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

Hello, good morning. This is Eduardo San Miguel. Welcome to this first half 2021 results presentation that will be conducted by our Chairman, Juan Lladó. You can pose your questions after the speech. And now I give the floor to Mr. Juan Lladó.

Hi. Very good morning to you. I've been talking to all of you for 3 times a year and many years, 3 or 4 a year in many years. This is probably not an easy one. So I'll try to put up the best of myself to explain where are we and where we're going. In this first slide. Okay. First of all, we're going to talk about what we call a challenging environment. Today, I mean the real challenging environment means our losses. I mean real losses because we had COVID losses on the first quarter, and now we've taken extraordinary provisions of $60 million. Challenging the environment because, obviously, the COVID delta variance is affecting us seriously in the progress of our jobs, more so in the Middle East, far more. But also as running the business, we've been -- the market is moving forward and then moving to immediate awards. On the previous presentations, and I announced to you that we were getting awards and in some of those awards, I could not declare who the customers were. I think now we can be far more transparent. And the market is moving forward, and TR is being retained for a large, healthy and diversified backlog of new contracts. And finally, in these situations of -- which I call transition situation of managing COVID that we've been doing over the last 2 years and new awards. Why -- well this is signify that we have the support of the Spanish government with in dollar terms, give or take $350 million for 4 years. So I'm just going to focus the presentation on those 3 themes. Losses, which means that we've taken provisions that we have a health underlying business. Second, awards, which means that if we do have a healthy underlying business, it means that we are delivering correctly and customers awards to TR close to $3 billion year-to-date; and strengthening our financial support to deliver what we've got and continue growing as the market is picking up. So this is the introduction with this first side. On the second slide, challenging environment, I think I've covered already by the presentation. And if it's okay with you, I'll move forward because I've already covered the whole thing in my introduction. Why are we being impacted by COVID? And maybe some other competitor's not, it very much has to do with what are we doing? How is our backlog structure and where are we? It is true that COVID cases, since I talked to you at the very beginning of May, has increased in the Gulf by 70%. Everybody [indiscernible] ourselves, our customers, our suppliers, our subcontractors in January and February were in an extremely good mood. We were very much picking up a good rate of progress and the delta variant has changed the whole picture. And it has changed the whole picture if we look into this next slide. Where are these variants really affecting the most. Obviously, everybody knows is not new to anyone that India and Pakistan are probably the 2 countries more hardly hit. Obviously, Indonesia and Philippines, they're having today similar problems. And the rate of dependency that Gulf countries, Middle Eastern countries, where we have the large percentage of our backlog, and we are executing correctly in extremely good terms with our customers, are being seriously affected. We have to readapt again to help new health requirements. We have to readapt again to mobility. We have to agree with customers new action plans. And very important, we have -- we don't have access to the traditional workforce that Middle East depends on, which most of them come from either Philippines, Pakistan and India. Obviously, we have good workers there. Good workers there that -- they've been there for more than 3 years and the rate of efficiency after that, obviously, is understandable, but it's not the same. And it's put in a lot of pressure between us, subcontractors and customers to have the correct process. If you analyze again how our backlog is structured, which very much has to do with the progress of our revenues and the progress of having less revenues or less accrued revenues that we had expected and that we had planned at the very beginning of the year, you realize that 54% of our backlog, which is a good and healthy backlog has been reprogrammed. And we have explained another one to get into detail with reprogram towards the end of 2020. It was reprogrammed to the last quarter and -- of 2022. Well, it has the good and bad. The bad is we cannot accrue sales, and therefore, we cannot accrue margins. And the good thing is that we'll have -- and we will have a healthier execution. And we have the backlog. We haven't lost the jobs. The good news is the market has picked up, and we have 27% of the year-to-date backlog, which is engineering. They just started. We are -- we have what we call, which is launching engineering right now, just right now. We're launching early works, not full engineering. So we have the jobs, we have the backlog and we have the future, but it doesn't represent neither sales, nor margins in today's accounts. It would represent very little in to '21 accounts. And only around 20% of the backlog is projects that are being executed under COVID. And they're being executed today with a very large percentage, and I'll talk to you [indiscernible] have to do in the Middle East. And let me tell you, Middle East is not easy place to work. But there are sound and reliable customers with whom we have the experience of having worked before. And so we have to manage with them probably a crisis that is much worse today than we had expected 6 months ago. How is -- if we do a further analysis of the backlog -- or not in the backlog, the jobs that are on the execution and why we are not progressing accruing revenues. The first analysis, you see that we have close to EUR 7 billion, a little more than EUR 7 billion of projects that are being commissioned, in this case, successfully, but very slowly in Talara to over 99% all parts, the full plant is at 95%. It's a good plant. It has been nominated as one of the best and most sophisticated refining jobs, best built in the world. But it allows us to move very, very slow. And with bits and pieces of extra costs, none of them material, but bits and pieces of extra costs. Anything that delays has extra cost. Most of the time and many times it can be referred to customers, but not always. And when you have many, you have to be cautious. As, obviously, Kuwait has been there for a long time. We were way ahead of time of the offsite