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 First Quarter 2020 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Alessandro Bernini, Chief Executive Officer of Maire Tecnimont. Please go ahead.

Good afternoon to everyone, and thank you for joining Maire's First Quarter 2023 Financial Results Conference Call. I am also pleased to have with me Fabio Fritelli, our CFO. Before looking at our operational and financial results, let me start from where we left on our Capital Markets Day when we presented my 10-year industrial plan. Our current strategy approach is based on our position as enablers of the energy transition and the intense and upgrade of our business model with a new organization based on 2 business units. The first one, sustainable technology solutions is the home for solutions designed to enable innovative and sustainable processes, offering technology licensing, high value-added services and proprietary achievement. By the nature of these activities, these business is characterized by lower volumes and higher profitability. The other business unit integrated Engineering and Construction Solutions is the home for solutions to arise future-proof technologically advanced plans, thanks to our specialized know-how and world-class and generic expertise. As such, this business enjoy higher volumes and revenue visibility. A flexible and adaptable business model where technologies and EMC can be offered to our clients through an integrated approach but can also live independently. We have been deploying this strategy even before we announced this in early March, and its effectiveness is already evident in the first quarter results. Indeed, the quarter has shown a robust performance with revenues, EBITDA and net income all growing double digit vis-a-vis the corresponding period of last year. Similarly, we enjoyed a strong operating cash flow, which has led to an adjusted net cash position close to EUR 95 million, in line with December 2022. The operating cash flow more than compensate investments, mainly related to the acquisition of Conser. Subsequently, in April, we finalized the acquisition of MyRemono owner of the CatC technology. Both have significantly contributed to the expansion of our technology portfolio. Our EUR 7.9 billion backlog, which as a reminder, no longer include the Russian projects continues to be healthy and well-diversified, making us confident about our immediate future. Let's have a more detailed look at our operational performance. The project we were awarded in the first quarter were well spread across different geographical areas, mainly across Europe, Asia, and the Americas. As you know, the award timing during the year varies widely from quarter-to-quarter. In this respect and based on the ongoing tenders that we have submitted, we expect a much stronger second quarter and an equally strong second half, which will allow our group to reach a 2023 book-to-bill ratio of at least 1. Let's look at the operational performance by business unit. The effectiveness of our strategic approach can be clearly seen in the strong order intake in our sustainable Technology Solutions business unit. At EUR 78 million, it represents a 7% increase versus the 2022 first quarter. The business unit backlog stands at close to EUR 200 million, an increase of almost EUR 40 million since the end of last year. The shorter cycle nature of this business is reflected by a backlog cover, which is at parity. From a geographical standpoint, the sustainable Technology Solutions backlog strengthened its exposure to Asia, also due to the recent award, the ultra-low energy urea plant in China, which we will see in more detail later on. Moving on to our integrated E&C business unit. Order intake of EUR 225 million encompasses new awards related to fees, which are characterized by high profitability and allowed to get involved into the process of in the early stages. Activities extensions of the carbon capture plant of Kassandra safety in Italy, change orders finalized with the clients on various projects. Our EUR 7.7 billion at the end of March provides a picture of our historical and longstanding exposure to Middle East and a good balance between the other regions in the world from Europe to Africa from Asia to the Americas. Backlog cover of 2.2 provides good visibility on the years ahead, representing a solid backbone of our business. Let's take a look now at the ultralow-energy urea world that has been granted to Stamicarbon. This is the largest ultra-low energy urea plant to be licensed in China by the group and the scope of work encompasses licensing process design packages and equipment supply. It has a design capacity of 3,150 metric tons per day and is the 7th plant globally based on Stamicarbon's proprietary innovative design, which allows steam consumption to be reduced by about 35% and cooling water consumption by about 16% compared to traditional processes. This project strengthens our technological leadership in sustainable and energy-efficient solutions and represent a further proof of Stamicarbon's undisputable leadership in the relief market, where we enjoy a 60% market [indiscernible]. Moving to the Select award for our integrated E&C solution, a clear example of synergies and cross-fertilization across the 2 business units is provided by the carbon capture plant of Kassandra. In December 2021, we were awarded in Jenrin works by Eni and now we got the extension to EMC activities for the [indiscernible] carbon capture storage Phase 1. The plant would be able to separate the CO2 from emissions from the natural gas plant turbo compressor qualifying and compressing them, thus allowing the capture of about 25,000 tonnes a rear of carbon by oxide, which would otherwise to be released into the atmosphere. The technology used for the capture of CO2 in initial gases operate at high efficiency and low power consumption even at low concentrations. It has already been widely used to capture the issues of hard-to-abate industrial sectors worldwide. Moving on to the group's commercial pipeline. We are pursuing opportunities worth over EUR 54 billion. We continue to see a high set of attractive projects, driven by the resilience of our core business and supported by clients' willingness to invest in energy infrastructure and the technologies for the transformation of natural resources. Such a positive environment bodes well for our group's growth prospects in the year ahead. The effectiveness of our integrated approach is further demonstrated by the amount of potential opportunities originated by our sustainable technology solutions business at over EUR 10 billion or 20% of the total pipeline. As we continue to develop our integrated strategic approach, we are confident to increase the set of high value-added opportunities, further increasing our theological leadership. With reference to the integrated E&C opportunities, given the increase in size of large projects and the FTC consoles generally selected, the timing for the final investment aces requires more time compared to the past. Our commercial efforts are also widely diversified across key geographies and all the regions where the group is active, continued to remain extremely attractive. In particular, the Middle East is one of the areas where we see potential new work in new courts. Asia is also an area that continues to show significant opportunities. Before we move to our financial results, I would like to focus on the expansion of our technology proprietary portfolio as we recently completed 2 important acquisitions: Conser and CatC. Conser is a technology-like sensor and process engineering design company, which owns an extremely strong portfolio of technology patterns dedicated to the added value of specialty chemicals processes, including cost-effective and process-flexible technologies for the production of biodegradable plastic more or less. Conser leadership position is demonstrated by its 50% plus market share in China, a country that has shown a significant potential over the last few years due to the return of loan biodegradable plastics for single-use products announced in January 2020. Furthermore, we expect to significantly grow concert business by leveraging on the group's commercial capabilities to penetrate new markets and by expanding its offering to proprietary equipment and catalysts. The strategic value of this acquisition is also based on a growing demand for bioplastic products. which is expected to increase at an annual growth rate of 7% up to 2050 and a replicated in this decade alone. The deployment of our technology strategy as of today was not limited only to Conser. As we completed also the acquisition of the CatC technology, which has now been to further to a newly established company named MyRemono, which we control with a 51% stake. CatC is a delineation polarization, technology, which allows to recover high curity monomers from sorted plastic waste. It was tested on Precima in its proprietary demonstration plant with outstanding results, a 95% conversion rate. This process is expected to be extended to other value-added plastics, including the depolymerization of polystyrene, a wide-use plastic with numerous industrial applications from food packaging to electronics and automotive. We want to scale up and industrialize this technology while developing the commercial offering, which will encompass licensing, process engineering, and proprietary equipment to be able to generate a double-digit profitability going forward. Our strong commitment to sustainability is not focused on green technologies only, but is a 360-degree responsible approach, embracing all the areas in which we operate, recognized by the various ESG ratings assigned to our growth. Our ESG road centered around environmental sustainability, the value of our people and of the territories where we operate, and the innovation, which relies on our technological BSDA has been deployed in an extensive set of initiatives to be pursued this year. Our Met zero task force is implementing a vertically focused action plan aimed at reducing the emission generated within our organization. We are strengthening training in heater safety as well as the action plan of our diversity, equality and inclusion work group. Our sustainable -- unsustainable innovation so-called innovability. We are focused on reaching up the 24 cooperation agreements with universities all over the world. We are also strongly committed to developing a sustainable supply chain, expecting over 2/3 of expenditure from ESG screen suppliers as well as to keep creating value in the territories in which we operate with a number of CSR projects for local communities. Last but not least, we are heavily promoting training on business integrity as we have included ESG targets in our end deals and long-term retentive schemes. I will now hand over to Fabio for his review of the first quarter financial results. Please, Fabio.

