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

Welcome to this results presentation of the full year of 2022 that will be conducted by our Chairman, Juan Lladó; and our CEO, Eduardo San Miguel. It will take around 20 minutes, and you can you can pose your questions after the remarks.

Hi. Hello, everyone. In today's presentation, which is the year-end results for 2022, Eduardo and myself will drive you through a summary of the results first and a year that as you know already, overall has been a successful year for Técnicas Reunidas, but it is true that we have gone through difficult ups and downs. I will start my review with the commercial activity of Técnicas Reunidas and a review of our current pipeline, which is important. And then Eduardo will follow and will explain to you in more detail the financial figures of the year and very important, how are we mitigating the risk profile of our backlog. And at the end, as usual, I will finish the presentation with the guidance for 2023. So let's just start with the commercial activity of TR versus 2022. Here, we have a slide with our 3 graphs, carbon steel, container freight and Brent, the evolution of the 3 commodities, which somehow is the way to reflect how the market has behaved over this year. 2022 began as a highly promising year on the commercial front, however, all changed with the start of the war in Ukraine at the end of February, which has been and still is a [ communicating ] calamity, but we analyze the market. In our market, price and supply effects from the commercial sanctions and trade restrictions has led to one of the most uncertain environments for the energy investment, uncertainty that are difficult for any of us to remember. Actually, at that time, has been nearly impossible for our clients to take long-term investment decision, as it was also near impossible for EPC companies like TR to set reasonable price stack to any major project. So for a few months, we were under impossible scenario. Hence, over that period, final investment decisions were rationally put on hold. It has been long. But it was not until the end of the year that a progressive normalization in commercial activity became apparent. So we've seen a big change, as those graphs reflect, towards the end of the year. And in regards to this slide, I think it explains what happened over '22 and the beginning of 2023 much better. We can separate this period in 3 different time zones. First, the year, as I said before, started with several important awards. We signed 2 separate EPC contracts for the development of 4 combined cycles in Mexico for Comisión Federal de Electricad. And later on, with Qatargas, we secured the second project on the basis of our quality and good working relationship, which we had started a year earlier. In the second period, after the Ukrainian war, which is not a conflict as said here, it's a war, it's the Ukrainian war, uncertainty prevailed and has led to halt of any major awards but on non-lump-sum turnkey basis. However, luckily and fortunately, clients kept pressing ahead with their investment planning. Nothing with canceled, it was on hold, and didn't want to incur into higher costs from price and volatility spike. So with that period, we still have, and we've been having a strong flow of front end engineering design jobs and engineering services awards. The best example is INEOS project, it's probably the best example how a customer with us puts forward an investment with us and at the very beginning, committing on price due to market uncertainty and volatility. At the very beginning of May, INEOS today, the world's leading private chemical company awarded to TR on a pure service basis, the project management, engineering and procurement and the construction management for a world-scale ethylene cracker in Belgium. This is the largest petrochemical investment in Europe, where INEOS has committed more than EUR 3 billion. Furthermore, in this period of uncertainty and more towards the end of the second half of the year, we kept securing additional work or projects on jobs, in many cases that we had already been launched, such as very large pipeline for Qatargas program, as well as new project options and additions of the previously awarded jobs. And so the INEOS first cracker job, we added to that contract, the waste treatment plant, an important part of the [ off-sites ] are in utilities. To that time, other relevant FEEDs and early engagement activity jobs has been awarded to TR and altogether, we can add more than EUR 500 million to the initial awards, so with the pure uncertainty, but with engineering front-end and services awards. And finally, as the year went on, clients went back and started to request and they are requesting today firm bids from us. Market is back. In the first 2 months of February, we are seeing the first results of this very far more optimistic mood. In January, we were awarded the Kazazot contract to develop the largest ammonia plant in Kazakhstan. This is a job that I will just describe in a few seconds. And a few days ago, we have been selected as preferred bidder. We have been -- signed a letter for the execution of the major LNG project in Europe. And this is a client that still we cannot disclose as the contract is not fully signed. So just in the last 2 months of this 2023, we have secured more than EUR 1.5 billion of order increase. And let's now move forward how well and how we position ourselves in the low-carbon