Hello. Good morning, everyone. Thank you very much for joining us in this conference aimed to present the results from the third quarter 2022. To this end, Gonzalo Urquijo, CEO of Talgo, will go through the presentation and at the end of it, we will open a Q&A session and to clarify any questions you may have.
Thank you very much. Good morning to all of you, and thank you for joining the call. As you know, as a reminder, you know results for first quarter and third quarter are summarized results. That means we don't go into balance sheet according to the change of law the CNMV did in Spain. The first page, as you'll be able to see, we start with safety. That is our number one priority. We had the frequency rate is practically 9, severity 0.22. We've had no severe actions, and we're still working very hard on that.
Additionally to that, in all this ESG chapter, we will be installing in the 2 main plants, that is Rivabellosa and Madrid, solar panels in order with 2, clearly 2 objectives. That is, one of them is to cheapen the price of of electricity, which has gone up, even though we are not a big consumer, but clearly it has doubled, I would say. On the other hand, from an ESG point of view, it makes a lot of sense because we will be producing our own energy, and it will be all solar energy. Second, as you can see, in terms of the reshaping of Talgo, it's a segment. Clearly, we are still in an environment that has a lot of uncertainty.
We have the macro situation, the geopolitical situation, and that has impacted all the industries in terms of raw materials, cost of labor, supply chain disruptions, clearly. We've continued working with our customers, with our suppliers in order to improve this. I'll come back to this point. Additionally, in terms of commercial, we believe the momentum, the situation and the sector has gained a big momentum. I would say InnoTrans was, again, a game changer for us and I would say for the sector. We have. I will go back to it, but we have at this moment, we are reviewing 35 different offers. In terms of results, that is key point, you see our revenues. Our revenues have been EUR 352. It is clear we have seen an increase in the third quarter.
As for EBITDA, it is the same. We have seen an improvement and the margins are just below 11%. We will be in the last page confirming our outlook, even though this environment does have uncertainties. Page number 2. In terms of manufacturing, you know we passed from the big Avril high-speed train in Spain, that we are in the tests of this. Tests are going well. We have seen the delays due to the COVID, that is clear. Now in the testing we have seen them. It's also due to the infrastructures and to the operator. The train is performing well in the testing. In terms of manufacturing, we have seen now the new projects have come in, and there will be more and more.
That is Germany, the DB, it is Egypt with the first train. Additionally to that, it is Denmark. Okay? Maintenance business is fully recuperating, and as always, it has a constant and stable performance in terms of revenues and of margins. The commercial activity is becoming more and more, we're seeing more and more. As I was saying in the previous page, more and more activity and more and more demand of trains in this moment. Additionally, we are very fortunate because we have two new trains. That is the new high speed, the Avril, and we have the Deutsche Bahn train, the ICE L train. So we are here with two new very good products. You see our backlog is practically 2.9. This does not include Egypt.
As for Egypt, we hope to sign. It was just pending the financial okay. We're struggling with the ministry. That's advancing well, and we don't foresee any issue, and we will sign it in the next months. Additionally to that, in the pipeline. Our pipeline is. Well, let me come back. Sorry. In terms of the backlog, as you see, actually the 70% is maintenance. This, as you know, does have indexation. In terms of the pipeline, you see what is the geography breakdown. It's Europe that's a bit above 60%, is MENA that is 28%, and others 9%. Clearly, what we are working here is this new paradigm, as we call it. That is in terms that all new offers will have two things.
We will put in the offer if somebody needs a fixed price. The full inflation we estimate for the following years, or what we are doing more and more is going for indexation. Next page. In the first part, you're seeing we did have a salary increase for that was for 2021 and 2022. Both years we have been below inflation. For 2021 clearly, and for 2022, we expect it also to be, as you know, it was a 4%. So whether the margins are probably half what the inflation is. Additionally, to that backlog, as I said before, 70% has indexation clauses. That's for the maintenance. In terms of materials, raw materials, as I was saying before, our strategy is clear in terms of passing it on to our customers through this indexation.
Additionally, with some of our customers, we're already close to closing the review of prices due to the inflations we've had in the past and that the laws allow you to change it, and that is what we are doing. Going forward, through this indexation of the hedging mechanism, we want to be fully covered as we are selling products that we will be handing in three years from now, four years from now. Clearly, our strategy is to preserve our margin, margins and have this adequately hedged. In terms of the supply chain, clearly the situation is better in terms of delaying the supply chain, but we still have delays. Clearly, we're working on three areas with our suppliers. That is basically we are diversifying the number of suppliers. We have relocated some of them.
