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

Hello. Good afternoon. This is Eduardo San Miguel. Welcome to this first quarter 2021 results presentation. It will be conducted as always by Juan Arburua, our Chairman. It will take something like 20 minutes, and you can post your questions after the speech. Now I give the floor to Mr. Juan Llado.

Hi. Hello, everyone. We start with the big picture, and this big picture because the one I'll show you afterwards is not very good. This has happened to be the Al Zour Refinery with the largest refinery ever built from start, their largest ones. This is the one where we are in the process of finalizing commissioning of the main process units. So I was just -- I wasn't going to say that in my presentation, but I was looking at the picture, and I thought that it was relevant. Okay. This presentation, it is going to be different. It's organized in 2 parts. The first part that we call challenging environment. Actually, this section is going to very much focus in this environment -- challenging environment, what our first quarter results and what has been the impact, the good and bad in this first 3 months and how management has reacted to COVID. The second one is more positive. The second section has more positives which has to do with awards that had already taken place and very strong signs of a positive market -- the market recovery. Okay. Let's move to the first part of the presentation. And when I sit here delivering projects, I have a slide here with 3 main projects. And this is just an example, 3 main projects that through this year because -- let's talk, I mean over -- what has happened over this full year as last May was the first time that I've made a presentation to you under a COVID environment. And today, 12 months later, May again, I'm making a presentation also on the COVID environment but with a tremendous effort on execution, delivery and different -- and definitely a very different market. Over this year, we have delivered and fully delivered. This is Fadhili, the largest -- at least one of the largest gas processing plants in Saudi Arabia. It has not been easy. It's contract value was close to $30 million. It has not been easy. I mean, have we suffered COVID? Yes. Have we suffered problems? Of course. But together with the customer, we have been extremely successful. And today, we have a plan that is -- it's up and working. So this is a successful story. This is a successful story [ kia ] with a successful and a customer which is Saudi Aramco. And now we move Al Zour, which is a big picture that I show you before. It's the picture of the largest refinery built at once, 600,000 barrels. The Al Zour is the contract -- the full contract is slightly above $4 billion for TR, that is delivered at 50%, meets and manages the project. Over this year, it is truly has not been an easy year, neither for a customer nor for us in Kuwait, but we have successfully finished, reserved and now we're commissioning this huge refinery. And within this year, we have received the Gold Award of Health and Safety and Environmental, right, which is very important in Kuwait, and it's very important in this huge jump. Again, a success story, delivery of large strategic jobs. And now I'd like to move to Ras Tanura. Ras Tanura is not finished. We'd like to finish. It was planned to be finished, but it's not finished. Obviously, we have been impacted by COVID. Ras Tanura is one of the most emblematic refineries in Saudi Arabia. We're doing both, revamping, working with insider refinery and new units. And successfully, I have to say successfully because it's probably where we had more problems and issues and difficulties and inspections within this horrendous pandemic. That's with a good customer, with good contractors, with very good subcontractors, we are very close today to deliver the job, which probably will be delivered within weeks. And with -- this would allow a customer, again Saudi Aramco, to start up and produce clean fuels under the most stringent specifications and sell it to the market. So we have more examples of that. We have been successful in Malaysia, extremely successful in Peru where pandemic has been awful. And still, we're still having problems that we're managing with that customer and subcontractors. So it's been a year of delivery, and it has been a year of a very strong and active management activity within our site in a constant dialogue with our customers. And obviously, we didn't have the same level of success with our clients, our customers and the Teesside in the U.K. very much against our expectation. As I talked to you last February, when I presented end of the year accounts, the customer has formally terminated the contract this month of May. And I'd like to stress here my high level of frustration because, as I illustrated in my previous slide, it is in our DNA to make anything and everything within our reach to deliver projects to our customers' satisfaction. And very often, exceeding in our performance tests their expectations. And always, we worked and solved our issues in a very constant and open dialogue. Here, it obviously has not been the case. I'm extremely unhappy and frustrated about this outcome that we have not been able to reach an agreement, an agreement that I really think we have been working very hard to reach. And I'm happy and frustrated after tedious efforts to work and execute the project under the most difficult environment, under the Brexit and COVID. Obviously, I'm unhappy and frustrated after having incurring costs and losses and reaching agreements with subcontractors and suppliers and not reaching an agreement with our customers. I'm unhappy and frustrated after efforts to reach 99 completion and celebrating last month the first firing with fuel. It is true last month, I had to congratulate my team. I