organize ourselves for the complexities of COVID over the life of the project, let me say that it's a joint effort with the client and joint effort with the construction company. So again, it's a matter of securing the maximum sanitary protection to the site, applying the quarantine to whoever is coming from the outside, guarantee all the personal protection material and, as it is out of the site, procuring the people is very serious about ground rules. So this is the way we protect the site. And this effort is a tripartite kind of exercise between the client, the construction company and ourselves. Obviously, this is the normal situation. Then there is the variety of life. So you can have a site that is closed, as it is, for example, today in Philippines, as it is in India. And when a site is closed, the situation obviously is different. Let me say that the greatest exposure is the exposure of the construction company. So being a general contractor, we are in the position to be in between the client and the construction company. Obviously, our risk is the mobilization and -- demobilization and remobilization of our task force. Our task force in terms of Tecnimont payroll in a site is not something overwhelming. So let me say, in the worst case, that is when the site is closed, obviously, which is a negative case, very negative case because, as I told you, we want to manage all the workforce of the site, our own payroll and payroll of the construction company in order to keep the engine going in the interest of the project and in the interest of the progress and, therefore, in the interest of the milestone and revenue recognition. But in the very, very worst scenario, we remain with our costs that are the cost of the task force, that is demob and remob. The greatest risk is the risk of the construction company because the payroll is the payroll of the construction company. And the greatest risk is the risk of the client because once the site is blocked, the client is using the schedule and, therefore, is using the production and so the revenues and so the NPV and the IRR of the project. So that's if you want the maximum and the minimum in the 2 extreme of the possible condition of a site. Alessandro, I don't know if you have...

So you don't expect significant impact on the P&L itself?

Yes, in the sense that the costs that are on our burden are limited to the payroll of our task force. And nevertheless, it is not our costs because we are not liable for what's happening. So we are also prepared to procure that these costs are to be recognized by the client and not by us. So let me say, it will -- in negative cases, we will open a discussion with the client, whereby if they want our supportive restart of the project, they have to secure our economic neutrality to the uncomfortable and unfortunate situation that was created beyond our control.

Then as far as your question relating to what we expected in terms of variation in our working capital in April, May and so on, what I can say is simply that, for sure, in the first quarter, we have been in a certain way surprised because as I have anticipated, we have paid -- satisfied some important milestones in terms of advance payment to our suppliers and subcontractors at the beginning of the year, in January, March. Since then, we expected to be -- to recover the money from the client during the month of March, however, within the quarter. So the change occurs normally at the beginning of the phenomenon, meaning that what COVID-19 can generate in terms of working capital deterioration has been almost entirely already factored in the result of March. Now of course, everybody knows what COVID-19 means. Of course, we are applying a traditional financial discipline in monitoring and managing the working capital. So for sure, we do not expect material deterioration looking ahead compared to March. But of course, a lot will depend on how the situation around the world will evolve.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

So thanks to everybody, and see you until the next time.

Thank you. Thank you. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.