Hello, good evening. This is Joaquín Pérez de Ayala. Welcome to these results presentations of the third quarter of 2022 that will be conducted by our Chairman, Juan Lladó, and our CEO, Eduardo San Miguel. It will take around 15 minutes, and you can ask your questions after that. Now I give the floor to Mr. Juan Lladó.
Hi. Hello, everyone. This time, I promise it's not going to take more than 15 minutes, so let's get to the point. Let me start this presentation with a quick summary of what are going to be the initial remarks, which I'll summarize right afterwards, the quarter highlight, following with an update, which I think is necessary, of TR's engineering capacity and capabilities, as well pipeline opportunities. Let's continue the start. After I finish, Eduardo will brief you on our financial results. The financial results of this first quarter, he can also brief you with our guidance before opening the floor, obviously, like every quarter, to questions and answers. I'd like to start with this slide with the unprecedented volume of investments that are forthcoming. You may think that I'm optimistic. I'm not. I'm being realistic. If you analyze the market, all vectors are pointing to the same direction.
We have a growing energy demand, fast decarbonization plans of the main energy companies, or even a strong interest in diversifying supply to Europe. Everything points to that direction. That direction is investment, and investment. Where do we think that investment is taking place and is going to take place? We do expect the Middle East is going to be leading this upcoming investment, let's call it super cycle. I do believe, I'm convinced, and I do expect that TR is going to be extremely well-positioned to take advantage of this very positive scenario. Moving to financial results, let me do a brief introduction, Eduardo will explain in more detail later on. I'm very happy to highlight that quarterly sales are back to the EUR 1 billion, approaching already pre-COVID levels, with quarterly EBIT margins, reached 2.3%, indicating a reversion to normalized times.
We're talking about super cycle, we're talking about unprecedented investment that are forthcoming. Let's get down to business, let's analyze this slide based on data from McKinsey that summarizes the global investment trends of our industry. First, on one hand, we have a very sizable investment still needed, just only needed to address the depletion of current oil and gas wells in the market. Two, secondly, this is not only depletion where the investment has to take place in traditional energy, but also the volume of growth. The market investors have to supply the growing energy need of both developed and less developed countries. Finally, but in parallel, we're facing an enormous investment effort in the acceleration of the deployment of low carbon technologies, as have already been assured by the investment plans of major industrial, both industrial and financial players.
If we follow the slide, and we add up these three investment reasons together, we estimate an addressable market for TR that starts currently on more than $600 billion and is expected to grow close to $1 trillion by the end of the decade. In this huge amount of investment, I think you all will agree this is already creating, is going to create different bottlenecks. Bottlenecks that in our case, we have to anticipate. One of the big bottlenecks we do believe, as we are already facing it, is going to be a scarce engineering capacity of the market. A scarce engineering capacity to cope with all the projects that are going to be announced. We're getting ready, and we are already anticipating that issue.
In this context, TR, over the last month, and when I say the last month, I said not the last two months, closer to over the last year, it's been working hard preparing itself to give the best response for this investment load expected already in the coming years. We have more than 4,000 engineers. More than 4,300 engineers. We're centralizing operations in Madrid, as we've always done. From Madrid, we do most of our engineering, and it is from Madrid where we manage risk and coordinate our engineering centers. With the support of all the engineering centers all across the world, we're going to be able, and we're already able, to offer the best engineering expertise to our customers. We're strengthening Madrid. We're strengthening within Spain, Cartagena. Not that many of you know that we have a small.
Today, it's more than 200 engineering center in Cartagena, Spain. We're strengthening India, and we're growing in India. We're strengthening very much the Middle East, our engineer offices in Saudi Arabia, Abu Dhabi, and Oman. Obviously, we're strengthening Chile. You might be wondering why Chile. It might not be the center of action. You have to remember, as an investor or as an analyst, that we're Spanish, and we have a strong presence in Latin America. We have operations in Chile. We have operations and recent awards in Mexico. We operate in Peru. We operate in Dominican Republic. We operate in Colombia. Obviously, we have announced this year we're operating in Argentina. We're also strengthening our engineering center in Chile. You might be asking or wondering, where are the awards? It is true that we have not announced major awards over the last quarter.