always do. I came on site. First firing is an extremely important milestone. And as I said, it is in our DNA to complete and deliver, and it will continue to be that way. You all know that is not correct, and it's not my style to comment on client decisions, and I will avoid answering questions about it. We had a good understanding over the last 3 years with this customer, and we may have it in the near future. But today, this is an event that will have to be settled through the ICC arbitration procedures. Meanwhile, we have taken the hit of EUR 103 million with the intention of not having to come back with you with further bad news. And with this hit and this announcement that probably most of you have read this morning, let's do an analysis of how is our first quarter result. On this first quarter result, after $103 million hit, we have a real EBIT -- negative EBIT of EUR 50 million. We adjusted to this hit to EUR 103 million, COVID U.K., let's call it. And then we deduct $12 million of other COVID impact, which those $12 million reflect customer recoveries has taken place in this first quarter, and they were booked as cost on the 2020 accounts. And if we add up our restructuring costs, which are not that much, only $2 million, we ended up here with an adjusted EBIT of EUR 43 million, which I think it shows, obviously here, the bad news at the very beginning, it's a contract that has been terminated. The deposit appears that the underlying of the business is healthy, strong and visible. And it's healthy and strong because we have a strong backlog, we have strong customers, and we have done our homework. We have done our homework, which we are accounting for this year, for $8 million, in corporate restructuring. Full year activity, that would be $11 million. We're counting this year for $6 million in rentals reduction. In a full activity year, we still paying some of those rents as we're moving in to smaller space would be $9 million. And we are already accounting this year $26 million in what we call project execution efficiencies. In the full year activity, we would be 2.22 per share. That would be very close, if not more, if we grow, and we're ready to grow $50 million. So we've done through this year, not this year our homework. We have delivered, and we have included in our activity a great deal of efficiency. So today, our adjusted P&L, our adjusted EBIT is a strong adjusted EBIT. It's a real EBIT, and it shows the strength of the business, a business that is growing. Our cash position is lower, and it was expected to be lower unless we had, had awards. The evolution of -- and -- of the cash position very much has to do as we are finalizing and delivering projects. When you deliver projects, cash is never too positive. The last payment is the last pain. You don't get the last payment until you finish -- with finishing. Obviously, when other reprogrammed projects come into force, second half of 2022 and the big awards that took place in a year ago, in 2019, cash will come back again, but we are suffering the reprogram. Reprogrammed projects, probably by definition, they're not cash rich. They have been reprogrammed by our customers not to be cash rich, and they're not. And obviously, we have suffered more than 12 months, almost 18 months in parentheses with practically no awards. With new awards already come in, then cash will be recovered. So with no new awards, no down payments, we are suffering of a lower level of cash, which is what we're showing in this first quarter. So we do again a summary of our accounts. We had a sales figure, which is a low sales figure of EUR 763 million and is low because our jobs have been reprogrammed, and we have suffered 12 months. It's no longer a parentheses of COVID with no awards. We have a negative EBIT of $50 million, which adjusted -- as I explained before, adjusted to our key site, and COVID moves up to -- and I have to like to say solid EUR 43 million and a net cash -- positive cash of EUR 63 million. And here in blue what you think is 2 important news. We have year-to-date an order intake of EUR 1.9 billion. And year-to-date, we have a backlog of EUR 10.2 billion. So this is very much a picture of accounting-wise where we are. And with that, talking about order intake and backlog, we can move to the second section of the presentation, the major investment wave. What are the awards have naturalized? And what is happening to be already within TR in the energy transition? Obviously, everyone in the sector, and you've probably read more analysis that I did. It's positive about the macro dynamics. I mean, here there are 2 examples, Saudi Aramco and Repsol, 2 major oil integrated companies, and 2 energy service companies, Technip and Schlumberger. They are all positive. They are positive because they're investing. They're positive because they sanctioned new investments. And they're positive because they are benefiting from new awards. So we are positive as well as I can show you on the following slides. I am positive because, a year ago, it's true that I had a pipeline, but I had pipeline which was there, but I have no idea for when. Today, I have a pipeline that is with a sense of acceleration taking place. And it's a pipeline which we happen to be extremely well positioned. And this pipeline, we'll talk with it afterwards, it makes me to be very confident and not very as -- that this year we'll book awards above EUR 4 billion. It shouldn't be very challenging. You do remember that 2 months ago, it was EUR 3.5 billion. I don't want to be overoptimistic, but $4 billion shouldn't be very challenging. And it shouldn't be very challenging because of these $50 billion, there's $7.5 billion that have already been tendered, and we happen to be the top-ranked bidder. It doesn't mean we're going to get them all, but it means we'll be in the final session. If I