utilities, tankage and other services. But obviously, we are commissioning that -- very difficult to commission when borders closed again, and we cannot get specialists to commission and approve the startup of the units. So our relationship with customers is best. We're working surely, but slowly. GT5, exactly the same thing, is one of the largest gas plant in Kuwait and in the world. And again, we are in a commission and -- stage, and we're working far slower than we had expected. We have many acceleration plans we have not been able to come into force because of COVID. And affects our revenue and not very material, but also has little impact on cost. Everything has a little impact on costs. None of them are material, but it has impact, and we have to be realistic. And the same thing in Ras Tanura. We're working shortly to shoulder in order to start up Ras Tanura. Ras Tanura is a large plan for clean fuels in -- for Saudi Aramco we want to start. We're having issues and problems with resources, but I will -- we should have been finished 2, 3 months ago and will be finishing in the next 2 months. So this translates in very little revenue and marginal extra cost. But good service. I mean, I think it's not -- we haven't got a problem with none of them. And the remaining contributors to sales, as you see, all of them with some exceptions happen to be in the Middle East. So that our backlog is there and our backlog is under construction and been under construction in the Middle East. With these new Delta variant has hit us far more stronger than we could have ever expected. And therefore, we had -- it has forced us, and I think it was the healthiest thing to do for a manager to take extra provisions for provisional disputes. None of them material. We have sometimes with customers -- and I'm not talking arbitration. I'm talking disputes and sometimes so-called factors, sometimes with a specialist that has to come and deliver and work with us in order to continue working at a faster pace than we're doing today. All of this, this backlog, this execution translates into EBIT that is obviously not too good. I mean they're not too good because as a manager -- using the term of adjusted as a manager and as a shareholder, you have to realize that a shareholder looks for real transparent EBIT and not adjusted EBIT. But the fact that we have an adjusted EBIT, if we were able to do the analysis that said -- if nothing would have happened, if it had not been COVID obviously and even accruing only 30% less than we had planned for. If we have an adjusted 3% EBIT, that means that the underlying business is healthy. And that's the message that I want to do. The real number, not adjusted, is that we started with an EBIT loss of $145 million to which you have to add up the $61 million provision, the U.K. hit, probably it's hit with Teesside. And the EUR 25 million direct, very much direct extra cost on COVID that we have it. But the message here is that we very much focus in the Middle East and is very much focused on extraordinary events that has to do in this '21 that we've already said, it's a difficult year, far more difficult than we had expected, but it's definitely a year of transition. When we close the semester, I mean, probably one of the ways to show the health of the backlog is that we have good customers, and we have good customers. That means we are progressing at a slower pace, but we're getting paid and we get paid and we progress. We have been able to [indiscernible] with a net positive cash of EUR 94 million, despite of our Teesside outflow and obviously, a lower cash flow due to COVID, slower pace of advance. And I wanted to come out -- I was going to take it away, but I wanted to come out with a full row number here. Sales, EUR 1.422 billion, lofty year much lower than expected. Not because we're selling less just because we are accruing less. A real EBIT of EUR 148 million negative. Adjusted if you take away of the impact that we consider extraordinary and only having to do with 2021 of EUR 44 million, which comes out to an adjusted EBIT of 3.1%, and a net cash of EUR 94 million. And in blue, before, probably the good news. And the good news is the market has picked up, and it is picking up. And we have already announced -- and we are announcing healthy, close to EUR 3 billion of new awards. And if you're in this business, you need healthy awards that reflect that you have the resources, human resources, the engineers, the know-how, the customers and the credibility. And we have all of that, which translates into year-to-date backlog of EUR 3.1 billion (sic) [ EUR 10.1 billion ]. And why do we have awards? I mean -- and we do have the words because the market is there. And the market is there and the pipeline that we've always talked about is more real than ever. And it's been little by little translating in awards. Obviously, I don't want to talk about oil prices or gas prices, but yes, demand. And the market is there and is picking up, not at the pace everybody thought 2 years ago, but the market is definitely picking up and it's picking up because the real demand is there. So that allow us to look at the market quite positively for the end of the year and in 2022. And very often, in some other presentations, you were asking me whether I was able to get order intake at the same level of sales. And as said that yes -- last presentation, I said, that I could reach EUR 4 billion. And today, what I have to say is that an order intake in 2021 of EUR 4 billion is not anymore a challenge. And then let me go with you with the awards. And I think in these awards 2 message: diversification; petrochemical; and the third and most important derisk. First of all, we have the SASA investor in Turkey, an investor in Turkey awards a job to TR not because we were there and we placed a very low price. This is a cost plus. Probably in Turkey, we're one of the companies that have delivered the jobs, the largest and the jobs with more quality and -- than any of our competitors. So SASA trusted TR to develop petrochemical plants in Europe -- in Turkey, it's the PTA and with a structure fast track on a cost-plus basis. So it's very much derisk. And we're working quite nicely with the customer and the customer team. That was the first award that we had at the very beginning of the year. The second award comes in Central Europe, comes in Amsterdam by G.I.Dynamics. G.I.Dynamics trusted TR to develop under an open book basis, again, derisk a bioethanol plant based on industrial waste. This is very close, approximately the closest thing to energy transition, which when some of you wonder who is TR and energy transition, we know that far because at the very beginning of the year