However, we continue to be, and we are very optimistic over the future evolution of the backlog. Our major clients are publicly announcing an increase and also an acceleration of their investment plan. Obviously, on a daily basis, monthly basis, we talk to our customers. In those talks, they're keenly requesting us to keep engineering capacity available as they do think that this could be the scarce resource once all this investment wave unfolds. We're very positive also about timing. We are already seeing, and we see how many projects are getting ready on the final investment decision. We're seeing, and I'm sure you as well are seeing, how front-end engineering design contracts are already being sanctioned to speed up the investment file and investment decision.
In the same slide, on the right-hand side, you can see we're working on a total pipeline of $48 billion just for the next month. It's not a three-year pipeline. It's just next month. Within that pipeline, we're very much concentrating. We're focusing our efforts on more than $20 billion. Those $20 billion is what we call key opportunities, and we are optimistic, and we all think that we're very well-placed for more than EUR 6 billion of awards. You understand now why I'm positive, and obviously, you have to understand where we've been working over the last month to strengthen our capacity, and we're doing so. With this brief message and a positive message, let me now hand the floor to Eduardo for the financial section.
Okay. Thank you, Juan. Good evening, everyone. Let me move now to September figures. I will go briefly over the quarterly results. My main headline to summarize those results is that they are fully aligned with the guidance we provided in July. With regard to sales, let me underline that we moved back above the EUR 1 billion threshold, regaining a volume of activity that we saw last time in the first quarter of 2020 when COVID started. Our quarterly EBIT is EUR 27 million, the best one in the last two years, and is due to three reasons. First, bigger sales due to the smoother execution of projects under less stressed environment. Second, the operational leverage of the company as overheads spread up over the higher turnover. Third, our continuous efforts devoted to contain our costs. I also want to highlight the positive evolution of the underlying cash generation.
As you can see in the graph, we had a positive operating cash of EUR 50 million that compensated a big portion of the payment related to Touat Gaz that took place at the beginning of July. Moving to our guidance, as guided in previous presentations, we expect to end the year with quarterly sales above EUR 1 billion and margins moving towards 3%. With regard to 2023, it is still not easy to predict the timing and speed execution of future major awards. Thus, we will provide formal guidance for 2023 in February, when we expect to have more visibility. In the meanwhile, and I believe it's extremely relevant, let me anticipate that just only with our current backlog, we have already secured a level of revenues of EUR 4 billion in 2023 with an EBIT margin of 4%.
Given these projections for 2023, we understand there should be little doubt about the fact that our midterm targets are highly achievable. Considering our engineering capabilities and the expected growth of demand in our sector, reaching EUR 5 billion in awards and revenues does not look a very challenging task. The 4% EBIT margin is a figure we will already see next year with only EUR 4 billion of revenues. I can assure you that we are working hard to reach those goals, and that we will take all the necessary steps to get there and to stay there. Thank you very much. Now, we will be happy to answer any questions you may pose.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please dial 01 on your telephone keypad. Thank you. The first question comes from Mick Pickup from Barclays. Please go ahead.
Good evening, everyone. It's Mick here. Couple of questions, if I may. Firstly, I think in your press release, you mentioned new ways of working and new business modules. I wonder if you could elaborate on that. I'm assuming that's the pre-construction support agreements out of Abu Dhabi. Can you just talk about that and your clients? Secondly, you seem to be indicating a very, very strong market, which looks like if I look at everything, that's going to become very tight. Can you talk about the terms and conditions that you're seeing on contracts, what clients are saying about cash, how you're going to handle it on that end? If it does get as busy as you're saying, it's going to be a better world.
Hi, Mick. I'm Juan.
Hi.
I'm going to be answering to you, as I've always done for the last, I don't know.
I don't know
15 years.
No, I'm only 21.