talk about awards, and I said that we had an order intake EUR 1.9 billion and review with you who are those EUR 1.9 billion. Obviously, at the very beginning of the year, we closed a contract of PTA in Turkey for SASA Polyester. This is a contract which is a cost plus. We do -- everything comes through our books with a scheme of fees. And it's a contract that is doing very well. We've already placed many orders. Engineering is moving fast. We find this way of the customer to doing the -- sometimes doing expansion and improvements, sometimes doing value engineering. But let me tell you, it is a good contract. It is a good contract. It is a good contract for the customer, and it's a good contract with TR. There recently, we have been selected by a customer in Europe for a very large olefins plant. We have been selected, and we have won, and we do expect to sign the contract within the next weeks. Obviously, until we sign the contract, we cannot disclose the name of the customer. But I thought it was important in this presentation to announce that we do have the contract. It shows that the market is in investment mood, and it shows that TR franchise has great value to our customers. And very recently as well, we signed a contract that our customer allow us to announce very recently. We signed the contract a few weeks ago, Global Industry Dynamics award to us under an open book scheme, a biofuel plant. It is going to be enough, and it might be the first of many if we do well. And this is an investment of $200 million. And it's -- although the amount, the $50 million in engineering shows to be less important, it is not. It really shows that, in Indonesia, we have been selected to extremely large investments that we have announced. It means that in Tuban, Indonesia, as well, we have been selected long ago, a year ago, to do the basic design of a very huge investment, more than EUR 10 billion. We do -- we did the basic design. And very recently, as we have announced, we moved to the second phase, the front-end design, which shows that we have to and we are ready to move up our engineering, most of them process engineers, from 100 to peaks of 700. That shows that investments are taking place, and customer has already award of the technology and basically designs to our manned technology providers. It's good news. I could not have said that a year ago, although we were starting the basic design. And there are many other, which in terms of dollar amount, have been a very important project that shows that the market has changed. And the market has changed, and we're not going to say for good, but definitely for the next few years. And here in this slide, which is a slide that I've never -- I have to -- I'm not going to spend much time on it. But as I said before that we have EUR 7.5 billion of immediate awards. I'm not going to say they're all going to be awarded to us. But what I'm going to say here, that you see on the left side in green, what has already been awarded and in here, this is the pace of the awards. All those jobs from the delayed coker unit in Europe to a power plant in Latin America to a big $1 billion natural gas in the Middle East, awards are going to be sanctioned in a few months, first half of the year. I believe there are investments that have already been sanctioned. We've already bid and we're already frontrunners. What I mean frontrunners is that there are 1 or 2 as final runners that would take the awards in the second half of the year, and we are very well positioned. So this visibility that I'm showing to you today, it would have been impossible to do a year ago, and this is the big change. And this sense of immediacy that we polled in the market with our customer, that's why we signed SASA. That's why we have just started an open book with our customer, and that's why we're going to be signing a contract in Europe. The sense of immediacy if what makes the near future and makes me feel extremely positive. Visibility and immediacy probably are the 2 words that we have to keep in this slide. And finally, energy transition. Many -- probably some of you or probably all of you don't remember what I said a year ago. But I remember all of us were saying that obviously with the year of energy transition, we had seminars, and some analysts and ourselves were saying that if that was going to happen, is it that with a reality, companies like us, like TR, we had the resources to be part of it. And today, I don't want to get into the details of the different engineering agreement that we have signed and what it means to have a EUR 3 billion pipeline in energy transition. Today, the big change is that we are already part of the transition. A year ago, we had the resources, and today, we're part of that transition. And we've brought in the 3 main technologies: hydrogen, carbon capture and bio energy. On the fuel then we've been called, we've been awarded studies, we've been awarded projects as you have seen in Europe. And I do believe that in the very near future, an important part of our backlog will have to do with these 3 technologies. And having said that, let me finish with what can, let me call, guidance. Obviously, I cannot -- it's -- being mid-May, our sales figures cannot be much larger than EUR 3.5 billion. We have to wait for the restructuring and backlog to come into force in second half of 2022, and we have to wait for awards also to come into force. The adjusted margin would kind of be extremely positive this year. Still a lot of uncertainties that happened, but it's going to be around 3%. And as I said before, we do feel very comfortable replacing ourselves [ in mersa ]. We do feel very comfortable of having awards above EUR 4 billion. And this is it. I think with this last slide, I finished my presentation. And I'm here more than happy to answer any questions that you may pose.