Thank you, Alessandro. Our financial results show double-digit growth across all main KPIs, parting from revenues of EUR 958 million with an increase close to 3% year-on-year and driven by project execution. G&A were EUR 18.8 million or 2% of revenues versus 2.6% at the end of March 2022. Thanks to our continued attention to the guidance. EBITDA was $68 million, up about 33%, thanks to higher revenues and inefficient management of the structural costs. Margin was 6.1% in line with 2022 and within the 2023 guidance. Net financial charges were $8.4 million compared to EUR 6.3 million is in the quarter. Receiving the first quarter 2023 was negatively affected by the net valuation of the ligation and the increased interest rates on the portion of floating the debt, partially offset by higher financial income. Such a positive operating performance, we led to a consolidated net income of EUR 26.2 million, up almost 7%. Let's analyze the financial results by year by year. Sustainable Technology Solutions revenues were EUR 56.5 million, thanks to the constant growth recorded in the technological agreements and solutions to support the unitization word. As a reminder, the Q1 2023 figures include comps. EBITDA was $1.8 million, up 56.3% as a result of higher volumes and with margin of 20.9%. Moving now to integrated E&C solutions, revenues were over EUR 900 million, up about 31%, thanks to the project progress towards spaces able to generate higher volumes. EBITDA was EUR 46.3 million, up about 28% with a margin of 5.1%, substantially. Moving on to the balance sheet, let's analyze the cash flow dynamics. Our Q1 adjusted net financial position has improved once again on seating corporate basis to EUR 94.6 million. The operating cash flow during the first quarter more than compensated CAPA, which amounted to a gross value of EUR 41 million, including EUR 35.8 million related to the acquisition of Contact, which has a cash absorption of about around EUR 19 million net of the EUR 17 million cash available in the company. The remaining part of around EUR 5 million was related to recurring CapEx to support projects, digital innovation, and R&D. Let us now take a look at the working capital dynamics. Turning to net working capital. We closed the quarter with a negative figure of EUR 71 million. You should remember that each quarter has its own dynamic in terms of working capital, depending on specific events taking place in the period and the stages reached by the various projects. In Q1, the difference with 2023 year-end is due to advancements mainly related to large projects, in particular, the $3.5 billion project Brief in the UAE and the $1.5 billion project for half in June. This impact has been partially offset by accounts receivable, which has a cash-in of EUR 55 million, which helped to maintain a negative working capital trend. I now hand over to Alessandro for his closing remarks. Alessandro?