When you say new ways of working in construction with clients in Abu Dhabi, I don't think it's just only in Abu Dhabi. I think it's worldwide. I think as market tightens and the quality of design, modularized design develops, I think modularization in this business is taking a very important role. In Abu Dhabi, we're already doing so. I'm not going to put it here, but I was watching this week a little short movie which shows how huge 10-story building modules are going into the vessels, and from the vessels to the island of Abu Dhabi. I think we're very good at that. If you analyze, not only Abu Dhabi, we're working with modules. In Singapore, we're working with modules. The big, huge job that we're doing on a service basis for Ineos in the heart of Europe is going to be modularized.
Modules is important, I think today we're very strong. It has to do also with quality of engineering. It is not the same way you would have to design a plant if it is going to be modules. It is also a way to de-risk construction, and it is also a good way to de-risk project execution. We have to say we are good at that. I must have to say there is room for improvement, but we are very good at that. The second question, terms and conditions on contract. Obviously, most of the jobs that in 2020 were practically stopped in the first half of 2022, they have been rescheduled, rethought, and sometimes rewritten in many cases. Our customers today, they need to accelerate execution. Our customers today, they have ambitious target for us to finish and to make money.
In that, in a good agreement with our customers, I think it put us back where the market was before 2014, where terms and conditions, I am not going to be optimistic, but they are fair. They are very fair. Payment terms are much fair, and contract conditions are better. We are not negotiating in the middle of the oil crisis. We are negotiating with customers really is to their benefit for us to run and to deliver.
Okay. Thank you.
Thank you very much. Ladies and gentlemen, let me remind you again, if you have a question for our speakers, please dial 01 on your telephone keypad to enter the queue. Thank you. The next question comes from James Thompson from JP Morgan. Please go ahead.
Hi. Good evening, gents. Thank you very much for the brief presentation this evening after the market close. Much appreciated there. Just in terms of the 2023 guidance, you seem particularly confident obviously now in terms of the EUR 4 billion revenue level. I think obviously what we can see in Q3 now is, as you guided us, the progress through the projects has improved pretty significantly. I wondered if you could maybe talk a little bit about some of the kind of risks around that 4% EBIT margin. Again, it feels like you've sort of struck a more positive tone about achieving that, which is notably above, I think, probably where consensus is thinking right now for EBIT for 2023. Just some color about the confidence there and maybe some of the kind of risks associated with that 4% margin target would be helpful. Thank you.
Hi, James. It's Eduardo now. It's been a difficult time, this period of post-COVID. We have been working very hard with the clients, trying to define the scopes, the price, the rhythm of execution, the schedules, and I honestly believe that we have a very deep knowledge of the cost base of the projects. We have also agreed with the client how they are going to compensate us, in most of the cases, all the relevant costs. When we say 4% margin, we are quite confident that is, as I said, I don't want to say quite easy to achieve, but I think it's not a really challenging target. I think 4% is quite consolidated. That's my feeling.
Okay. Thanks. Well, interesting to the confidence there in terms of discussions. Secondly, this year has been, I think, a year of much higher activity in terms of tendering levels from a number of your clients, and it feels like they're gearing up. Obviously, there's been a lot of volatility, however we look at it, raw materials or just geopolitics in general. What gives you the confidence your clients are now kind of ready to move forward? Is there a window of opportunity now in the fourth quarter, in the first part of 2023, that actually going to mean some of this pipeline, which has been slipping to the right, can materialize or crystallize for you?
If you go through the analysis, you saw that there is a huge trend of awards before the war. I think the war was sort of an inflection point. Any war, obviously unexpected war, scares investors for a while, and that has happened. It is true. None of our customers has stopped their investment. None of them. It has been delayed. It has been deeply analyzed. We do really expect that our customers, and that's why the message that I sent before, that we have to anticipate and get ready. Our customers are launching, are going to be launching this year, and then we'll see awards by the end of the year. If by the end of the year, first quarter next year. We're going to be seeing awards. Market is moving. We're placing bids.
We are getting that already, and these Q&A questions on the bids. We see a positive market. That's why I started my presentation saying that, which is a message for you and for our customers. For both. When I make this presentation, I think on the investors and in parallel, I think on our customers, that we have to strengthen and we continue to strengthen our capabilities and our capacities of engineering quality and quantity, because we do believe, we're convinced, as we pulse the market and the bids, that our investments are going to take place very soon.