an important investor trusted us as we're working together how to make a model of this plant and then can be reapplied in different parts, in different cities in Europe. And we continue with Orlen in Poland. This was already announced without disclosing the investor Orlen. But all in, last year, in the middle, when we were all confined, awarded us on a competitive basis, we were competing with other teams, competitive fit to develop a large olefins plant that had to be built in Poland. It's called -- we say Plock, but I think it's pronounced very differently. And I think L the is pronounced. But I mean -- and well, we won. What does it mean? That means that for 9 months, we have worked very close together [indiscernible] with a customer, designing a front-end design that had to be efficient, constructible and good on OpEx and good in CapEx, and we won, which is, again, a way of -- when you work this way, a way of derisking the execution of the job. And now I'm happy to say that this job has been signed and came into force. On my previous presentation, I also said that in Northeast Europe, a customer has selected TR for what we call clean energy plants. I could -- actually give fuel. I couldn't -- I couldn't give you many hints. Some which -- later Gazprom, which was the customer behind, which I could not announce, made public. And so we did that either was awarded us in delayed coker under a scheme that is EP plus construction management. Again, with derisking in Russia the construction risk. We've done the front-end design. That's the first way of derisking the job. We understand the business quite well. We're one of the leaders of the world that have built, design and build more coker units around the world. And here, we have designed the job, and now we're going to do all the engineering and procurement and support Gazprom under construction, with running the construction risk is not under our scope. Quite recently, today, we have in the kickoff meeting. And here, I cannot announce the customer. Customer has the right to announce it first. But we -- today, we're working with GE on the kickoff meeting. GE wanted to work with us, $300 million (sic) [ EUR 300 million ] is the scope to, again, develop a sophisticated combined cycle in Eastern Europe. Everybody knows that with GE, we have been -- we have a long life of success stories. We were successful in Holland; obviously, in Spain with many combined cycles; in France; we have been extremely successful in Mexico; we are being very successful in Emirate; and now we've been very successful in Colombia. And this is the beginning, together with GE of another success. And today, the kickoff meeting and launching of the job is taking place. And here, this is disclosed again, it's a petrochemical plant, but it's -- a FEED with the customer that we have worked before, not only developing FEED, but also developing FEED and then rolling over to EBC, one we have been able to derisk and structure the job, very successful. It's a good customer. We know each other quite well. And now we start. We cannot announce this as obviously, customers have the right to announce this first, and he has not announced yet. He has sent us a letter of award. We're going to be working with them under a competitive FEED of a new propylene plant in Europe, with a final investment budget that we'll try to improve because, as I said, FEED has to focus on both OpEx and CapEx for the best job which I'm sure will finalize doing with them and for them in Europe, in Northeast Europe. It has been awarded quite [indiscernible]. And this is the last one. The last one, this is Middle East again. This is the only one in the Middle East. It used to be many, this is the only one in the Middle East. We have been selected as disclosed with negotiating the bits and pieces of the contract. We cannot disclose the customer. It has to -- with the big natural gas in the Middle East that we have to put very close together now in a few months as we started the job 150 engineers. And probably the size of the job of the 6 months will have to increase as there are many options that have to be decided by the customer. So if we take into account this last award, which we cannot been able to disclose the customer. It add ups that year-to-date, we have been awarded EUR 2.9 billion, which shows that definitely 2021 is a year of transition. We're having our issues and problems, U.K. Teesside, managing COVID in the Middle East. But at the same time, we're delivering successfully, slowly, but successfully all the jobs, and we're getting awards, as I do believe we are one of the most reliable engineering and construction shops in Europe. And if you look through all of them, you see they're diversified, very much focused on petrochemical, very much focused on gas with some color on transition energy and very important, quite derisked. And when I said before that I didn't feel uncomfortable of reaching this year EUR 4 billion order intake and we are close to EUR 3 billion, it is because, as I said, as I place and as I said and I explained to you in my previous presentation, and I used exactly the same slide, but with different colors at some of the transparent colorful jobs has already been awarded. Here, we have more than -- what I'm trying to explain to you, we have presented already tenders. We have presented offers for more than $6 billion (sic) [ EUR 6 billion ] in which -- in all of them we're very well positioned. In some of them, we're negotiating contracts. In others, we're competing in a very well position. It doesn't mean we're going to get all of them, unlikely you don't get all of them sort of the likelihood that some of those jobs that we have already presented, there are others that we are not as well positioned in these ones. We have all offers in the market. But here, I'm just summarizing the ones that we are either negotiating or either we have more than 50% chances of being awarded, which -- somehow it strengthens my view that award in this year -- awards are of this year are going to be good and that the market is recovered. And this 2021, it's difficult but a transition year. And talking about transition, I think let's talk a little bit about energy transition. Everybody is taking what is TR on energy transition. I mean, a year ago, everybody was wondering that energy transition was going to be something negative for the energy service companies. And the message is it's not, it is positive. What are our natural markets? Clean fuels, petrochemicals, natural gas, hydrogen. We have already done studies years ago on carbon capture, and we've already developed bioenergy. I mean all of those technologies, all of those markets is some things that are energy