Thank you. Thank you, Fabio. Before concluding, let me take a moment to highlight the advantages of our integrated business model, which leveraging on our DRA has recently evolved once again to face and anticipate development in the external environment. Our technological platform to be further strengthened with the ongoing expansion of our portfolio is devoting placing Maire at the forefront of the energy transition, enabling us to reach new clients and generating higher margins in the short cycle. Our well-established world-class capability of executing complex multiyear projects and the know-how to successfully apply our technologies will drive the growth in our traditional markets, generating high volumes and providing revenue visibility. To activities strictly interrelated among this other in order to leverage cost capitalization of ideas and synergies under the same growth. This integrated approach will represent a competitive advantage to create value in the long term and deliver the significant growth in [indiscernible] in the 10-year strategic plan recently announced. Coming in detail to 2023 performance, our first quarter results confirm the solidness of this strategy. Our backlog provides a solid foundation to future revenues, confirming our expectations of a double-digit growth in 2023. Margin expansion will be supported by our recognized know-how and technological solutions investments. Capital expenditures will be according to our plans and will be mainly dedicated to expand our technology portfolio to foster future growth. Investments are expected to be covered by the operating cash flow, in line with our usual financial discipline. At the same time, our strong and growing commercial pipeline will continue to deliver new projects. All that said, we reconfirm our guidance that was communicated to the market on the 3rd of March. And this concludes our presentation. I stand ready to answer any questions you may have with the audio. Operator, please go ahead.

[Operator Instructions] The first question is from Marco Cristofori of Intesa Sanpaulo.

Good afternoon, everyone. My first question is on the possible impact of a dropping oil price post days and also lower refining margin and gas price. In other words, don't you see the risk that some of your clients can postpone investments in downstream due to the current low visibility on oil price evolution and potential slowdown of growing China, which seems to be the main problem at the moment and my second question, if I may, is on FPS and potential new acquisition. You guided for CapEx of EUR 70 million, EUR 70 million to EUR 80 million for FPL. So it seems that there is some room to finalize other acquisitions ahead? Are you already have some target?