Very clear. Thanks, both. I'll pass it over.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial 01 on your telephone keypad. Thank you. Once again, if you have a question for our speakers, please dial 01 on your telephone keypad now to enter the queue. The next question comes from Mick Pickup from Barclays. Please go ahead.
Hi, everyone, again. Sorry, I'll jump back in if there's chance. A couple of questions, if I may. You mentioned the Ineos project of $4 billion of investments on a service basis. Can I just assume that's the reason why you're confident on margins? Assuming that comes through with low revenues and much higher margins than the rest of the portfolio. That's the first question. Secondly, on the Touat, whatever it's called, project, where you've had to pay out your EUR 80 million. Where do you stand on that? Are you going through arbitration or are you trying to recover it, or is it gone and dusted?
By Ineos, as you know, it was announced by them, it is a big investment in the heart of Europe, it is in Antwerp. It is an ethylene plant. An ethylene plant by which we started with the ethylene plant, and we are moving forward together with them to do the water plant, so to speak.
Yeah.
Now we are trying to expand our services. It is, as I said in my note, it is a cost plus. It is not an EPC.
Yeah.
Had it been an EPC or sales volume, awards, we would be out of this world. We are not. We are working with them where we have way up of 300 engineers teaming up with Ineos' team here in Madrid in extremely good terms to focus on the design of the engineering, the modules, the supervision of the modules, the transport, and the construction. Everything is going to be together with Ineos with an ambitious schedule, with an ambitious investment, but it is cost plus. Margin is not an issue.
Algeria?
Algeria. Algeria, we have conversations with the customer. We have not broken conversations. We travel back and forth, and we travel back and forth with the objective of reaching an agreement. It is a customer with whom we had worked together, with ups and downs, like in this business, that always happens, for the last 25 years. I'm convinced that it's my opinion. I'm convinced, and I do hope our customer is as convinced I am, that sooner or later, we'll reach an agreement.
Okay. Thank you.
Thank you.
Thank you. There are no more questions. Oh, we do have. Just a second, please. The next question comes from Kevin Roger from Kepler Cheuvreux. Please go ahead.
Yes, good evening. Two questions on my side, please. The first one is related to the net cash position. We have a net cash position that declined a bit quarter-on-quarter. Can you explain us the driver for that? The second question is related to the order intake. You mentioned EUR 6.5 billion compared to EUR 4 billion in average. If we take 2022 number. Size on that, please.
Sorry, Kevin. There is a problem with the line. We cannot clearly hear you.
The second question.
The second question. Can you repeat it, please?
Yeah, absolutely. Sorry for the line. It is related to the order intake, so for something like this. You were securing maybe EUR 4 billion-plus number that you were giving us.
Kevin, I think I can only answer the first question because, for us, it is impossible to understand the second one because of the line. If you don't mind, you can pose the question to the investor department, and I will answer you later. Now, let's talk about cash. You said that there is a reduction of cash in the balance sheet, and it is a fact. It is slightly smaller than it was three months ago. You have to bear in mind that we have paid Touat Gaz an amount of EUR 80 million because of the execution of the bank guarantees. If you deduct this money from the evolution, what has happened is we have seen an increase of EUR 15 million in the ordinary operations of the company. I think the picture is just the opposite.
We are improving our cash situation, and it is a reflection of how the market behaves. This message about a global improvement and moving towards a more ordinary situation, we can see that as well in the treasury side. We see it in the cash. I think my message for you is cash is improving, not deteriorating. That is my message.
No, yes, understood. Thanks for that, and sorry for the quality of the line. Sorry for that.
That's okay. Thank you.
Thanks.
Thanks, Kevin.
Thank you very much. There are no further questions in the conference. Dear speakers, I give you back the floor.
Okay, thank you. Thank you, all of you. As you know, this time, I promised it was going to be 15 minutes, and I think I was watching my watch. It has been only 14. Thank you for being there this late. The reason of why we had this meeting this late, it had to do with travels and board. It's just that. I have to excuse myself for that. Always better to have it in the morning. Again, thanks a lot. Thanks for being here, and thanks for posing all these questions. I'll see you on the next quarter, which I think is going to be on the February results. Thank you.