[Operator Instructions] The first question comes from Francisco Ruiz from Exane.

I have 3 questions, if I may. The first one is in your guidance for the margin. Having 5.7 percentage in EBIT margin this quarter, why are you so conservative for the full year? Or is this something...

Francisco?

Yes.

Yes. We have a problem. We don't -- we hear you -- you have to speak louder because we barely hear you.

Okay. Is it better now?

Okay. Now we hear you well.

Okay. So well, my first question is on the EBIT margin guidance. So having a 5.7% this quarter, why are you so conservative for the full year and if there is some one-off in this quarter that won't allow you to be more conservative? So more optimistic. The second one is on Teesside. It's just to confirm, you have some already the whole impact in this Q1? And if you could give us a guidance of how much do you expect to recover and if there is any idea of the cash impact of this situation? And the last question is on the short-term order intake that you have commented, I mean, the one in the next 2 months. How likely you see there, and what's your current position?

Okay. Francisco, I don't know whether you hear me. Do you hear me?

Yes.

Okay. Thanks for the question, Francisco. Let me start with the Teesside. Unfortunately, I cannot make any comments. We are starting out refresh, and it's not correct and prudent to start making comments on whether we recover or not. Obviously, we starting refresh because we do believe we can recover. But I cannot do any further analysis on that. On the margin, yes, I can. Obviously, it's true that this first quarter, our margin is strong. It's 5.7%. But I don't want to be optimistic on the year-end and our adjusted margin above 3%. This first quarter, I don't -- it doesn't reflect 100%. It reflects the strength of our backlog of our project. But obviously, in the first -- in this first 3 months, we have been able to get some efficiencies and in some very large projects that would be -- will kind of -- will not be repeated over the next 3 quarters. So I'm not going to say it's overstated, but that's what I can't reflect. You've managed the jobs well, and some of the jobs with the up and downs of COVID, recovering and not recovering. There have been some very good efficiencies that has been applied this quarter, and it shows very strong margins, but it doesn't allow me to predict that margin over the next 3 quarters coming forward. So I think our guidance has to stay with that 3%. On the short-term order intake, I have to say, we already had order intake. We have to sign the contract, but we've been awarded. So we have order intake of EUR 1.9 billion. And the first ones that I show you on the slide, which is on this next quarter, I mean, before next month or next 2 months, I have to say that I'm optimistic. I mean, you have to discount that I'm always been optimistic. You have to take a discount factor there. I'm optimistic. We're known to the customers. We have -- we are -- I think, customers like us. We've done good offers. Customers knows how we do those jobs. It is a hardcore business. It's a business that we know how to do very well and allows me to be very optimistic. I mean, at the end of the day, we have to win. And I don't know whether there are more questions, but I think I've not fully answered your 3 questions, but I've answered your 3 questions.

The only follow-up is on Teesside, if the EUR 103 million that we have seen this quarter is going to be the full amount of the impact that you expect? So no further amounts in Q2 results?

We have booked this first quarter, although the estimation has been now recently what we consider to be the full amount. That's why I said that we have taken $103 million because there is no intention to come back to the market with further losses.

The next question comes from Mick Pickup from Barclays.