With this crisis have proved that some of the countries that were good suppliers in the past now have become extremely difficult. That is clear, and additionally to that, having adequate long-term contracts and maintaining our contracts. Clearly, with our customers, we're also telling them that we need. It's a force majeure situation for us. In the last point of this page number three, Russia, our activities are completely stopped since March 2022, and we've done the layoff of the 55 people we had in our payroll. That is done and finished. In terms of the USA, the Los Angeles LA Metro. Clearly, as you know, Metro filed a lawsuit on September 15. We responded in October 21st denying all Metro allegations held.
We have also filed a countersuit against Metro seeking damages, mainly for the wrongful termination of the contract in the amount of $48.9 million. Now, we are involved in initial discussions of information and documentation to be provided to the court. Last and not least, in terms of Renfe. Renfe had told us we had penalties at the end of July. We launched on the 15th of September. We say that there's no adequate reason. That those penalties are not justified. Why? Basically, we had COVID. That's clearly a force majeure. Additionally to that, Renfe had changed the specifications of the contract. So that also meant a loss of time. Third, the law in Spain had changed, and we had to do other requirements for the homologation.
Clearly for us, there's no justification for that, and that's what we told Renfe, and they have not answered back. In terms of key financial figures. Well, our turnover is lower than last year. It is EUR 352 million. But if we see the progress quarter by quarter, the first quarter was EUR 118.5 million. Second quarter was EUR 100 million, and the third quarter in terms of revenues has been EUR 137 million. In terms of EBITDA, we've also seen an improvement. We're 12.7% down to 10.7%. Now we're up in the third quarter to 15.1%. We have seen progress, as we say, the maintenance has performed well.
In terms of the manufacturing, we've been able to stabilize the situation, and we start to see an improvement clearly. Last and not least, in terms of our outlook, we maintain our EBITDA for the end of the year 11%. It will be a year we will consume cash as we have basically two major projects. That is the first one in Egypt and especially Renfe, which we will get the payments in 2023. Our EBITDA target remains the same, 2.5 times EBITDA for debt. In CapEx, EUR 25 million of CapEx. Backlog at 32%. Now in terms of average book-to-bill, clearly for this year, if we book this year Egypt, it would be 2.8, so clearly we would be below our sales.
What we think is where we are going to see it is during this year and next year. As I said, our commercial situation has changed for the good. It is strong at this situation. I think it's important now to share it with you. You know we are having extension of three of our contracts. That is DB, DSB, that is Germany, Denmark, and Saudi Arabia. They're not signed, but we are negotiating now with the customers. We do believe Uzbekistan could also, and we started negotiating with them to run back because they want more high speeds for Uzbekistan. Additionally to that, we have deals in the north of Europe and Portugal and more in Saudi Arabia and North Africa.
At present, we're seeing the market is hot in terms of commercial activity. Last, just to conclude, the summary of the summary would be in terms of ESG, safety, environment. Clearly, it's part of our DNA. The new paradigm or this operational strategy, we are working with suppliers in terms of diversifying geographies, long-term contracts with customers, review the actual pricings and going for indexation, taking into account inflation going forward. When I mean inflation, it means for labor, it means for raw materials, it means for materials.
In the commercial, as I said before, we have a lot of deals on the table, and we are always prudent in this company, but we are optimistic with the future months in terms of our commercial deals that we will be able to close. Thank you very much. Now the team is here. We're all open to answer your questions if you have them. Thank you.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please dial zero one on your telephone keypad or submit your questions through the webcast platform. Thank you. Your first question comes from Bosco Ojeda from UBS. Please go ahead.
Hi, good morning. I would like to ask a couple of questions. The first one is on your margins. Looking into next year, I would assume you can pass on the inflation on maintenance and, well, that would allow the margins to expand or inflation on your cost is so high that, maybe that would not be the case. Question on maintenance margins and also on the mix of sales for production, where next year the mix of sales is favorable or maybe it's getting worse than this year. Second question I wanted to ask is on the Saudi Arabian possibility of expansion. What is the timing for that? Well, what do you think about that possibility?
Also on the timing for the negotiation of the German contract, do you think that that's possible for coming months? Is there maybe a matter for more than a year or any color on timing? Thank you.
