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

Hello, and welcome to MAIRE 9 Month 2023 Results Conference Call. My name is Melisa and I will be your coordinator for today's event. Please note this conference is being recorded. [Operator Instructions] I'll now turn the call over to your host, Silvia Guidi, Head of Investor Relations. Please go ahead.

Good afternoon, and welcome to our call. My name is Silvia Guidi, Adobe Investor Relations. And I'm joined today by our CEO, Alessandro Bernini and our CFO, Fabio Fritelli. Today, we plan to cover MAIRE's 9-month 2023 operating and financial results. At the end of the presentation, we will be happy to take your questions. Let me now hand over to our CEO, Alessandro Bernini for his introductory remarks and operations performance.

Thank you. Thank you, Silvia. Hello, good afternoon, everyone and thank you for joining MAIRE's 9 months financial results conference call. The first 9 months of 2023 have continued to show a robust performance with revenues, EBITDA and net income, all growing double-digit vis-a-vis the corresponding period of last year. At the same time, we kept improving our profitability. This solid performance has been accompanied by a very strong operating cash generation close to EUR 200 million, which has led to an adjusted net cash of around EUR 124 million. Cash generation more than compensated dividends and the investments for EUR 68 million dedicated to the expansion of our technology portfolio and to digital innovation supporting our business growth. Above all, this period will be remembered for their highest order intake EUR 10.9 billion and backlog EUR 16.8 billion ever. The extremely impressive order intake and backlog are the result of the most important commercial success of our history. The Hail and Ghasha award, a testament to our expertise and delivery skills, which we will see in more detail during this call. So let's now look at the operational performance of the 9 months. 2023 is our most successful year with the 9 months order intake at EUR 10.9 billion, more than 3/4th the average of the last 10 full years of EUR 3.2 billion. This performance is concrete evidence of the strength of the business drivers underlining our sector of the increasing size of the energy projects as well as of the solid trust that our recurring and new clients are putting the technologies and engineering skills of our growth. Our trailing book to bill ratio is 2.7 compared to the 2013-2022 average of 1.3, representing a tangible sign of our business growth. The highest order intake ever has obviously led to our highest backlog ever. At EUR 16.8 billion, it is 2.5x higher the 2013-2022 historical year end's average and 1.8x the highest size in the same period. Such an impressive level which translates into a backlog cover of 4.2x puts us in a comfortable position towards the future, leading to a strong increase in size and revenue visibility. Let's have a more detailed look at each business unit. Starting from STS, the effectiveness of our strategic approach and soundness of our offering spending from technology licensing to proprietary equipment and other high value services can be seen in the strong order intake achieved in the 9 months. At the EUR 226 million the order intake has grown 2.8x, year-over-year and is widely diversified in terms of scope of work and technologies involved. This performance has been supported by the growing demand for solutions able to reduce emissions, especially in nitrogen fertilizers and includes several engineering activities related to both the new initiatives and the decarbonization of existing plants. The strong order intake has led to a backlog of EUR 273.2 million, up 70% since the end of last year. Moving on to E&C, their 9 months order intake confirms the strong market momentum, with EUR 10.7 billion of new awards bolstered by the 2 multi-billion projects of Amiral first and Hail and Ghasha recently. At the end of September, the EUR 16.6 billion backlog and the resulting backlog cover of around 4.4x provide a very high visibility on the years ahead. Let's now take a look at a couple of recent acquisition in more detail. In July, we were awarded EUR 100 million licensing and proprietary equipment contract for an ammonia and urea complex in Sub-Saharan Africa. The project which is expected to be operational in 2026 aims at addressing the growing demand for fertilizers in the region, supporting food security with cutting edge technologies able to maximize energy efficiency and reduce emissions. This is the largest order ever awarded to Stamicarbon, a further confirmation of our undisputable leadership in nitrogen technology solutions, generating a double-digit profitability in line with the targets envisaged in our business plan for their sustainable technology solutions business unit. Turning to E&C, the $8.7 billion Hail and Ghasha project in Abu Dhabi includes 2 gas processing units, 3 suited for recovery