It's Mick here. A couple of questions, if I may. So one -- thank you for that chart of the expected or potential awards coming forward. I don't think I've ever seen something like that before. What strikes me is that there is a significant amount of that potential work in Europe. And given what's going on the Teesside, what went on in Finland, what went on in Belgium, can you just talk about what changes you have made to bidding on those European projects to derisk them? And secondly, then, can we talk about the transition pipeline? You talk about EUR 3 billion, which is great to see. A lot of it seems to be early phase, so prefeed engineering services. So what's the conversion time of that EUR 3 billion pipeline? Is it the normal type of conversion? Or is this going to take a bit longer before it becomes tangible projects?

Yes. The first one is -- obviously, it's true that you see awards in Europe, sort of very much in line with your note. Those awards are with industrial customers that they're going to keep the assets. So it's -- and when I say Europe as well, I'm talking the broader Europe.

The [ easy ] definition.

It includes Europe and Europe includes evolving Russia. And not the U.K. Yes. Well, the second question has to do with the transition. Most of them, I mean the big value of them is very much related to biofuels. I think in biofuels, we are very much -- very well positioned. And we do expect awards in end of '21 to '22. It doesn't mean we're going to win the EUR 3 billion. But I mean, having a pipeline and being invited and being consulted and do the studies for investments that amount to EUR 3 billion is a big change for what it was -- from where we were a year ago. So a percentage of that -- this is a new business, and it's difficult for me to pose when is it going to be converted. Sometimes they're still working for subsidies. Sometimes we're working for financing. And some of them, we might win a little money doing studies and front-end designs, and it may be converted into 26, so I have no idea. But I think the market is moving forward, and we will be seeing some awards, in spite of those $3 billion, would be converted, and hopefully we would be winning some within the next 18 months.

Okay. And can I just ask on that? Clearly, on these transition projects, given that you are involved a lot earlier, we've always heard that the earlier you're involved in the project, the more deliverable that project is, and ultimately your chance of recording a margin that's acceptable becomes higher. Is that the case of these transition projects that you are part of the design process, and therefore, it should be easier to deliver if it gets that far?

I mean, in all the transition projects, at least -- and I'll say, 100% of them, we're starting from the very beginning. We're starting with the study from there a basic design. And from there, an analysis of the investment. And from there, a front-end design. If this is -- I don't think that the market is mature enough as their new technologies for us to work as the normal oil and gas traditional business used to be. All those projects, they need the assistance and help to be structured, not -- I'm not going to say financially, but definitely technically. And this is the way we can step in.

The next question comes from Nikhil Gupta from Citigroup.

I have 2 questions, please. The first one is given the rise that we have seen in steel prices and the inflation, so just wanted to know how do you plan to manage them? And does it present a headwinds for margins? And my second question is, in the provisions, the numbers has increased from EUR 37 million to EUR 128 million. So does that all relate to Teesside? Or any -- is there anything else over there?

Nikhil, can you repeat the questions? Because we don't have a good line with you. I don't know. Can you repeat them as well because we really here can't hear you.

Sure. Sure. So my 2 questions are the first one. Given the rise in steel prices that we have seen, does that present any headwinds to the margin going into 2022? And second question is about the provisions. It has risen from EUR 37 million to EUR 128 million. So does that relate to Teesside? Or is there anything else in there? Did you get me?

Yes. Yes, we are. On the commodity prices.

Okay, I mean obviously, we have seen commodity prices, steel prices moving forward. I think this reflects in the futures market that the investments are going to take place. It is true that we have to be careful that we're being very careful placing the bid. But it's also very -- it is also true that the shops, our suppliers today that incredible excess capacity, and the prices have not -- here have not been translating to the manufacturers and equipment suppliers. But obviously, we have to be careful. But I don't see it today as -- I look at it in a positive way. I look at it as a headwind. But I not only look it as a headwind, I look at it as a positive way. That means that the market is really recovering. But it is true that these prices -- steel prices, they're not still been affecting the shops and the suppliers. And the second one, the provision figure. To be honest...

I can provide you the answer. This provision is devoted to cover multiple assets. I mean it's not just the U.K. or any other relevant things. I mean in it's composed by us no less of 10 to 12 different provisions. So what you see there is the net effect, the movement of all those provisions within the quarter. And the main variation, honestly, has to do with EUR 103 million of the U.K.