technologies, hydrogen, circular economy, carbon capture and methane. We have seen a much steady progression and even an acceleration in this low-carbon sector over 2022 despite the uncertainty, as projects in this sector, mostly entail engineering services at the stage of early development. In fact, I think this 2022 has confirmed to you as investors what we kept saying all along the last 2 years; the strong positioning of all engineering companies such as Técnicas Reunidas in these low-carbon technologies and private development. As you see in this slide, we have helped large investors in defining the low-carbon investment, as I said before, in the 4 main products where we happen to be very strong: hydrogen value chain; circular economy; carbon capture; and methane. We are talking about future large investments. We're talking of big names. We're talking of very big investors in very diversified geographies. We can already quantify the numbers, which start to be very sizable. The main opportunity that altogether we've seen, putting in numbers of the investment ahead of it, in which we do believe we're very well positioned with front-end engineering design, sum up to close to EUR 2 billion, EUR 1.8 billion we have put in here in these presentations of EPC value; EPC value of EUR 1.8 billion, which we do believe are going to be launched in 2023 and 2024. And having talked about low-carbon opportunities, I'd like to take the opportunity to announce that on Monday 6, at 1:00 Madrid Time, we will host an official presentation of track; track is TR dedicated energy transition business unit. It's a very focused answer to this very important market and very important opportunity. The event will be available on TR's website which serves to further transmit and explain the strategy of Técnicas Reunidas in the energy transition business and to review with customers and stakeholders, the achievements throughout the rest of years in the low-carbon Technology segment, which we have grown tremendously. And having dealt with 2022, let me now enter more in the detail in the awards of 2023 and then our pipeline, which is what are we seeing ahead of us. As I said before, we started 2023 with the very good news of Kazazot. Kazazot is the leading company in the fertilizer industry of Kazakhstan, which selected TR to develop a new ammonia, urea, nitric acid and ammonium nitrate complex under a front-end design-open book contract. So let me share with you what this very important project means for us. First of all, it's large and sizable. It will be about -- converted about EUR 1 billion. Secondly, it's a new customer, Kazazot. Third and very important, a promising country in terms of the forthcoming investment. And it's the country, Kazakhstan, where you all know that we had limited presence in the past. And third, this is a sector of great future, where TR has a specific good technology, very specific in everything. We have patented technologies applied here on nitric and nitric acid plants. So as our growth in our result notes, and as said before, we expect to share with you shortly further good news. And this time is going to be LNG. It's going to be LNG project in Europe. We will -- With this announcement, which is still with the customer that we cannot make public, the 2023 awards to date are north of EUR 1.5 billion, which is practically the same level of awards that we have reached over the [ whole ] 2022. So it has been -- we started the year with tremendous strength. And that allows me to move into the pipeline. Let me stress the features that characterizes this pipeline. It is sizable. Obviously, you've seen here is we're talking about EUR 69 billion. It is solid. This is not just a big number. It's a solid big number, and it is still growing, which, as I'll say at the end, it will need strength and focus. In terms of sites, it is the biggest pipeline that we have ever faced. We're talking about EUR 69 billion of very concrete projects planned by our clients for the next 2 years, 2023 and 2024, and it's definitely very solid. Let's look first to the pie chart on top of the presentation. We can see that more than 2/3 are focused on petrochemicals, natural gas and also low-carbon technologies. All these jobs are strategic projects that are key for the regions, and they will be key for the people in those regions and where they're located and they do enjoy strong public support. And finally, it is a growing pipeline. We flagged November EUR 48 billion. And now we're moving to almost EUR 70 billion. With this very huge figure, we have to focus and we have to focus the jobs that we do believe we have more capacity to deliver and to win. So we very much focus on key opportunities of EUR 22 billion. And we do believe that of this EUR 22 billion, we are very well placed for more than $8 billion of awards. It's sizable. It's solid. It's growing, which needs focusing. We're very much focused in successfully managing this very important pipeline. And therefore, we focus in strengthening our capacities. We have very little doubt that what lies ahead of us is a multiyear super cycle, as I said in my previous presentation, a super cycle in the whole energy sector, both in the traditional and the low-carbon area. And this is not just the original cycle. It's very well spread all around the world. Again, we need to focus. And with this optimistic note, this optimistic presentation of our commercial front, let me stop here for a while and leave the floor to Eduardo.