Thank you for your question. For sure, oil prices, we have several times repeated, that since we are not exposed to upstream activities, but we are predominantly or even more exclusively engaged in downstream activities or midstream activities, we are not really exposed to the oil price fluctuation and also because most of our commercial pipeline is and the opportunities that we have targeted, and we are trying to transform into new orders in the short term are predominantly based on the transformation of natural gas. Natural gas, as you know, is an auto resource, which is also friendly from an environmental standpoint. We are not experiencing any lowering in the CapEx of underspending a prospective CapEx of the Venus clients. All the projects that were already sanctioned by the various clients that we are targeting remains and remains -- and there are no significant delay. For sure, most of the projects which are on stream now are a super giant project, so multi-billion projects. And before taking the final investment decision, the clients are taking some more time. But this doesn't mean that they are revising their CapEx spending or are delayed or kind of selling projects. All the projects that we are targeting are still aligned and remain without any major delay or variation. So as far as the projects and the opportunities that we are targeting in particular for -- in our E&C integrated business unit, integrated E&C solution business unit, we are not facing any particular modification compared to what we were expecting a few months ago. For sure, I repeat, we are talking about multi-billion projects or however, projects which approximate billion each one show the client before sanctioning definitively the investments for sure, wants us to analyze more in more details various situation, which can be faced moving forward. So they need some more time. But all of them remain absolutely alive. And for this reason, we are really confident to be awarded new projects in the very, very short term. Second, then, as far as the target in the technological division, we have in front of us opportunities, which predominantly rely in the various -- some of -- in particular, on some clusters of our technological activities. For sure, the green ammonia is the most significant faster activities where -- which we are pursuing. We starting from green hydrogen and then green ammonia -- these are the key situations, in particular, domiciliated in Europe, which we are looking for -- some of them are already in an advanced stage. In the others, we have already been engaged in the for the feed and for to provide the client with engineering services. So we expect them to be able to convert to proceed with this project moving forward. But when the project will move into the PC contracts, of course, will not create a benefit for the SPS division, but we are talking about the fair cross-fertilization, which will create a benefit for the integrated E&C solutions. As far as the SPS, which we call the technological division, for sure, we are continuing in the development of the project for the waste -- so waste to chemical and waste to methanol, waste to syngas, the project that we are executing in Italy. And we have already other opportunities still located in Italy, which we expect to convert into real contract very soon. So these are more or less are the opportunities that we are looking for. I think that the specific question, Mark, I'm right, was on CapEx on SPS. You were mentioning that we have planned approximately EUR 80 million -- EUR 70 million to EUR 80 million CapEx in 2023. We have even a portion of it. Yes, we have targets in -- on the acquisition side as well. We have also made clear that the path forward could be through further acquisitions as we have done for cancer and base, but could also be achieved to strategic partnerships, which give us exclusive price. So we will maintain some flexibility in this respect. But the answer to your question is yes, the targets have already been identified, but clearly these things may take longer than expected.

Our next question is from Kevin Roger of Cartao Kepler Cheuvreux.

Yes. The first question will be related to one large opportunity that have been mentioned recently over the past months, LNG in Abu Dhabi, you have been preselected with Technip in terms of engineering design, et cetera. And there has been some press information over the last weekend saying that ADNOC wanted to restart to 0 and to basically open the big to new players, et cetera. So I was wondering if you can give us some color around the LNG it's still an opportunity for you in 2023 or if we should assume that basically, this is an opportunity that is postponed for the coming years? That would be the first question. And the second question is related to the working capital movements. How should we consider basically the evolution in the coming quarters with those 2 big projects that you mentioned during the presentation, Borusan and [indiscernible] that will continue to move into procurement construction? How should we think about the movement in the coming quarters, please?

Okay. As far as Hydrogen gas is for sold, of course, I can answer as far as the onshore package is concerned because, of course, the development of Hydrogen gas project involves a much wider scope of water, including offshore works as well as the realization of a couple of artificial inline for artificial items, which for sure was not in the scope of work to which we have paid our attention in association with Technip and [indiscernible]. But let me remember a little bit of the story of this project, which has started, which are dated back to 2019 when Outlook in association with other international energy companies that has decided to engage with the Bechtel to realize for the first time the FEED for the development of this project. Then apparently, the client Outlook was not satisfied about the information provided by Bechtel and in November 2021, of core Technip to proceed with a revision of the original feed, we're aiming at obtaining optimization, in particular of the original CapEx, which was estimated by Bechtel. Then as a consequence of the feed, which was concluded by Technip in January 2023, ourself in association with Technip and the something that we have been awarded some preliminary construction works, which based on the original intention, this should have a leader than to the real EPC project. But now the client has decided to change the approach. Basically, they are -- the client is no longer interested to proceed with an open book cost estimate approach, but is more interested to proceed with a traditional long summer scheme. And for this reason, has decided to open the project to a much wider range of contractors, which we know the indication to bid has been recently raised -- of course, we are talking about the supergiant projects, even limiting the discussion about the onshore portion of the total development. And we do not believe that many contractors can play and can release by services for the execution of these projects. For sure, what I can say is that having had the possibility to enter into a lot of details of these projects when executing the preliminary construction works. We have, of course, we retain a lot of details -- we know very well the scope of work. We have already concluded also a market analysis by already producing, generating analysis of the supply chain, including as well the first contact with the construction companies, which can take care about the construction activities. And we do not believe that there are many other competitor contractors, which can do this type of activities. So of course, now we are waiting for the decision of the clients. For sure, our intention is to continue, of course, to demonstrate our interest to participate to the bid. For sure, based on the present knowledge, it is of course, natural to estimate a postponement all the award of the EPC contract, which originally was expected in the first part of this year. But now due to the new approach adopted by the client, it is reasonable to expect that the final investment decision will take place only probably in the second half or the last portion of this year. But based on our knowledge, the client, of course, wanted to continue with the development of the project because at the end, the 1.5 billion cubic feet of natural gas is almost mandatory for the development, the industrial development of our book. So it is just a delay, but it is not a when talking about a project, which in aggregate, but probably you already went through the news, certain news, which has been published works were in excess of $16 billion. So for sure, for a project of this size, it is quite another that the clients wanted to retain some more time before taking the final investment action. However, just to confirm that we maintain our commitment, our interest. Of course, we are working hardly in order to maintain and to propose a very efficient proposal, which will be released in the next few weeks. Yes. As far as the working capital is concerned, you are right in saying that this is mostly attributable to the 2 major projects under execution, which has had a substantial contribution to revenues in the current quarter. And if your question was, are we going to see cash flow -- or sorry, a contribution in the following quarter, so normalization of the working capital, the answer is yes. We expect clearly to have a contribution already starting this quarter.