Next question comes from Alejandro Vigil from Bestinver Securities.

Just a couple of questions on the performance in this first quarter.

Alejandro?

Yes.

Alejandro, it's very difficult. We have a bad line. It's very difficult to hear you.

Okay. So I'll try. It's better now?

Now it's perfect. Now it's perfect.

Okay. Perfect. Perfect. Okay. Sorry for the line. We are always with these headsets and things like that. Well, half -- the first question is about your balance sheet and the cash position. Is this situation a challenge in terms of the bidding process and the new awards? I mean, your clients are giving you some feedback about the current position if it's solid enough in this process? That would be the first question. And the second is about the energy transition. Do you see a company, I don't know, with a level of 20%, 30% of revenues from energy transition in the medium term? Or do you have some potential weighting of this activity in the future in your company?

Alejandro, your first question. I mean for the time being, we were talking to all the customers. We present in bids and have a lower net cash position, is still a net cash position and has not been affecting our prequalifications in bidding and the quality of the franchise at all. Nevertheless, obviously, we're working hard to improve it. The second one has to do with the energy transition. And you're asking me if potential weighting of energy transition? Very difficult, Alejandro. I mean, as I said before, a year ago, we had 0, probably, and no requests. All we were saying that we were type of companies that can put together 100 process engineers and develop together with an investor a big hydrogen as green as possible, provide supply of energy plant. And there are not that many companies can do that. And has they know how to do it. And today, we're doing it. So -- but it's still -- we're doing it, and we start seeing the basic design. I mean, we've not -- so we -- it's early for me to post whether it's going to be what part of the energy, what part of the revenue in the medium term is going to be that? I do expect it's going to be faster than expected. I do believe it is going to be -- I do believe it's a reality, and it is going to happen. We're going to the idea there is the money, the public funds and the government commitment to make it happen. And we have the investors, and they know how to make it happen as well. So it is going to happen. So it is very difficult for me to post how much. All I can tell you, we're very much focused. We're extremely focused with our customers and potential investors. And I think we can create value, and we are already creating value to some of those potential investors. But it's very difficult to say what percentage of it is.

Your next question comes from Kevin Roger from Kepler Cheuvreux.

I have a kind of follow-up on the one from Mick and on the energy transition. If I understood you say that you -- on almost 100% of those projects, you were engaged since the very beginning with assistance, et cetera. So I was wondering, should we understand that basically the competition may be limited on those projects? And that maybe you are almost alone working on the feed, et cetera? Or the competition environment is different? So that's the first question. The second one is related to the margin. Sorry, to come back on that. But I was also, why are you so conservative to come back on the first question because I understand that you remain present. But if we look at your guidance for revenues, basically, you should have a nice uptick in terms of revenue in Q2, Q3, Q4. And so I guess that the coverage of your fixed costs would be easier or so, so that the margins should not significantly decline if you did not benefit from any exceptional event in Q1? That will be my 2 questions, please.

Okay. The first question, Kevin, if there are limited competition. I mean it will be beautiful to have that world without competition, and it will be very good to have a world and a business with limited competition. For the time being, it's very difficult, again, to post where the competition is going to be. It is true that in all the projects that we're working on and we have listed, we're there from the very beginning. So if we're there from the very beginning, we have to build and that turn into real investments. Some of them will, some others will not. But in the jobs that we start from the very beginning, we have to build the trust on the customer that we are competitive, and we will be competitive because if we are not competitive working with them from the very beginning that is going to be -- we'll have always the same level of competition that we always have. So look, competition is going to be there. Our competitors in the traditional energy market, there are other competitors as well today in the energy transition. It is true that when we start the job from the very beginning and you start with a player from Day 0, the probability of winning the job and learning through the very beginning through that job allows us to perform better with the customer and to improve margins. That has been the case in traditional energy business and probably will be very much the case, probably more as we talk and sometimes in new projects and new technologies in the energy transition. But we have to think, and we have to plan the business with the same level of competition that we always had. The second one is if we've been prudent? I don't think we've been prudent. I'm talking percentage-wise. It is true that our revenue will increase, and we're maintaining 3% adjusted margins. We're still going to be facing uncertainties. I mean, let's not all be positive uncertainties. I mean one of the uncertainties have to do with India. Some of the jobs that we're working today in good dialogue with our customers, we have to stop one part of the construction and continue with the others because some of the construction companies in the Middle East, they happen to be from India. So -- and nobody would have expected a month ago than what is happening today in India. So a lot of uncertainties. We have to be ready for certainties. It is also true that, over the last 12 months, we've learned how to manage those in a better way with our customers and with our teams. But we've not been stingy with the margins. I think I'm being realistic, and 3% is a realistic adjusted margin.