Okay. Thank you. Thank you, Juan. Good afternoon, everyone. Let me move now to the financial section. First, I will go over the quarterly results. With regard to sales, the normalization of the operation throughout 2022, allow us to move back above the EUR 1 billion threshold since the third quarter. In the fourth quarter, we clearly surpassed that level and reached EUR 1.4 billion in sales. This figure, however, somehow exaggerates our quarterly ordinary revenues since it includes some change of scope and claims agreed with our clients during the quarter that had smaller margins or no margins at all. In any case, let me stress the main idea. Even without this extraordinary impact, the fourth quarter sales were clearly above the EUR 1 billion, a level that is absolutely key for the operating profitability of the company. Moving to the full year, we see in the slide that total sales reached EUR 4.2 billion, increasing by more than 50% the figures of 2021. This growth rate is the best indicator of the strong recovery of operations despite the highly volatile scenario experienced from March onwards. Moving to the operating profitability. The good news is the EBIT of the fourth quarter reached EUR 39 million, which implies a 2.7% margin and shows the steady recovery of underlying margins quarter after quarter. This margin growth was the result of 3 reasons? First, the volume of revenues that is returning to pre-pandemic levels; second, and more importantly, it is a result of the underlying project profitability; and third, it is a consequence of our continuous hard work in terms of cost control. Let me highlight that not all cost-efficiency measures implemented are fully visible for you. Some of them allow us to optimize processes within a project and increase its profitability, and some others are focused on shortening the delivery schedule, and consequently, allow us a smoother execution. But on the contrary, there are a number of measures that are very easy to visualize. As you can see in our annual accounts, our corporate costs were EUR 93 million in 2022, falling about 10% from the previous year despite the increase of the volume of activity. Moving to the net cash, I have to highlight the positive evolution of the underlying cash generation in the year. As you can see in this slide, net cash has improved by EUR 240 million. There have been 2 one-offs during the year with different signs: that was cash bond execution and the PPL disposal, the SEPI's PPL disposal. However, the most important explanatory factor for the net cash improvement was the operating cash generation that reached almost EUR 140 million during the year. Once I've covered the financial issues, now let me move now and give you some color on the execution of one of the main strategic lines of TR in the last 2 years. This slide is the mitigation of the construction risk. As you know, when executing an EPC project, the construction stage is where most deviations appear. First, we have been focused on implementing a number of construction risk-mitigant strategies. If we analyze 2021 and 2022 awards, that amounts around EUR 6 billion, the results of these strategies are, 4% of total awards above EUR 250 million have been contracted on a pure service basis. This is a number that has been increasing very fast over the last few years. Our aim is to further increase it with the goal to end up supplying 30% of our engineering man hours to clients under these type of contracts. 11% of those awards, more than EUR 650 million, were in projects with no construction risk such as EP contracts or EPCms, where we only take the role of construction managers. 32% of the awards, around EUR 2 billion, were EPCs in which TR previously carried out the FEED. As you can understand, by entering earlier and carry out the initial engineering, we can anticipate potential risks and have a better understanding of possible deviations and consequently, do a better pricing and starting the EPCs correctly. Finally, 28% of the awards over the period were related to projects in which we either partnered with a local construction company, which have a much direct experience in the construction country, or alternatively, with other engineering companies to share the risks. If I have to summarize this slide, I would say, almost EUR 4.5 billion out of the EUR 6 billion awarded in the last 2 years are contracted in a way that the construction risk is somehow mitigated. And now let me give the floor back to Juan for the 2023 guidance.