Buenos dias. Sorry. Thank you very much, Bosco, and good morning. First, in terms of margins, for maintenance, it is clear our maintenance are indexed, so they have indexation. At the end, in that sense, we will not lose margin, and it, this enable us to maintain our margins. Second, in terms of the manufacturing, we do expect that when new deals come in, clearly, that have not been affected by this situation of supply chain or increase in raw materials, that should mean that in manufacturing, which we should see a progress in terms of, margins in manufacturing.
Now in terms of the deals, you are saying, look, if you ask us, we believe that Saudi Arabia with the negotiations and the conversations we're having could be, and what we expect, is signing it in the second semester in terms of Deutsche Bahn and DSB in the first semester, in the first four or five months. Those are the calendar we have now. But things could always vary or could become before or later, but that's the present calendar we have now. Okay. Thank you for the question.
Perfect. Thank you.
Gracias.
Thank you.
Thank you. The next question comes from Jaime Escrivá, from Banco Santander. Please go ahead.
Hi, good morning. A couple of questions from my side. Just a follow-up on Bosco, one. If you can be a little bit more specific on the margin evolution, and I explain myself. You guys are making an EBITDA margin of close to 11%, a little bit more in Q3. With the new projects, you say margins should improve in 2023, but just thinking out loud, they will take time to kick in, no? To start contributing to the margin. How soon we think about the margin increase? Is it gonna be the following quarters just a small increase and suddenly at the end of 2023, like a more substantial increase?
Is it gonna be linear? Yeah, if any colors you can provide us to better estimate our models would be much appreciated. The second question is regarding the Renfe contract. My question would be, what do you need to finish the homologation? To better understand where exactly you are. Is it that you are missing some components, or is it that you, as you explained the last time, you need to roll the trains more hours and you don't have the availability of drivers, or what exactly is missing to finish the homologation and when do you expect to finish it? Thank you very much.
Thank you, Jaime Escrivá, for your questions. The first one, you know we have to be prudent today. We're not giving a guidance on 2022. That is first. I could tell you in terms of the margin evolution, clearly the portfolio that will come in will be different in margins than the one we have today. That is clear. Having said this, we will in any case. Now, how much should you put in your model? Well, it depends. When they enter, we will start with those projects once you have them. Once we are assigned those projects, we will start with engineering, et cetera. It all depends when you sign them and what is the amount you can do during that year 2023.
As I said, the margin will be different than the ones we have today in our portfolio. Now, coming to your second question, in terms of homologation, where are we? Look, I believe we are touching to an end. All our trains have been, as you know very well, already manufactured. All our trains have been running around the different rails in Spain. First, we went with the fixed gauge, now after with the variable gauge. Then you start with a normal high speed. When you're straight lines, then you start into curves, then you start it into up and down hills, then curves. It all is a long process. Now we believe we are very advanced with that. We hope to finish this in the following months, I would say.
It has to go to the agency, who has to look at all the information we've given, and then they would give the final okay. The agency, as you know, it's a state agency that is the Spanish one, who certifies that all these testing we've done is adequate. Up to now, the testing has gone very well. We've had issues because we have not have availability sometimes of drivers, availabilities of different rails. There has been, especially, we've seen new competitors coming to Spain, and that has made everything more complex. That's a question of the infrastructure on one side and the operators on another side. Up to now, and the trains have rolled very well and all the tests have proven to be successful.
Okay. Thank you very much. Very clear.
Gracias, Jaime.
Thank you. Ladies and gentlemen, we kindly remind you if you wish to ask a question, please dial zero one on your telephone keypad or use our webcast platform for the written questions. Once again, if you wish to ask a question, please press zero one on your telephone keypad.
I believe there's two questions that have been sent to us, written. One was, cash flows on Renfe in Egypt. Yes, we will have the cash flows next year, but we have not advanced the, quantities. They will be important. Clearly, they will at the end, so it will be big cash ins, important cash ins, next year, but we have not given the amount. The other question was?
The other one is, regarding Renfe conflict and the-
Yeah. Okay. In terms of Renfe conflict, where we are now, we've answered Renfe. We believe there's no justification to pay these penalties, and the ball is in Renfe's court. They have to decide what they want to do this time. We're fully justified that force majeure due to COVID, the legal part, and the change in the train specifications. That is where we are now. Okay?
There's a question regarding the corporate strategy in terms of M&A candidates.
Well, as always, and we've said, we are open to M&A deals. If they come to our table or they come or we look for them, we are analyzing permanently different deals. If they make strategic sense, that is they make financial, commercial, I mean, labor, in every sense, we will go ahead. I mean, we're always open to that and to do M&A clearly.