Your next question comes from James Thompson from JPMorgan.

Thank you very much for taking my questions. I've got a couple of them, right, Juan. So first one sort of carries on from the last answer there. I was just interested to understand whether you are seeing a sort of material reduction now in the impacts on-site from COVID and whether your customers are -- if not, whether your customers are still tolerating some of the sort of scheduled delays from the pandemic? So just be interested to see how that is evolving. And the second question, really, obviously, good to see the pipeline laid out there. In terms of the stuff you've won year-to-date, it's either open book or reimbursable, is that a sort of similar trend that we're seeing in the pipeline going forward? And could you perhaps kind of characterize sort of T's and C's, as it were, is there kind of good cash advances in these projects? And how should we think about your cash balance evolving into the second half of the year?

I mean, they are -- on COVID issues, obviously, customers -- I mean, we have been upping dialogue with customers. And in most of the cases, a very large percentage of the cases, they're tolerating delays. In many of the cases, the industrial customers, and they have to accelerate it because those delays is to follow the law. That has been the case, in many of the countries we work in, we have to stop or partially stop or put measures having to do with distances -- social distances in the buses, social distances in the -- on the welders itself, and it's the law. It is not only our health and safety measures, which they are. So we have to comply the law and customers have to, you know, work together with us, and that's what we're doing to find ways to be efficient and find ways to increase productivity and find ways to reduce the impact. But it is true that there is an impact. It is true that customers, nobody is happy to tolerate the impact. But in 90% of the cases and probably 100% of the industrial customers, they look for ways to improve their job and look for efficiencies, managing health, safety, and therefore, COVID in the most safety way. And it is -- obviously, there's an impact. There is a delay. And we work for them how to minimize that. And obviously, in many of the cases, there is an impact in money, and there is an impact, obviously, in schedule. And as we move down that impact sometimes, it's also involving the subcontractors. But they don't like it. We don't like it. But I think we're managing it rather successfully.

Okay. Okay. And in terms of the pipeline?

And the second question -- maybe you can repeat it again because we...

I'm just trying to understand basically T's and C's in the project pipeline, cash advances, are they pretty good? Just thinking about the -- in fact, you think about the margins that you're bidding on. I mean obviously, some of this is competitive. But just to sort of generalize, give us a feel for it, just because I noted that the first couple of awards of the year, you got reimbursable and open-book type awards. So just trying to understand that pipeline and how it would kind of potentially help that cash position recover through the rest of the year?

Okay. The first -- we're not bidding -- all the jobs we're bidding today are in the market as well. We're bidding all the jobs with a net positive cash balance. Obviously, it makes very little sense in this market, and obviously, in this positive market that we -- in the new jobs -- we've got bids in the market with a negative net cash position. It is true that we do expect that the market coming forward and it's a market with a different level of margins, it is a positive market. Whenever it's a positive market, margins are better. I mean, if -- that's the way it goes. And you were wondering that the first jobs that we have been awarded, it was on a cost-plus basis. And if -- it is a mix. It is not because we wanted to derisk as it is in Turkey that we've always been very successful. It is a way that we put together with the customer to launch a project in the most fast and efficient way. And if the project -- if the investor wants to have a job fast and efficient, it had to be cost-plus. He couldn't wait to develop a detailed bid and to get into another competition. In this -- the essence in this job was the schedule. And that's why we put together a scheme by which we will work in a cost-plus basis with fees in an extremely transparent way. And for the last 5 months, he's been working beautifully. And you have seen -- okay.