Hello, again. I mean guidance is simple because there are only 2 numbers. Let's work through this slowly. And I don't want to sound repetitive, but the reality on our commercial side is that we are very much on top at the very beginning of an investment super cycle. And that investment super cycle is getting very close, is here. You have seen it in the awards. And I think you know how our customers are announcing their investment sanctions. Then our main strategic goal is to make available to TR the right resources to take full advantage of these very unique opportunities. We're going to grow and we're going to grow with it and we're going to grow with profit. This applies not only to traditional business, but even more important, the energy transition industry, which we do really believe that is our long-term future. On the operational side, Técnicas Reunidas, TR, is working extremely actively and with the determination in 2 fronts. On the 1 hand, we continue implementing efficiency programs. So we have talked to you before over the last 2, 3 years; efficiency programs that kept the pressure throughout the company to optimize operations and with the real objective of delivering higher margins. On the other hand, as Eduardo has just explained, we're fully committed in reducing our risk in our projects by all available means. Reducing risk is executing better, which is to the interest of both our customers and our shareholders. And with this very strategic focus and given our current backlog, we think that I can very prudently provide a guidance for 2023, a guidance of EUR 4 billion in sales for this year, 2023, with a 4% EBIT margin. And having said that, I'm done with this presentation, and I have to thank you very much for listening to both of us. And now we are happy to answer any questions that you want to pose. Thank you very much.

[Operator Instructions] The first question comes from Kevin Roger from Kepler Cheuvreux.

Yes. Thanks for taking the time. I hope you are doing well. I have 3 questions, if I may. The first one is related to the strong acceleration that we have seen in Q4. EUR 1.4 billion is relatively well above what you were anticipated. So can you come back on the reason for such acceleration in Q4? And is it a trend that we could see in the coming quarters? That's the first question. The second question, sorry, because you cannot in a way really communicate on it, but the LNG project that you mentioned, is it fair to assume that this is a regas or it means that Técnicas Reunidas will now be also exposed to the liquefaction business because you mentioned LNG? So just to be sure if it's liquefaction, something new for you, or if it's regards where you had the kind of experience. And the third one is I was looking at the new reporting division in the annual report and the other businesses, they report losses of more than EUR 100 million. So can you give us more color on the reason for that? Is it related to the Bu Hasa project that you have in the backlog because this is the only project that you have over the businesses right now? So to understand the huge loss that you had in this division this year, please.

I will start with question one; maybe Juan can answer the second; and I will go back to number three. EUR 1.4 billion shares has nothing to do with acceleration. As I have tried to explain in the presentation, the reason of this extraordinary growth has to do with the fact that we have closed with a client a relevant volume of change orders and claims. And the accounting impact of this gross-up of change order is that we have to book a large volume of revenues, a large volume of costs that are linked to those revenues and later margin. So if you want a figure, around EUR 200 million of the revenues we have booked in this quarter in this fourth quarter has to do with those extraordinary change orders and claims. And you have to remove from your analysis this EUR 200 million because since they do not deliver any margin, they are distorting the analysis. That's first.

The second one is simple. It's Central Europe. It's not liquefaction and it's a regas [indiscernible]. I don't think I have -- you need any further. It's pure regas with some color on it, but I cannot get into more details.

Okay. And regarding the third question, in the others, we have booked all those projects, which have been terminated our -- against our volunteer. I mean those that have been terminated by the clients through executing bank warranties or these kind of projects. So that's the reason why year after year, you see that the results that we are delivering in this line, both 2021 and 2022, are negative because we are not talking about ordinary projects. We are only talking about those projects that -- well, they have been terminated because there has been the execution of bonds. That's explanation.