services, TR and others feel comfortable about. And what -- and who are going to be investing in this transition? In many cases, our customers. And the customers, what do they want? Our services. I mean they want the task force that we're really able to put together, the methodology to put together large, complex investments; the methodology to innovate; the methodology to escalate; the methodology to develop technologies and ways to improve with some other bright guys and technology and licenses are developing. And there's hundreds of process engineers that know how to work together to really translate those investments, and these energy transitions into reality. So energy transition is definitely -- it's not a challenge. It's an opportunity. It's a big opportunity. It's an opportunity that we -- definitely is not going to translate into P&L this year, marginal P&L and other [indiscernible] and engineering, it's not going to be important. But it positions ourselves extremely well towards the end of '22 and '23. It's a good opportunity that is already happening. I mean, the picture on the left, it's not a picture. The picture [indiscernible] digital model of the plant that we are designing together in Amsterdam for the methanol plant. We're working there and we're working there, trying to look -- trying to design the most efficient and constructible plant. Obviously, we're working with Repsol, how to develop the different technologies of hydrogen and decarbonization. And it's a customer with -- we have with before. We have already have a contract with Enagas, we have already had a serious agreement that we have announced with Acerinox of how to develop and decarbonize their big -- we're going to start in Spain and then going to move forward to the different plans that they have around the world. So we make -- over the last 12 months, we have made a big step forward. And this -- very important way, which is important for Spain, but it's very important for Europe. It is today, but it's definitely going to be part of TR revenue backlog probably sooner than later. And finally, let's talk about the third term. I mean, challenging environment with bad results, simple as that. Let's not hide with the optimistic terms. Immediate awards, that's a reality, it has happen already, told you. And with both together, we have the opportunity of strengthening our financial profile with the support of our government. And why do we like to have the support of our government? We have been working for government since we started. I mean our government supported us to go China with [ soft ] loans; has supported to us to go to Latin America with export credit loans; has supported us to grow as we merge and bought and support them the bio [indiscernible] we've always been very close to the government. But the government would have never been allowed to support companies the way they're doing today. And today, Europe, in Spain -- Europe and all the member states are putting together the mechanisms to support companies that are healthy, companies that have future, companies that are strategic, but they are being seriously impacted by COVID. Well that happen to be TR. Obviously, we've been impacted by COVID. It's not -- we haven't been heading in '21, and it's been reflected in our accounts. But it is also true that we are a strategic company for Spain. I mean, we're an industrial leader, we're an exporter, we probably have one of the most valuable Spanish technology hubs. I mean we have for 4,000 engineers here in Madrid, where I'm sitting right now. And therefore, we can become, and I think we are, a differentiated platform, if we work together to decarbonate, I mean, the industry. And to get support from the government it has to be a promising environment, I mean a promising investment. And we have a promising environment and it's a promising investment. This is not forever. This is to support us to manage the COVID. And this is to support us to manage the COVID and to put us in a situation where we can compete face to face and in equal terms to some of our competitors that happen to be public or happen to have a very strong support of their government. So I think as a manager and as a shareholder, having the opportunity to have the Spanish government with [ $350 million ] as a partner, it's an opportunity. It's an opportunity that is offered to you provided that you have been impacted, provided the you're a strategic and provided that you're a good investments. And I think there's 3 requirements are more than fill. And what does support mean? I've already announced it, it means that we're going to be getting $150 million (sic) [ EUR 150 million ] of a hybrid loan, which obviously, it strengthens our equity. It's a hybrid equity, but banking-wise it strengthened our equity for 4 years. And another $100 million (sic) [ EUR 140 million ] of ordinary loan. We could have gone for other terms, but I think this is the healthiest way and the best way to strengthen TR and capture the market that is coming. It is 4 year, and it is expected -- I mean, we are moving into August and it is expected that this disbursement we will get paid, and we on the fourth quarter of the year. You have to go through the approvals and protocols of the Spanish government. But technically, it's moving forward extremely successful. And obviously, to satisfy -- to comply with the government, we have to be a company very much focused on sustainability and energy transition. We are. Obviously, we have to grow, and we will grow, being efficient and in a derisked backlog. And we have to be a profitable company. And we are -- the 3 of them. We are a profitable company despite of 2021, we've been profitable and we'll come back to profitability in 2022 right away. And we'll come back with value for the shareholders and obviously for the Spanish economy. So let me finish with my guidance. Sales is going to be very difficult that they'll be much higher than $3 billion (sic) [ EUR 3 billion ]. It has to do -- we are already in end of July, and it has to do with the rest -- with the rhythm of accrual of the existing backlog. Out of the full backlog only 20% has been accrued. The remaining is either new or reprogram to '22/'23. So it has been very difficult. But we maintain an adjusted margin of 3% and very important -- and that's very important. I mean we're in a business of getting awards and deliver and retaining the trust of our customers. We've got big quality, and that quality is being translated in awards. And it's not very challenging, as I said before, to end at up this year with awards of more than EUR 4 billion. This is the 3 big numbers that I wanted to finish my presentation with. Thank you very much.