sections. They associated utilities and off-sides as well as export pipelines. This global work entails complete engineering services, equipment and material supply, construction activities, pre-commissioning and commissioning. The project is expected to be completed in 2028. And the contract provides a 4% or 5% advance payment in line with the standard market practice for similar multi-billionaire initiatives. This award is a landmark recognition of Tecnimont's undisputed execution capabilities. We are extremely proud of having been selected by ADNOC also for the pioneering characteristic of the project, which will responsibly unlock the UAE's abundant natural gas reserves with the objective to operate with net zero emissions. We are approaching this massive in our initiative with our usual execution discipline. We have already performed the early engineering activities. And we will leverage on our world class track record very soon for recovery and enlarge gas treatment plants. We have been active in the UAE for more than 20 years, having performed several strategic projects worth $17 billion. The engineering and procurement activities will be coordinated by MAIRE's and Milan at quarters and entrusted to several dedicated teams in Europe, India and the UAE that are being strengthened. Thanks to the hiring plan started at the beginning of the year and the still ongoing. Moreover, adapting a responsible approach also means maximizing the local content with more than also of the value of the project expected to flow back into the UAE's economy and boosting employment with over 30,000 people to be engaged in the construction side. Looking at the environmental footprint, the project will combine several decarbonization solutions including the capture of energy storage of 1.5 million tonnes per year of CO2 and the recovery of low carbon hydrogen, which can replace a fuel gas and further reduce emissions. Additionally, we will leverage on the competencies of our sustainable technology solution business unit to provide the cutting edge digital solutions aimed at optimizing energy consumption, allowing a significant efficiency of the plant in terms of OpEx and CapEx. Moving on to the Group's commercial pipeline, we are pursuing opportunities that notwithstanding recent acquisitions are worth over EUR 56 billion. We continue to see a robust and healthy set of projects, driven by strong market fundamentals in our core business and supported by clients' willingness to invest in energy infrastructure, support the transformation of natural resources with an increased demand for technological solutions able to reduce emissions and improve energy efficiency. The record high backlog allowed us to maintain our market share and support future growth with an increased selectivity. Based on sustainability and technology content geographical diversification and last but not least, expected profitability. Our recent commercial success stems from the talent, hard work and dedication of our employees, who are the growth engine of this group. At the end of September our direct employees were over 7,400, up 15.2% since the beginning of the year, in addition to more than 3,000 professionals in the electro instrumental division, supporting project execution worldwide. To maintain our leading position and meet the growing request of our clients, we are continuously strengthening these days, with more than 1,000 engineers hired in the first 9 months. Further additions are expected over the coming months in order to support our growth with a top-notched engineering workforce. In addition to successfully push showing our commercial and operating activities, we kept strengthening the cooperation with other partners. In September, we signed a Memorandum of Understanding with Macquarie to set up a joint platform to develop and execute energy transition, our initiatives across Europe. The platform will combine our ability to co-develop the projects along with the Macquarie's financial expertise in structuring ground-breaking transactions and capital deployment power. This synergic collaboration is an example of how relevant players in their own industries can cooperate to foster their decarbonization of the European economies. MAIRE will act as a technology provider; PLC Contractor and minority investor in the project, which will be based on a no recourse capital structure and will rely upon, secure the long term supply contracts and offtake agreements. The collaboration of further analysis, our project development offer, a function which is instrumental to both business units, and has already been implemented in selected our initiatives around the world. These included the set of activities carried out by MAIRE to started in June of those projects, which otherwise would remain on the starting block. This concluded the review of the operational performance. I will now hand over to Fabio to discuss the financial results. Fabio, the floor is yours.