Your next question comes from Ignacio Doménech from JB Capital.

Yes. My first question is on the order book. You have announced a significant increase in the company's pipeline up to 2024, and we saw a positive evolution on your sales in the fourth quarter. So my question is do you see any upside risk to your 2023 guidance with the sales guidance of EUR 4 billion? Okay? Then my second question is on the computer work pending certification. It would be just if you could provide a feedback on the negotiations with clients to close fast contracts. And based on these negotiations, if we should expect a relevant impact on margins going forward? Then my third question is on low-carbon technology. You have now disclosed the financial details according to the new segmentation, so it would also be useful if you could provide an indication on the recurring EBIT margin for this division. And my last question is on tax credits. Could you provide us an indication or how should we be thinking on the tax credits throughout 2023?

You see in the presentation as said, which is true and detailed, that we have a very solid pipeline. Out of that solid pipeline, we focus on EUR 20 billion. Sometimes it doesn't mean that we're not focused on the other, sometimes focus we move to one project to another. And we also have said that we have a strong likelihood that we do believe that out of that, we can have the awards of the next 2 years of EUR 8.5 billion, so the jobs or the projects that we feel more comfortable. So -- and that's the reason we don't want to give a very precise guidance I would say for 2023. But it is true at the same time that it's not really challenging to have a sales figure of EUR 4 billion in 2023. That's very much what we've got already in the backlog, but it's also true in this business, and we've gone through 3 difficult years that we do believe that jobs can be awarded. There are going to be a bunch of jobs, not only to us, to everyone, they're going to be an award in the -- before summer. But from being award to have the contract signed and then start, it may take a while. So that's why it may be a risk, as you call it, of a slightly upside on our sales figures, but we have to be, as I said before, prudent with the guidance, and not give guidance anything above EUR 4 billion. And it's true that you have seen that 2022 has, because of uncertainties because of the war, or whatever, the number of awards was low. So that means that we have -- the accrual for 2023 will also be as low as well. You're asking about -- the second question was about low-carbon technologies margin. We do believe it's got to be a margin business. It's a margin business because the role of TR is working with customers to escalate new technologies. Let me tell you, there are not that many companies that understand these technologies. So we need to -- we deploy resources, we deploy engineering. We started by doing engineering, not EPCs and therefore, it's got to be, by definition, a margin business; a margin business with a lot of value added to the investor, customer and the market.

And regarding the other 2 questions, the negotiations, depending negotiations with the client, the clients, first of all, we've been able to close within this year, 2022. For the negotiations, I want to mention the countries, Oman, Bahrain, Arabia, Poland, Singapore, Emirates, it's been extremely successful. We have done an extraordinary job. There's only 1 country pending. Well, we believe that the figure we are finally going to obtain is absolutely aligned with the figure we have in our books. And we do not expect any impact in no profit -- no additional profits or no deterioration of margins. I mean we will just convert this asset into cash, probably in the next 2, 3 months, and we will have the opportunity to forget all the spending negotiations regarding COVID. And if we talk about tax credits in 2023, well, okay, well, the tax credit, that's one of the toughest part of self-auditing every year because what we have to do is to provide to us for comfort that we can recover the tax credits in the forthcoming 10 years. That's what's -- what the rule of accounting says; 10 years to fully recover. And with the volume of revenues and margins we are expecting to capture in the short term, we feel quite comfortable. These tax credits will be recovering in this period. And if we are lucky, we can even shorten the period of recovery, as well. [ Theoretically ] speaking, it's proof that it can be recovered in the forthcoming 10 years.

The next question comes from Robert Jackson from Grupo Santander.

First question is when I look at the energy transition projects you're working on, which you have described very well in your press release, they are all or mostly seem to be from new clients or potential new clients. The question is, how do you see the potential to leverage off your current client base, such as the larger clients in the Middle East, or to be able to diversify into the energy transition activity over the over the midterm? That will be the first question.