[Operator Instructions] We have the first question from Alejandro Vigil from Bestinver Securities.

I'll have 2 to start. One is about the visibility for the next quarters. You've seen that after this provision you carry out in the first half, you have enough visibility for the next quarters in terms of the profitability of the business. I mean it's -- the backlog already clean of additional negative surprises or additional profit warnings? That would be the first question. And the second question is about the SEPI financial support. The conditions -- if you can give us some color about the cost of this funding? And second, when are you expecting to replace particularly the participative loan or the hybrid equity? Are you expecting at some point to issue new equity to replace this loan?

So let me see if I can correct -- I can answer you, if not, come back to me. If I can answer you correctly. I think obviously, it's not an easy decision to take a provision. But if we take a provision, it's because we have a good expectation or having more visibility on the second part of the year. It's -- we've been badly hit, bits and pieces. I mean nothing serious, but bits and pieces in other jobs most of them in the Middle East. Some disputes here, some extra costs there, some COVID costs that we have doubt that we can get back from our customers. And so we decided to do this once for all. And I think it's a management decision. It's not easy, but I think it's for the sake of the best management of the business. And having more visibility for both shareholders and also the government that is going to be somehow an indirect shareholder. So it has to be done with both. I mean we have to show this is where we are. We don't want surprises. We're managing a good business, but we're managing a good business that is running through problems that we cannot -- they were definitely very much unexpected. That has happened with many other businesses. That's the first question. The second question. The conditions of the SEPI, yes, I think in the presentation that I gave you -- and I don't know -- but I think the condition of the SEPI -- I think I have Eduardo with me, and I think he's going to be definitely far more precise than I am.

Unfortunately, I cannot be that precise because conditions are not still closed. First, we have to go through a due diligence process that is about to be completed. Within 1 month, it will be ready, and then we will close the conditions. I would say there are 2 facts that are relevant: first one, there are market conditions. I mean, you will not see a relevant impact in our financial expenses because of this financing. And second, it's smaller in the first -- the cost of this financing is more in the first year and it grows through the life of the loan. But as I told you, still they are not fixed. And within the next month, they will be fixed and well, market conditions, as I said.

Okay. Let me add, Alejandro. I mean I -- well let's focus on the third question. Now we have to focus on 2 things: first of all, I mean, come back to profitability and growth. I mean -- and go to the size that we were before, which has been reflected already with the number of awards. So we have to grow to the plans that we had in 1919 (sic) [ 2019 ] which is having a turnover close to $5 billion (sic) [ EUR 5 billion ] and not EUR 3 billion and having a profitable backlog and a profit -- and healthy revenue has been having a participant loan and having a direct loan from the government. It helps us in 2 ways. It helps us because it give us equity strength and liquidity strength for the execution. It help us because it gives to our customers a high level of comfort. Our government is a partner, which is very important. Quite recently, I mean, I give you a quick example. We've awarded a job the Spanish company that was supported by government. It's a company that we had trusted, and we had worked with before many years, and we had good working with them because of a financial situation. And once the government supported them or gave signs of support, we awarded a job, not only us, our customers allow us to award the jobs. I mean having the support of the government and being partnered with the government signified far more than having $300 million in cash with you. And it put us in a very similar situation than some of our competitors. So it has -- and that's why in the conversations that we had with the Spanish government that started very early spring. At the very beginning they had nothing to do with TR. It had to do with other companies that the government was thinking of us supporting. It had to do of supporting the company buying things from them, from one of our activities. We have an ongoing relationship with our government. And I think progress mid-May with the unfortunate event of U.K. and the development of this fifth variant. We work with the government and I said we like to have you as partner. And having you as partner [indiscernible] hybrid direct loan. If we grow, and we want to grow, if we come back and we will back to real profitable situation. When I say real because that's because I hate the term of adjustment. When I say hate adjustments because I like to have real EBIT and then real dividends. There is no such a thing as adjusted dividends. And then we'll see that they may be in 2020 -- they may see it may very well happen that we replace it with the capital increase or it may not even be necessary. I mean if we grow our planned pace -- you've seen it before, and you have to go back to 2010 and -- from 2010 to 2015. In our business, equity gets strengthened quite rapidly. It's quite rapidly. And it might not be necessary. It might be reduced. And we may negotiate with them to stay with us at a lower -- as here, one of the clause is that you can repay them whenever and when you can. So -- and each part, it's is very flexible. So we can talk to the government and say, okay, let's -- we don't need as much as EUR 150 million because we have already strengthened our balance sheet. It would be very comfortable if you keep EUR 50 million with us. Why? Because I like to be in this business, competing with some other European competitors. They have the real support of the government and competing with Asian competitors that have a real support of the government, is healthy and comfortable to have the support of government. And that's it.

Next question from Francisco Ruiz from Exane.

I have 2 questions. The first one is, given the delays that you are having on sales due to the COVID hit in 2021, which are your expectations on 2022? I think you gave us some guidance at the beginning of the year that there will be some recovery on that or something like around EUR 3.6 billion sales in 2022. Are you still comfortable with this figure for next year? And just second question is just the data, if you could give us the level of prepayments that you have in your net debt at the end of the first half?

Francisco, I didn't get -- I heard a very clear your first question, but I missed the second one. Can you please rephrase it?

The second one is regarding the prepayments, which are included in the net debt at the end of first half.

Okay. First of all, I mean delay in [ 2022 ] if I have a sense to recover them, obviously, very large -- a very part of the delays of the first of 2021 have to do. One of them we'll program . It has to do with -- we program with -- most of the reprogram jobs will come at the end of 2022, and they're real jobs. There are jobs in Singapore and there are jobs in Canada and their jobs in, obviously, in the Middle East. Secondly, our delays in Q -- '21 have very much to do with the pandemic. And everybody's -- is [ hitten ] very hard in the Middle East. But I think all of us trust that the situation is going to be far more better on 2022. And we can -- and we will, together with the reprogram jobs and the better rate of vaccination, will come back to a normal. And the new jobs, all 3 things together, I think the recovery of 2022 again, is not very much a challenge. I mean we're planning for a good recovery of 2022. And the second question, when you're talking on prepayments, you're talking prepayments on -- advanced payments on customers or prepayments on debt? I don't [indiscernible]

That's correct. Yes, on the customers.