Just one final -- different one from me, actually. I mean, I know I can appreciate, and I can hear your sort of frustration in terms of Teesside, and I appreciate if you don't say too much about it. But obviously, it's a real surprise that a contract can be canceled when it's 99% complete. And I'm sort of struggling to get my head around that. I could maybe understand a customer not wanting to go forward with the project in the early -- very early stages if market conditions change or whatnot. But so late in the day and then you say kind of first fire already happened. I'm sort of struggling to get my head around that, that it was even possible. And so maybe you could sort of just help me to understand how that come to pass and whether that risk exists on other jobs?

Yes. Obviously, as positive as you are, I am. It probably has nothing to do with that never happened. I mean, it's a different type of customer. We're working for a project finance customer. We're working for a vehicle, and it is probably to its interest to terminate at this time. We are -- as I said before, in our business, in the traditional business, when you're working for industrial customer -- and it happened to us very recently in the Middle East. First firing is a very important event. I have the pictures that 3 weeks ago, we also did the first fire in together with the GE in a power plant in the Middle East. And customer, GE and ourselves were celebrating. I mean, first firing at the end shows the plant is reliable. I mean, first fire shows that all the systems around the plant has been operated. First firing means then the main boiler works. And first firing means that the main and most important relevant bunch of items that have been fixed, otherwise, you couldn't do it because you would be putting the operation at risk. So -- and that's it. Obviously, I cannot get in more details in our parcel, and we'll see how it goes.

The last question comes from Alvaro Lenze from Alantra Equities.

Going back to Teesside, I wanted to know what the EUR 103 million provision includes? I don't know whether this is just a provision for the legal costs or for potential legal claims? Or whether this includes also the recognition of maybe write-down or of accounts receivable that you had with the client? Or whether there are still any outstanding balances with the client in the account receivable in the balance sheet? And also, looking at the pipeline, my second question would be, from today to year-end, you have EUR 7.5 billion in potential awards in which you have been in the -- you're in the best-placed? And the guidance for above EUR 4 billion would imply getting about EUR 2 billion out of this EUR 7.5 billion, which seems like a low percentage of just 30% for the projects in which you are especially well-placed. I don't know whether this is due to you being conservative on your success rate? Or whether do you think that many or some of these projects can be delayed? And also, my third question would be maybe looking into 2022 and the pipeline, the way I see this is that the pipeline has been increasing over the last few years because no projects were canceled, but they were just being postponed and postponed. And if most of the pipeline is now concentrating in 2020 -- sorry, in 2021 as per the Slide #18, it seems like the pipeline for 2022 is a bit small. So I don't know what can you expect for -- what do you expect for order intake for 2022 and going forward?

Okay. Thanks for your question, Alvaro. The first question, unfortunately, I cannot answer. I'm not going to make a breakdown of the $103 million. You have to understand that that's part of the [ ALBI trust ] in our material. Second question, if I'm being conservative when I show to you that we have $7.5 billion, I'm not going to say we're first. I'm saying we are frontrunners. So we still have in some of the cases competition. So it could very well happen since some of those we lose and some other gets postponed to first quarter next year. But I'll show you when they're going to be awarded. It could be some delays. But it is true that -- as what I've said, that reaching 4 billion-plus is not very challenging. But I'm not going to change that number. But it's not very challenging. So you can keep it that way. And if you said of the 2022 pipeline, the other pipeline has been moved forward. It is true that we've move forward because customers for the last 12 months has stopped. And sometimes we didn't say anything, often didn't answer the phone and didn't cancel anything. But now they've gone back and made public, very public and they're back in the game. And they're already selecting, and selecting us in some of the cases for the jobs -- again, for the jobs that were in the pipeline. So it's -- what I can say is that the pipeline that we have today has grown at its pipeline with far more visibility and short term to be converted that it was a year ago, obviously. And also, it is a pipeline that shows that -- on which we are already doing some of those fits. So it gives us a good opportunity to convert those fits eventually into EPC or E3 jobs. So it's probably one of the strongest pipeline that we've had over the last 4 years.

There are no further questions in the conference. Dear speaker, back to you for the conclusion.

Okay. Thank you. Thank you very much. Thank you very much for listening to me, and thank you very much for being so diligent and so good with the questions, which I think had a lot of disparity and sometimes even color to this presentation. Thanks a lot.