Thank you. Okay, there's a new question coming in through the platform. It's regarding the maintenance contracts, concretely, to the indexation to inflation. If all the maintenance contracts are linked to inflation, and if also the latest every contract has those, that link, that indexation.
Well, in the contracts we have now, the contracts do have this indexations. The ones we are negotiating now with the extensions we said, et cetera, we're always also negotiating indexations. We have at the end implemented or we've taken that to our manufacturing. The answer is yes, they are indexed. The new ones, we expect them also to be indexed, not only the manufacturing, but also the ones that are for maintenance. In the Avril, the last one in Avril, it is also included for the new train.
Thank you very much. We do have a further questions by phone coming from the line from Beltrán Palazuelo from DLTV. Please go ahead, sir.
Hello. Good morning, everybody. Thank you for taking my question. I would like to have a question regarding margins. Of course, you commented, Gonzalo, that until new contracts do not come in, well, it is difficult to reach, let's say that at least 15% margin of medium to long term that this company has always targeted. In your presentation, you mentioned that supply chain is better, that more or less things are starting to be under control. Just to try and pencil the next quarters, let's say until end of 2023, until let's say new contracts really take a big amount of the manufacturing. What can happen in order to make margins lower than 11%?
You think 11% margins more or less is the minimum, but then nothing should happen that will make your margins go lower than 11% until we get to, let's say, a full margin in manufacturing that takes us to 15.
Well, look, in terms of margin, I think there's two things. We do have the actual portfolio, has the margin that it has, and at the end, the way of improving this is to, let's say, we can prove industrially that is. Well, let me say, first of all, there's external factors who still remain challenging, Beltrán, and that is there. That is inflation, that is the supply chain. Even though things, as we said, and you very well quoted, they are looking better, that is clear, but there still is uncertainties out there. Coming back, we do think that the portfolio we have now, especially in manufacturing, is what it is. It has been under the margin, let's say, squeeze or margin pressure due to the increase of raw materials and labor. That is there, and that is the margin.
Now, every deal we'll sign now going forward should have a better margin. Clearly, once we start working on it, we'll see that impacting in our margins. Your question was, are we at the valley? Clearly, well, we could be today with the situation we have today, but we don't know. We don't have the crystal ball, as I said, on what's going to happen in the future in terms of the macro, in terms of the you know, environment. Clearly, with the new deals, these margins in manufacturing should improve, clearly.
Maybe I did not make my question, Gonzalo, clear. You know what materials and what pieces you need in order to, let's say, to end your... Let's say, to go from here to 2023, what worries you that might... Because theoretically, everything should be more or less close to for the end of next year and the supply chains, when we see flat rates and everything is getting better and better. So of course, things can get worse, but the things, what you say, what they are now, what can happen to make margins go lower than 11%? What worries the company currently?
Well, what worries us if suddenly we see again that the war becomes geopolitically more difficult, that energy prices go up, we have an increase. I mean, we see things. They are if they stay how they are, shouldn't be an issue now. We have many macro things. What is it? There's a strike in the transport or if we see at the end the shipping going up as it went in the past. Those things, there is open questions there. For the moment, we don't foresee that. If so, we would come back to where we were, let's say a few months ago. That's what I could tell you, Beltrán. We have those things. We believe we are going away from that risk situation.
It's always there. If suddenly something happens in the war, suddenly inflation goes up to 15%, then we are in a different scenario. If we continue the trend we are now, we are, I think, in a better situation and there shouldn't be deviations. Now what worries us was at the end, it's energy. It is, you were telling me, it is the raw materials, it is materials in general, it is inflation with the labor cost. That is the worries. I think we have it now, you know, that we expect that things should and we hope they continue improving.
Okay. Thank you very much. Thank you for the hard work for all the team.
Gracias, Beltrán. Un abrazo.
Un abrazo.
There's a last question in the platform regarding the backlog or asking for estimates on the backlog execution in 2023, which at the end are the expected revenues for 2023. The expected backlog execution in 2023, so revenues expected for 2023.
I think we'll have to say that in the next meeting we have when we speak of the guidance. I mean, if not, we would be giving guidance on 2023. I think we should be prudent. We have to see how is the development of this last quarter, and then I think it makes more sense. Okay. Any further questions?
Uh, uh.
Thank you very much.
There are no further questions. Thank you very much, for the call.
Good day, and thank you for your support. Thank you very, very much. Have a good day to all. Take care. Bye.
Thank you very much. Bye.