We haven't had any. And we'll expect to have one having to do with Orlen. That's going to be in 30 days or in 45 days. I don't know the payment terms now by heart because the only job we signed in May was on the [ 22 ]. If I remember well, they send us the notice to proceed. So once we -- they send us the notice to proceed, then we can bill them the first payment. So we'll be having a prepayment somewhere at the end of August or first week of September. That would be the only one. So we may be expecting prepayments or early payments towards the fourth quarter of this year. But we haven't got anything.

We'll take next question from Robert Jackson from Banco Santander.

First question is related to the renegotiations you've carried out. Do you -- I guess you've -- have you considered the extraordinary cost of materials over the last 6 to 9 months? Have those been priced in these renegotiations? Or is that still pending? Can you give us a bit of visibility on -- regarding those issues? That will be my first question.

Yes. Let me -- yes, I mean, definitely raw materials is an issue. It's an issue. I don't know if it's going to last forever, but we're treating them as if they were going to last forever. I mean we don't want to speculate with raw materials. I mean that's a must. I personally believe that they're not going to last as high as they are for a very long time, but we're managing the business as if they were and how we're doing them. First of all, [indiscernible] realized a very large percentage of the backlog, it's a new fresh backlog that is being awarded and is coming to force right now, and it's been priced and translated into the contract. So that's a way of taking the risk or managing the risk. That's one part. Some others, they are the jobs that are under construction and it's a really -- we have a really unbalanced -- I mean, for this case, we're fortunate because we have a rebalanced backlog. On the second part, we have a very large part of the backlog, which is under construction. So all the materials are bought, and they're on the site. And in some of the cases, for instance SASA, it's fully derisk because it's cost plus. So extra cost, material cost, equipment costs is 100% translated to the customer. We're running some risk, and it's true in some of the reprogram jobs. So some of the reprogram jobs, equipped -- some of the equipment has been bought, which -- material and equipment costs together. Some other equipment is not. Mainly equipment is bought, that's for sure. But some other equipment is bought. And there, we have to find a way either to negotiate with the customer. But at the same time, it's been somehow offset because the construction terms that we get in the reprogram jobs as we are agreed and we have agreed with the customer to construct in a different way, model by model, in a slower pace with lower construction and we have lower construction fees, low construction contracts, which somehow offset some of the risk of the material, which is not a big part. It's a small part that we have not already bought. And we've obviously negotiation with the customer. But there, in a very small percentage, we do have a risk. I mean it's a risk that we faced.

Okay. And the second question is related to the energy transition. Are you finding a lot of competition in looking at projects? I guess you have a lot of opportunities in Spain so competition is lower. But elsewhere, I guess, there's a lot of competition. How is Tecnicas going to differentiate itself outside, for example, in Latin America in the energy transition projects?

We're not -- to be honest with you, we're not -- right now, what we have to do is organize ourselves because we're getting demands from small companies, big companies, do this, do that, do study together with this for very little money, try to develop this with that. But to be in a review, we've been driven a bit crazy. It's not -- I mean, they're not join us because let's see we -- together with another company in Latin America, we can have access to the government funds for this hydrogen plant. So we have to organize ourselves. I mean it's -- we have a team. We have a team that is managing both in coordination with commercial and production all the energy, centralizing all the energy transition, say, project initiatives, an agreement that you have seen. We have an agreement with Repsol, with Enagas, with AMA in Amsterdam, with Acerinox recently. And what we're doing is we're sitting with customers, helping them to put together real jobs as I have the impression that some of them, they want to do things. They're big industrial companies. They have the money. They want to have access to their funds. They have to do something, but they don't know how. And we have to find a way to make that profitable for them, obviously, because they have to do it, but also for us. And quite often, they come to us and for practically very little money, say, let's work together and develop this and develop that and do this and do that. So sometimes, they drive a bit crazy. The good thing is that the market of many of our customers realize that working together with us, we can put together projects, real. The world is a bit unorganized with this. Let's face it. I mean there is the ambition to develop it. There is the budget to develop it. There is the commitment of our governments to develop it. And together, service companies and investors, we have to find the way how. But there is not enough competition, very little competition.

Okay. And my final question is related to the SEPI resources. Looking ahead, could you leverage off their financial support helping other or potential clients to develop projects? Could that be a source of -- or an incentive for new projects in the future?

I mean, in this business, I mean, I'm not one to name competitors. So this business, many of our competitors, some of them are in Asia, in different countries that have gone through extremely difficult situations. Much worse -- I mean, the worst that you can imagine as they've always had support of the governments, have been refinanced by the governments and they have continued the business as if nothing has happened. I've been having the support of the Spanish government. Obviously, it gives us the cash, which is very important. But it also gives us the credibility that we are -- because it's a must to have the support of the government, and it's a must of Europe that we are a strategic company for the Spanish government. And being strategic, having the resources that we do, the human resources that we do, and having the know-how, it would definitely strengthen our capacity to get new jobs. I mean as -- and that's one of the reasons that when I was talking to the government and we're starting to explore because nobody was using it. All the companies that were in a terrible situation were going to them, and they were not very happy. It's -- I thought that it'll be very good for TR, for TR employees, for shareholders, and it will give a high level of certainty and comfort to our customers.

Do you have any peers or any companies related in the sector also negotiating with SEPI that you know of, which could collaborate with your negotiations and your position with SEPI rather than considering yourselves as a distressed company such as a couple of other companies, which have asked for access to SEPI resources?