I mean, we work in energy transition. I mean we're already proving to the market and to our customers through energy services that we're very focused, and we have the means and the resources to work with them. Everybody thinks and we do think that this is a United States and Europe business, but I can assure you that all the traditional energy companies, national oil companies, they're following huge investments. They want to compensate their traditional energy business with transitional energy. And they have the means. Probably there are going to be the ones that are going to escalate more aggressively new technologies, and we're going to be seeing as well in the region in the Middle East, very large investments, very soon, related to our energy transition, and very specifically, hydrogen and capture, carbon capture. So it's not that difficult for them, and they're very focused on it.

And the second question related to what you mentioned, the U.S. with the Inflation Reduction Act. I believe that you could be looking to move towards that part of the world to look for opportunities. Can you give us any comments regarding that potential?

I think we're putting together a very solid strategy. We do believe -- and we do believe because our experience in working in the U.S., when you do engineering and when you have quality, you have to remember that we have worked with many traditional energy oil and gas companies and they do not come in to Madrid to develop the engineering, they're there to get, then it's constructed and developed in other parts of the world. So our strategy is to move there and work with our customers. On Monday, we'll get into details, Monday the 6th, and we have a strategy together with McKinsey to introduce TR batch track into the U.S. We're working on it. We're very much ahead on the project. And we are -- we see as a great opportunity for TR. We really believe on it.

And my final question is the increase of new expected awards that you highlighted, EUR 8.5 billion. In the 9 months, it was EUR 6.5 billion. Just interested to know where that increase -- if you can give us any idea of where that increase is coming from, from EUR 6.5 billion to EUR 8.5 billion.

Obviously, Robert, you know that we have a very strong presence and a strong franchise in the Middle East, but not everything comes from the Middle East. You have seen already, we have opened new markets in Kazakhstan. You have seen that we have developed large FEEDs in Asia Pacific. You have seen quite recently that we have had awards in Latin America. We have a franchise and presence in Mexico, [ BP in ] countries, South of South America. So that's why I like to stress in the presentation that this is not a regional cycle. This is a worldwide cycle. We need to focus. So we have to focus, not in the world; we have to focus on projects and customers and not all of them are going to come from the Middle East for sure. As you, I think the market were surprised when we got awarded a big job in Kazakhstan. We may come with surprises as well over 2023, but I cannot be more transparent. Sorry for that, Robert.

The next question comes from Francisco Ruiz from BNP Paribas Exane.

Okay. I have 2 questions. The first one is regarding the margin and the operating leverage, taking into account the sharp increase in sales. I think that the operating leverage has not been as we have expected. In fact, a big part of the improvement has come on the other cost. I mean not assigned to projects. If we exclude this, the margin of this year on a normalized basis looks even for this year, I mean, 2022, looks worse than in 2021. Is it just a matter of a calendar effect? Or could we infer that there are some projects with lower margin than initially expected? The second question is on the growth. I mean you have highlighted the strong pipeline and the strong work that you're going to have in the next 2 years. It's true that your cash position has improved peripherally in the last, let's say, 2 quarters. But do you think that you will need some help in the kind of an equity issue in the coming months in order to finance the growth that is coming or with your own resources would be enough?

Okay. Let me start with the first question. I think our message is clear. If we analyze the quarters, I mean, if you remove the extraordinary impacts we see in the -- we saw in the second quarter of the year, first quarter, we are EUR 7 million. Second quarter was EUR 11 million, in the third, EUR 27 million, and the fourth EUR 39 million. So our profitability is growing and is growing in parallel to the growth of revenues. It is a fact that this fourth quarter includes something extraordinary that makes a bit difficult the comparison. But what I can tell you is that if you remove that extraordinary effect from the revenues and the margins in the fourth quarter, we are solidly above a 3% margin of EBIT related to the size of revenues. And this is a trend. I mean we say next year, we will be in the 4% margin. And well, probably in the first quarter, we will be closer than this 4% than we currently are; we will move close to 3.x percent. And I'm talking about a very, very robust and solid 3-plus percent, okay? That's the expected evolution of the margins and the revenues. And regarding the second question, I think, Juan, maybe.