Thank you, Sandro. Our financial results keep showing a double-digit growth across all the main KPIs and then increasing profitability. Revenues were close to EUR 3.1 billion, up 22.7%, driven by steady project execution. G&A were EUR 61.9 million, up by EUR 5.3 million, but with the decreasing incidence over revenue of 2.2% to 2%. Thanks to our focus on achieving efficiencies. EBITDA was EUR 195.9 million, up 29.4%, mainly thanks to higher revenues and operating leverage. Margin was 6.3%, up by 30 basis points year-on-year also due to the increased contribution from technologies and high value services. Net financial charges were EUR 30.7 million, up EUR 2.7 million due to the increase in interest rates on the floating rate portion of our debt, partly offset by a higher financial income from cash deposits. Moving to the bottom line, such a positive operating performance is led to a consolidated net income of EUR 88.6 million, up 44.3% and with a marginal revenues increasing by 50 basis points to 2.9%. Let's now analyze the financial results by business unit. STS revenues were EUR 192 million, up over 50%. Thanks to the constant growth recorded in the technological solutions and high value services to support the energy transition, mainly in the nitrogen fertilizers, hydrogen and circular fuels and chemicals. EBITDA was EUR 45 million, up 83.6%, wherein as a result of higher revenues and the change in CapEx. EBITDA margin was 23.4%, 420 basis points higher year-over-year, further accelerating in Q3. IE&CS revenues were EUR 2.9 billion, up 21.2%. Thanks to the steady execution of projects mainly in the polymers and fuels and chemicals graspers. EBITDA was EUR 150.9 million, up 18.9% with a margin of 5.2% substantially stable. Moving on to the balance sheet. Let's analyze the cash flows dynamics. Our adjusted net cash position at the end of September was EUR 123.9 million, up by about EUR 30.1 million compared to December 2022 and EUR 19.3 million compared to June. Such a continued positive improvement is driven by a strong operating cash generation over the 9 months, which more than compensated 2022 dividends for EUR 40.7 million. The share buyback program for EUR 3.8 million as well as CapEx of EUR 68.2 million now including EUR 17.6 million of acquired cash. In particular, the gross CapEx of EUR 68.2 million includes EUR 54.1 million for STS, mainly dedicated to the expansion of our technology portfolio and EUR 14.1 million for E&C, mainly related to projects on digital innovation. Let's now look at the working capital dynamics. The adjusted net trade working capital improved by EUR 60.7 million from negative EUR 113.8 million at year-end 2022 to negative EUR 174.5 million at the end of September. This positive change is mainly driven by an efficient working capital management and a steady project progress, partly offset by the cash reversal of advance payments for clients hedged in last year. We had a liquidity position of around EUR 707 million at the end of September 2023, slightly higher than our gross financial debt. Due to the nature of our business and our geographical spread and the geographical spread of our operations, cash is held in various currencies in restrictions. Our healthy liquidity position comfortably allows us to support project execution and service the debt. Our debt structure is indeed well balanced in terms of composition and maturities. Medium long-term facilities amounted to a total of EUR 670 million at the end of September, including around EUR 505 million of bank loans and the EUR 165 million, bond, due in April 2024. The financial structure has been further strengthened. Thanks to the issuance in early October of a EUR 200 million sustainability linked bond with a 5-year maturity. The notes were successfully placed the European institutional investors and the Italian retail investors during the public offering, which was early terminated on the third day and listed on Boretaliana's Mercato Telematico Obligation and on the Luxembourg Stock Exchange. The interest rate on the notes is 6.5% fixed and provides for a 0.5% maximum step-up in case of failure to achieve the CO2 reduction targets envisaged by our sustainability-linked financing trade. The proceeds of this issue will be mainly used to early redeem the notes due next April as resolved today by our Board of Directors. The issuance of this bond is part of our financial planning and liability management strategy, which will encompass additional transactions in the coming months, aimed at supporting the group's growth with the flexibility required by the nature of our business. Our healthy financial position allows us to be flexible on timing and selective in terms of structure and conditions of any new transactions. With the sustainability-linked financing framework, we integrated our reduction targets in our financial management. Specifically, by 2025, we've committed to reduce by 35%, our direct and indirect CO2 emissions, they so-called Scope 1 and Scope 2 emissions compared to the 2018 baseline. And also to reduce the CO2 emissions of our suppliers by 9%, in particular, through the so-called scope pre-initial intensity relating to purchase goods and services with technological content measured a stance of CO2 in relation to added value compared to the 2022 baseline. To reach these objectives, we have a concrete action plan, focused on the improvement of energy efficiency and the reduction of cost fuel consumption as well as on the engagement of our suppliers. These targets in line with the net zero decarbonization plan, contribute to the achievement of the United Nation's Sustainable Development Costs, SDG7 and SDG9. I now hand over to Alessandro for his closing remarks. Alessandro?