The thing is in this sector, we never compete with Spanish companies. I mean for better or worse, our competitors, they're European, Japanese, sometimes American and very often Korean. And some of the European companies, I don't want to get into detail, they really have the support of the Spanish government -- or the Spanish -- or their own governments. Some others, they happen to be public. And all the Asian companies, one way or another, they can go belly up 3 or 4 times and always come back with the support of the governments. And that's the way it goes. They happen to be strategic for the industry. And that's the way this industry works. But here in Spain, we're the only one. We're a bit unique. We've been by ourselves with a good relationship with our government because you know very well that we've had -- when we needed the support of Export Finance, we've always had the support of Export Finance, of our government when we had needed this support of a special line of finance, small for our customer, we have got it. And today, we just got the approval of a small one for a customer that is developing. We've always been very close to the government as we've been quite strategic for the Spanish industry. But we don't know of any one close to us accessing those funds just because there is none.

Next question from Kevin Roger from Kepler Cheuvreux.

Yes. The first one is related basically to your cash flow expectations. If you can give us a bit of information on what you expect for the current quarter for TR to understand the fact that you need such big support from the government. And on that side, sorry for the stupid question, but can you explain to me the impact of the participative loan on the Board on the number of shares, if there is any, things like that, if you will have activity, number of shares, et cetera? Sorry for this one. Questions related to the recent contract in the Middle East. In your contract presentation -- in your Q1 presentation, you underlined as an opportunity a contract in the Middle East related to gas. It was written with a contract value above EUR 1 billion. You say today that you have secured a contract in the Middle East, gas related so, I guess, this is the one. But the contract value is at EUR 550 million plus. So am I mistaken when I'm saying that this is the same? Or can you explain us the change in scope of this contract? What happened and why the contract value is, let's say, half of what you expected? And the last question is related to the Power division, revenue from the Power division. So revenue are negative in H1. So you have basically removed more than EUR 50 million during this quarter. So can you explain me what happened on that side if you took the cost side? Now we have a consolidation of revenues. So what happened on the Power division in this quarter?

Okay, Kevin, thank you very much. I have 4 questions. Let me see if I got them right. And let me start telling you, please, there's no such thing as stupid questions. Because I mean -- and please, if I answer you not correctly, don't think that I'm giving you a stupid answer. So here, I'm going to try my best to answer one by one. Let me start with the last one. I mean the Power division revenue are negative. They're negative because we took the wrong strategic decision to move into businesses that were not power. I mean we took the initiative to move with investors to businesses that were new and that were very close and with the ambition to become the leaders in biomass and energy transition. And with the technology ambition, it was the ambition that was purely technological. We had, had, I guess, too many bad experiences. But the traditional Power division, the Power division that we're doing with GE, the Power division, the power business we're doing with Nizhny, the power business, it has been and is a profitable business. So the hit that we've got, they're very serious, and it should have never happened. It is my fault. It is my fault as I do thought that with the Power division, we can move forward into the new renewable biomass clean fills, whatever, business, and we have not been successful. So that's history. Tough history. A lost battle, but history. The third question -- I started with the fourth question. Obviously, I mean, if it's undisclosed, it's undisclosed. I mean I cannot tell you what it is, the undisclosed that you want to know, whether it's disclosed or not. All I can tell you is that we have been selected and we cannot disclose the name. The final number from now to 6 months, once we make it public, is going to be more than EUR 500 million because there are many options that have to be added. I can tell you there is gas, and I can tell you that it's in the Middle East. But if a customer is not allowing us to disclose anything, I cannot disclose it. So I'll have to wait to disclose it. I'm dying to do it. And you're going to have to wait to get it. The impact of the participative loan on your accounts. I think Eduardo, which is sitting right by me, can answer that. He knows far more about balance sheet and accounting than I do.

Hi, Kevin. All the participative loan cannot be booked as a pure equity. I mean you won't see that a part of the equity. It's financing. But obviously, it's not an ordinary -- it's not a subordinated ordinary financing. It will be separated because if the company is liquidated at the end, the participative loan is considered as an equity. I mean that's the point from a legal standpoint. But you won't see it as an equity. You will see it as an external financing. You mean the first one -- regarding the expectation of the forthcoming quarters, I mean, we are living in stress in terms of cash, but the new wave of awards are coming. I mean the impact has a lot to do with how good the evolution of the awards arrive. I mean if we are successful collecting this down payment from clients early in the fourth quarter, I think we will have an easy quarter. If not, we will still be stressed, as we have been throughout the year. I think that's the answer.

One thing -- Kevin, because now I have second doubts on the question you asked me on the Middle East. We are being selected in the Middle East. I cannot disclose the customer. The number that is there is what is -- it is what we are finding now. It doesn't mean that we are down pricing anything. And within the next 6 months, as this is the utility part, tanks and whatever of the investment, customer has to include in the contract, which has to decide and has very much to do with how developed the process units, 300, 400 of different units which are the options that is up to the customer and the development of the process units. So this is the award of the first tranche. And then all the additions will come afterwards. It has nothing to do with a crazy down pricing. Don't get that impression.

Okay. Okay. Understood. But sorry, a follow-up has triggered to understand the magnitude of the financial support that you asked, if you, let's say, are not, let's say, so worried about the cash expectations because you are an asset-light company. So CapEx requirements are limited. So I struggle to understand the magnitude of the financing that you are asking to the government.