Yes, let's talk about it. I mean as in all my presentation and both notes, now I'm getting lost whether I wrote it or said it, I was talking that we are the very -- we've seen the tip of the iceberg. We are presenting now already, presenting now and been prequalified for a large number of bids. We've seen a massive volume of investments that are going to be sanctioned in the very near future as well. And our message has always been that we will be doing anything to capture this potential growth. We have the franchise and we have the mean and the credibility to do it. And our priority has always been and will be to maximize our future profits. We have to maximize our future profits to deliver value to shareholders. And we are very -- we're currently today involved in significant tenders that we do believe they're going to be awarded before summer. So we're going to have now today, we have to pause and we're pausing with our clients where they're really demanding. We don't know. We have to see what do really demand. So if we need it, so we have to react accordingly because we cannot miss this opportunity. So it has to be a mix of both. We have to pause the market, we have to pause our customers and then react accordingly. The important thing is we're going to capture the market and we're going to capture growth.

[Operator Instructions] The next question comes from Alvaro Lenze from Alantra Equities.

I have 3, if I may. The first one is please on the evolution of backlog. You have increased in 2022 your backlog slightly. And in fact, in Q4, it has also increased slightly despite the fact that order intake has been significantly less than revenue. So I wanted to explain what makes up for that difference? The second question is regarding revenues and the guidance for 2023. If I exclude the extraordinary impact on sales in Q4, you have about EUR 1.2 billion revenues in Q4 and in Q3 2022. Why then do you expect a slowdown to an average of EUR 1 billion revenues per quarter, implicit in your EUR 4 billion guidance for the year? And if that is the case, without operating leverage, how is margin expected to increase from the current levels to 4%? And the last question would be on cash flow generation. If I look at your cash flow statement, we see that working capital has seen an inflow of cash in the year, which is to be expected as activity recovers. However, what we have seen is that the accounts receivable continue to increase. It's just that the accounts payable increased by an even larger amount. When should we expect the recovery and activity to translate in an overall reduction in the gross amounts of receivables and payables?

So thank you for these questions, Alvaro. Yes, the backlog evolution, yes, this year is a bit tricky because there are a couple of issues which are extremely relevant and it's not difficult to realize they are there. The first one has to do with a massive volume of change orders we have been able to consolidate within the year. I have mentioned the countries before, but we are talking about more than EUR 1 billion of change orders. So it's -- you know this. We have consumed them as revenues, but you haven't seen a movement in the backlog, but it is there because we have to add up these change orders to the initial backlog and then we reduce them by delivering the revenues. That's the first factor. Second factor we are missing probably has to do with the U.S. dollar. The U.S. dollar has been -- we started the year, the U.S. dollar was 113, I think, and by the end of the year, it's 106. So again, it has hundreds of millions of euros of impact. So you cannot make an easy bridge between the backlog by the year-end, 1 year ago and today, because it's a bit complicated because there are a number of issues which have an impact. That's regarding the first question. Regarding the second one, why is EUR 1,000 million per quarter, why EUR 1,000 million per quarter and knowing that we are now in 1.2? Well, I have to be very honest to you. We plan carefully what's going to happen in the next 4 quarters because we know perfectly what is the existing backlog and how it delivers quarter-by-quarter because we know how we are going to perform. And my number for the forthcoming 2 quarters, clearly, it's around EUR 1 billion. This quarter, we have been a bit more successful in terms of revenues probably has to do with we have done some works that have an extraordinary impact in revenues because one, there are certain activities. Imagine, for example, how relevant is the procurement, if you compare it to engineering? You can do a lot of engineering and deliver with the revenues; while doing a small procurement can have a huge impact on revenues. So this is the kind of issues that could have an impact in the absolute figure that we'll deliver quarter after quarter. As I've told you, as I have told you, my estimations are clear. I know my backlog. I know how I'm going to deliver. And for the first coming 2 months -- 2 quarters, do not expect much more than over EUR 1,000 million, maybe EUR 1,050 million per quarter. That's my estimation. And when we should expect a recovery in the gross figure of payables and receivables? Well, it doesn't -- it shouldn't take a long time to see that. When you have a look to our account receivables, account receivables and account payables are linked. We try to pay when we collect. And so everything goes together. And why we have such a big volume of accounts receivable today was basically because of 2 reasons. The first one has to do with the work in progress in certain countries, basically Saudi Arabia. We are buying the equipment -- the procurement for Aramco in one of our projects. And we can only invoice this procurement to Aramco once the equipment arrives to the plant. So we expect this equipment arrives throughout 2024 the first, let's say, 6 months of the -- no, not 2024 -- 2023, in the first half of 2023, and so we will be able to invoice and consequently to collect the money. So we will see how this figure will dramatically go down by half of next year. And also, the change orders that we have closed by the year end of 2022 are going to be invoiced now, and will be collected probably in the next 2, 3 months. So again, that's a reason to believe that by half of 2023, we will see a reduction of accounts receivable. And consequently and immediately, you will see a reduction of accounts payable as well.