Thank you, Fabio. So in conclusion, our 9 months results demonstrate strong momentum in both technology and execution, providing a solid platform to deliver double-digit growth in 2023. We revised upward our 2023 adjusted net cash guidance while confirming the previous guidance on the other KPIs. In particular, current backlog supports revenues in the top end of the range. Profitability is expected to benefit from an increased contribution of innovative technology solutions and higher value activities as well as from the start of projects with higher margins. Capital expenditures will be focused on the expansion of technology portfolio and digital innovation to foster future growth. Net cash position is expected to substantially improve compared to the end of September 2023. Thanks also to the recent awards. At the same time, supported by our robust commercial pipeline, we will keep pursuing new opportunities, focusing on increasingly rewarding condition. This, coupled with our record high backlog will shape our future growth, leading to a size, which has never been reached before. It is simply the down of new area. For this reason, we are working to upgrade our 10-year strategic plan, which will be presented in early 2024 during our Capital Markets Day and more details will be provided in due course. This concludes our presentation. We stand ready to answer to any questions you may have. So operator, Please go ahead.

[Operator Instructions] Our first question comes from Roberto Ranieri of Stifel.

I have 2 questions. The first one is on Hail and Ghasha project. I'm wondering if there is understate could be very small contribution. But I'm wondering if there would be some contribution on the 2023 financially, especially in the fourth quarter. Are thinking about engineering IT for instance, that's my first question. My second question is still on Hail and Ghasha project. And it is related to the down payment. I'm wondering if there would be a down payment. What is the -- could be the impact on the cash? And if there would be any offsets from your down payment to suppliers or not? Thank you very much.

Thank you, Roberto, very interesting questions. And, of course, because when talking about Hail and Ghasha, you can imagine that all of us are excited about this project, but -- of course, it is extremely important for our group. But it has simply in brackets of course, accelerated that the growth that was expected and forecasted in our 10-years plan, has simply accelerated the timing of the growth. So for sure, most of the benefits associated to this project in terms of volumes and earning contribution will be delivered from 2024 onward because in 2023, of course, there will be a very limited contribution because for sure, we have already organized the engineering workforce, which progressively will be increased months-by-months. So in 2023, from an economical, standpoint, the contribution from this project will be quite limited. Whilst moving forward for sure it will be more significant. In particular, if I have to provide you with some color about the potential runoff, all the execution of this project. Let me say that in 2024, we expect to continue with the engineering, detailed engineering activities. Whilst for sure, we will be already in a position to start with the procurement campaign since this project also benefit from the early engineering activities already executed in the first half of 2023. So in 2024, more or less 10% of the project will be deployed. Moving forward in '25, we expect, of course, a significant growth. Thanks to the combined activities of the engineering, the procurement of the materials requested by the project. And then, since at the end of 2025, we'll start also the mobilization of the construction activities. The peak of the activities will be are expected in '26 and '27. For sure, '26, we expect more or less to generate something close to 40% of their total expected activities. Then; moving forward, the '27 conclusion of the construction activities, and in '28, the commissioning; which normally doesn't represent more than 3% to 5%. So, just to say that in 2023, I repeat no major contribution from an economical, standpoint. Then, as far as far as the contribution from a pure financial standpoint, as we have already confirmed during our presentation. The project is we have negotiated with the client. And the client has accepted to recognize financial condition, which makes possible to secure a positive cash flow along the life of the project. So there is an advance payment. But as you have correctly anticipated as soon as the procurement campaign will start. And we will be in a position to place the orders to the supply-chain of course; we will be requested to recognize some advances to the most critical suppliers. So for sure, we are expecting a significant improvement in our net financial position within the end of the year. But with the size that considering that also the volume, the size of our group will grow accordingly isn't just - excuse me, is not just a spike. But it would be -- it will reach an amount which must be considered structural moving forward. So we expect to face a net financial position within the end of the year -- by the end of the year 2023, which should range around EUR 200 million, EUR 250 million. And we expect to maintain and even to improve this size according to the growth expected in the future. So I don't know if I have answered all of your questions, Roberto?

Yes, I would say so. Yes. And just one clarification. When you were talking about the 40% project progress in 2026, so you mean that cumulated 40% of activities will be completed by year-end 2026, is that right? So 40% up to year-end the 2026 and the remaining 60% of the activities will be completed in 2027-2028. Is that my -- is that this understanding is my understanding, correct?

Roberto, just to be clear, in order to avoid misunderstanding, the project must be completed in 50 months' time. So it is, of course, unreasonable to have achieved just 40% cumulative by the end of 2026. So -- of course, conversely, it is correct. The sentence when you said that 40% will be performed only in 2026. And when we expect to have at the site an organization close to 30,000 people working on this project, so 40% roughly, of course, represent the progress that we expect to perform just in 2026. Moving forward, 2027, as I was saying, we'll continue the construction activities. And within the end of the year, we will be already in a position to start with the pre-commissioning and the commission that will be completed on the latest year, which is 2028.

Our next question comes from Massimo Bonisoli from Equita.

Congratulations for the results. I have a couple of questions. One is regarding your capacity of execution following the huge order intake in 2023. You were talking about the new potential projects coming from your pipeline. So just to understand in the short run, if there are, any kind of limit to your execution capacity and so the project may be needed to be executed more in 2026 or 2027, considering the huge backlog you have right now. And the second question regards on financial cost for Fabio in Q4 '23, what would be the expected financial cost in that period? And especially the yield of the liquidity position of EUR 707 million, what would be the potential income coming from the -- that kind of liquidity.