When you work in -- I mean, we are a business. Obviously, we haven't got fixed assets, but we have bills to receive and bills to pay. And after having recognized a loss of $150 million, the picture of our balance sheet is weaker, as simple as that. It is weaker. We've been managing -- and we've been growing very successfully with a little equity. This is not a business that is equity intensive. We haven't got -- we don't have to invest in yachts, in vessels or in big assets. I mean everything that we've got, and that's our strategy, it has to be the closest thing to variable cost. But also, we have to give the image to our customers and also our shareholders that we're strong. We are in a competitive environment. So having the support, serious cash support from your government, it allows us, first of all, to manage the business better. We have to treat well our suppliers and give comfort to our customers, and that's what the support -- the size of the support is as big as it is.

And last question from Alejandro Demichelis from Nau Securities.

So a couple of questions just to follow up. The first one is on the SEPI support and the strengthening of the balance sheet. So probably for Eduardo, I guess. Could you please tell us how the covenants of your performance bonds are being impacted by this? So the question is, would you need additional equity in order to keep kind of getting the awards in the Middle East that you are talking about, putting the performance bond on top of that? So how are you seeing that evolution? And probably the second question, Juan, is just to follow up on what you were saying that you're actually being paid by your customers and you're seeing that as positive and so on. But when I actually look at your receivables, since the beginning of the year, they have gone up by almost EUR 100 million. But your revenues have come down, as you have been pointing out. So there seems to be a lengthening of days of payments. So the question there is, are all of these kind of increases in the receivables just because of COVID? Or are there some kind of disputed amount that we have to take into consideration and then those could come into a provision later on?

Let me -- Alejandro, good talking to you. I haven't talked to you in a long time. You were one of our preferred analysts for many years. Good having you back. And let me ask you the second question and the first one is for Eduardo to answer. Obviously, receivables, as we have not been able to accrue and we have not been able to grow and accrue and deliver, have revenues at the agreed pace. And the agreed pace that we had agreed with our customers and our contracts are based on milestones, a very large percentage. So we are accruing. We're spending money. We're accruing slowly, but we're now reaching those milestones, and that translates in receivables. It could be, in some of the cases, a smaller amount of our disputes. But most of it, it has to do with the milestones that have not been reached. And you have to realize that the size of the jobs that are under execution are very big.

Alejandro, regarding the first question, first -- well, yes, there is -- there are covenants regarding the size of the equity compared to the volume of assets. So there are 2 elements: assets and equity. The size of the assets today, it's -- as you have mentioned in your question, it's probably a bit big. I mean we expect to see it smaller in the future -- in the short future. Hopefully, by the end of the year, we will see a different figure. So that's first. Second, it's a fact that for the last 2 years, our equity is not that big. So by definition, year after year, I'm asking the banks to provide me a waiver. And for the time being, I have not seen any difficulty to obtain it. So I do not foresee the need to increase the equity because of that fact. So -- yes and obviously, still -- I have room to negotiate with banks because we are still to see how SEPI affects this equity. It's a fact, as I told you, that accounting-wise, it's not equity. But in the end, it provides a good comfort. So we are adding at least EUR 150 million, which is not pure financing. It's something different. It's part equity, I would say. So -- well, hopefully, assets will reduce so I don't have that problem with the covenant. Second, the equity, we will see with the banks how we consider the SEPI loan -- hybrid loan. And third, if I have a problem, I have obtained waivers during the last 2 years so it's not an issue.

Okay. And the waiver, you are comfortable to get that even if, say, you go into negative equity or if you cannot kind of recover the tax credit that you're talking about, yes? Because now also, the tax credits have gone up. You're kind of still losing money. So those tax credits look kind of difficult to be recovered, yes?

Alejandro, tax credit has to do with my capacity to -- my ability to recover this tax credit in the future, in the next years. I mean in the next -- in the forthcoming 10 years. And when I analyze what is the impact on my capacity, I cannot consider what's happening in this very extraordinary and specific year 2021. I mean I have to see if my backlog reduces profits enough in the future to compensate my tax credit, but it has no impact what happens this year 2021. As you say, it's a fact that I am missing the opportunity to compensate partially this tax credit this year 2021 because of the specific situation. But what we do is to analyze in the future, produce profit enough to compensate the existing tax credit. And the numbers we are doing today gives us some comfort. Obviously, by the end of the year, we will do a more accurate analysis about the situation because we will have full comfort about the forthcoming backlog, about the pipeline, and then we will redo the analysis. But what we've been audited, as you know in June, and one of the main factors or main elements that the auditors cover is the recovery of the tax credit. For the time being, they are not telling us there is any specific problem regarding this tax credit. So when you talk about future, it's always -- I've been open, but we feel comfortable with this asset today. So I do not foresee to be, going back to the question, in a negative equity because of the removal of this tax credit. That's not what we have -- it's not in my mind today.

Thank you. We don't have any more questions. Back to you for the conclusion.

Thank you all. This time, it has taken a bit longer than expected probably because it took me longer to make the presentation then -- but I think the occasion was important. So it took me longer to present results and -- than I did other times, that I did it in 20 minutes. But I do really appreciate you being here. I do appreciate your questions, and I'm looking forward to talking to you in November at the end of the next quarter. Thank you very much, all of you.