Your next question comes from Baptiste Lebacq from ODDO BHF.

Two questions from my side. The first one is regarding North America and your comments on the country. Some of your competitors, European competitors, used to say that it's a risky country when you sign a turnkey contract. Do you have the same view? And in that case, how would you, curb, let's say, the construction risk? And the second one is regarding the EBIT margin. So now you are, let's say, targeting 4% of EBIT margin. If you -- if we have a look at the past, for example, 2006-2013, you were able to be at 5% or 5% plus. I know it's maybe a little bit too soon to speak about it. But do you think that you still have some room to increase the EBIT margin in the future and return to this level of margin that we have seen close to 15 years ago?

I'll answer the first question, Baptiste, and Eduardo will go over the second one. I fully agree with you. I mean, because doing construction in North America is very risky for North American companies, and it obviously should be very risky for us. We have worked in North America. I mean, the United States, we've done engineering and we've done EP, engineering and procurement in the Gulf of Mexico, very successful. The fact that I said that we very much have to focus, especially in the energy transition in North America, it doesn't mean that we're going to go there and become a construction company. We will not. I can guarantee you that. That's why we would like to stress today, all the different schemes and ways to derisk our backlog and to derisk our construction schemes. And here, nevertheless, we had worked in the United States and outside the United States, developing engineering and then developing jobs with American companies and I can tell you, when you do engineering and you work with them, they're probably the best companies in the world to work for. So you have the -- we will not be doing construction but I will definitely see us working for many or some of the U.S. customers or potential customers and majors.

Regarding the second question, 4%, it is a conservative margin, I think that's the question. First, I go back to a previous answer. We make a very detailed analysis of our backlog to plan the results of the forthcoming years. And to me, the existing backlog can deliver no more than this 4%. That's very, very realistic. The new wave of investments that are coming, I cannot predict exactly what's going to be the margin that they are -- that the investments are going to deliver. But as you know, I think we have suffered the last 3 years. It's been tough years for us. And we cannot be aggressive now. I think to declare that our expectation is at 4%, is right. I don't want to say it's conservative. It's the right figure to make the numbers and because that's what we foresee for the future. We don't want to go beyond that figure today. I mean, obviously, we will maximize our efforts trying to do the best of us to improve these margins. But for the time being, let's say, 4% is the target.

Thank you. There are no further questions in today's conference. Dear, speakers, back to you.

Okay. Thank you, Baptiste. At the end, we didn't say thank you to you. But thank you to all of you that listened to these presentations. Thank you for your questions. Thank you for being with us. And we'll be talking to each other again within the next few months. Thanks again.