The next question is from Robert Ranieri with Stifel.

Yes. My question 2 questions. The first one is on the -- specifically on the project or the HBO or filing in net or we have to give how the deposits going on. And in addition to that, I'm wondering if projects could be part of your take that open additional opportunities for you in this that there is a lot of interest in this kind of projects from different operators. So I'm wondering if that is to be an interesting market for [indiscernible] My second question is on that, just very simple. Just to remind that what the variable debt fixed rate component is on a growth.

Roberto, for sure, we have well understood the first question, but I'm afraid that then after my answer with reference to Nigeria, unfortunately, we will have to repeat your question. But now talking about Nigeria. Nigeria, the scope of work is not the usual one because we are talking about the revamping. So revamping it is -- for sure, we did our best in order to identify at the beginning of the project, what should have been replaced in order then to deliver at the end of the revamping a very efficient refining unit. But you know that something that can be discovered only during the project execution when you enter into the unit. When you look at the equipment, you open the vales equipment. And then only then, we are able to verify if your original estimate are correct or it is necessary to replace something else. For this reason, of course, as far as the work with reference to the original lump-sum amount which refers to the project that with the activities which were estimated at the beginning of the project, these are progressing well. Of course, -- but of course, during the project execution, we have identified some additional works, which will require, for sure, some more time because when you have to place the orders for the additional material requested to proceed with the project, of course, the supply chain requires some additional time. And for this delay -- and for this reason, the original deadline for the commencement of the activities of what is the Area 5, which is the area which is able to deliver diesel has been postponed by a few -- by a few months because basically, it is a time which is necessary to wait for the delivery of the additional material website. Then apart from this unpredictable events, unpredictable at the beginning of the projects, everything is progressing in line with the schedule. Then we have noted in some newspaper that someone is questioning about the possibility to monetize our activities, but it is -- I believe extremely reasonable because the client has already flown into an escrow account dedicated to this project, an amount which is more than enough to satisfy the next 3 milestones of the project, which means at least the next year and half of activities. So we are absolutely not worried. Everything has been granted. The payment for the work done so far has been monetized in due time. So for sure, Nigeria is and is due to remain a very promising country for our business, both in the traditional space as well as in the green space because we have been made aware by some local clients, the national oil company as well as some high of the own entities in association with international investors that also some projects in the green space like green ammonia or carbon capture will be sanctioned very soon. We are very well positioned because basically, today, we are one of the most reputable operator, international contractor operating in the region. So we believe that very soon that there could be also other very, very interesting opportunities, in particular in Nigeria, but not only in Nigeria because of course, we are monitoring the situation also in the major countries like Angola -- of course, Ghana, Congo, all of them are areas which countries, which are dedicating a significant amount of their annual spending in the transformation of gas. So for sure, when dealing about the transformation of natural gas, of course, we know very well that we are one of the key players. So for sure, we are very well positioned being there to be one of the key players in the months ahead for the new opportunities. Then unfortunately, Roberto, I ask you Kaito repeat your second question.

My first question is I'd just like to understand that -- what capability you have in terms of interest rate in the impact of it on the P&L and specifically in your interest rate? There is a sensitivity of [indiscernible].

Sorry, the line is very bad. Sensitivity of what?

Sensitivity of the next interest rate, I see that your interest rates were basically flat year-over-year on a GAAP and adjusted basis. So obviously, I'm wondering the interest[indiscernible] or not in component on there, interest rates.

Interest rates, correct?

And Robert, apologies. The line is really bad. But if your question is on interest rates, we all got it on the impact we are having in interest rates.

Yes, there is an impact on the interface from a increase in the scenario.