Annual General Shareholders Meeting 22 June Chairman s address Ángel A. del Valle Suárez

Transcription

1 Annual General Shareholders Meeting 22 June 2017 Chairman s address Ángel A. del Valle Suárez

2 Ladies and gentlemen, shareholders and friends, First of all I would like to thank you for coming to this AGM. It is, no doubt, the best possible expression of your interest in the company s evolution. We are about to close the first half of 2017 and so the results from last year are by now well known to everyone, together with those of the first six months of this year. Before focusing on other current important aspects, however, I would like to summarize the main figures for Total sales were 709 million Euros, 8% less than the previous year. The main reasons for this fall are finished projects that have not produced income and that are the subject of claims and the delay in the start-up of other projects in the backlog. 87% of these sales came from international markets, and the geographical diversification was balanced. The EBITDA (operating result) was positive million a considerable improvement in comparison to the loss of 96 million the previous year. The net consolidated result was -18 million, compared to -69 in The conclusion from these figures is obvious was a bad year, mainly because of unexpected happenings at the end of the combined cycle project in Manchester, which was delivered to the client in the first quarter of this year. There was also the financial expense derived from the delivery of the Vuelta de Obligado project, which was borne in Argentine pesos at an interest rate of 34%, and which amounted to over 10 million Euros. The interests on bank debt and the costs of arbitration currently underway have also had a negative effect on our accounts, although they form part of the claims made and awaiting resolution. In other circumstances and as often happens occasional losses on one project, due to unforeseen expenses, or for the same reasons I have just mentioned, would be offset by positive results from other projects, but the balance sheet was already weak from the previous year and the subsequent tension in liquidity means that we are weaker when it comes to bidding, contracting and therefore obtaining revenue, both in 2016 and so far this year. For the last two years the company has been suffering the consequences of various events, some of them we have to admit due to difficulties in the management of certain projects, but the majority due to unforeseeable reasons that were impossible to control. They have had a major effect on our treasury, and consequently on the normal evolution of the company. 1

3 As is well known, we currently have various litigations open. The most significant ones are for the Roy Hill mining project in Australia, which is at the International Arbitration Centre in Singapore, the Vuelta de Obligado power plant, which will be resolved in Argentina, and other legal matters awaiting sentence in India. In the former, the consortium bonds called on, unpaid invoices and additional work not acknowledged, have all led to a claim for an approximate value of 204 million Euros. As you know, our problems with this contract started with the unexpected bankruptcy of our partner just a few months after the project started. Just like any other company quoted on the Australian stock market, it had been audited with no objections or provisos, by a top-level worldwide company. And just a few months before it went bankrupt, the AGM had approved brilliant results that were very well received by the company s shareholders. Moreover, as you are no doubt aware, it is a compulsory practice in our sector, as it was for this project in Australia, to provide guarantees by putting up joint bonds, payable on request, and which can therefore be called on by the client without having to give reasons or justify this action. Without wishing to establish a cause and effect relationship between the immense losses announced by our client on this project, the non-payment of the work delivered and the calling on the bonds, it is obvious that the temptation to use these procedures is obvious in a world of brutal competition. The significant differences with our client in the Vuelta de Obligado power plant project in Argentina were also eventually subjected to an arbitration process, which is currently underway. In this case, the extra costs are due to diverse factors, beyond Duro Felguera s control, which led to greater scopes for supplies and services; and the high inflation rate in Argentina, which is not reflected in the official indices the contract is based upon, and which had a serious impact on both site workers salary demands, accompanied by grave social conflict, and on the cost of local equipment and manufacturing. Money is also owed by various clients in India, in litigation and awaiting a solution. A summary of the situation of the projects awaiting resolution from arbitration or the courts can be seen on the screen. For this company the amounts are very significant. We obviously cannot predict the final outcome. All I can say is that for reasons of accounting prudence, we requested assessment from independent international experts, who have informed favourably on our arguments and the actions undertaken to recover the amounts in litigation. Our external auditors have expressed their conformity with the accounting criteria applied. Another matter that is having a serious effect on our treasury is the delay in collection of payments from the Termocentro project in Venezuela. 2

4 15 million Euros from the balance as of 31 December was paid in the first quarter of this year. The outstanding balance is currently 83 million, to which we should add a further 16 million for work done that has not yet been invoiced. Additionally, in accordance with the contract, we could claim interest on the debt, and acknowledgment of this is being negotiated with the client. I would like to point out that the current circumstances in Venezuela and the present oil prices, which the country s economy depends on to a great extent, could not have been foreseen and are completely different from the time when we signed the contract eight year ago. So, in order to reach what we could quite seriously call a perfect storm, just a few months after we signed the combined cycle project in Brazil for 800 million, just over two years ago, the country went into crisis, which has impeded the financial agreement for this major project. The Board of Directors, and myself as chief executive officer, are of course also subject to analysis in our actions. There is no doubt that there were operational problems, but as soon as they were detected the necessary measures were immediately taken, both in organization and control, and when appropriate, there were changes in management. Most of the things that happened and that led to this tension in liquidity were due, as I have explained, to unavoidable causes, and so we believe that any responsible manager or administrator would have taken exactly the same decisions. In any case, it is up to this AGM, and is on the agenda for the meeting, to approve our management. Moreover, the Board of Directors agreed to take various measures to improve our cash position, by selling off real estate and other assets that do not form part of the core business, and to save on structural costs that do not have a significant effect on our business. At the same time a mandate was issued to our advisor Rothschild to reinforce our strategic position by any means that will strengthen our solvency and lead to the future growth of the company. We have also reinforced our management team, mainly by incorporating a new Chief Financial Officer. I find it necessary to give you these explanations because they are linked to the circumstances that have brought the company to negotiations with the main financial entities in its banking pool to ask them to adjust our needs for cash and the due debt to our business plan. These negotiations with the banks are taking a long time and the company is in an impasse in its commercial activity and contracting, and consequently there is a heavy impact on the treasury. Last year the banks made the granting and renovation of bonds conditional on signing the refinancing agreement. 3

5 As happens in situations like this, and as a previous step to any refinancing, the Banks require a detailed inspection of the company by an independent expert. This is known as an IBR (Independent Business Review) and consists of a global review of the financial statements, the business plan and a reasonable treasury forecast. Quite logically, this negotiation has significantly affected the company s financial situation and its contracting capability over the last few months. The reason is obvious. Let me give you an example: our criteria for choosing a hotel to sleep in are various, but we would not inspect the financial statements of the hotel owner. This is the same with all services, consumer goods and many capital goods that are not particularly expensive. But when an investor wishes to build an industrial plant which could take up to three years to complete, and in which he is going to risk hundreds of millions of Euros, trusting in the financial solvency of the potential contractors is an essential factor. So clients require their possible contractors to put up bonds as guarantees for their commitments to provide this trust. What I am trying to say is that situations like the one we have been suffering in recent months should be faced up to in the knowledge that time is critical, and so this Board, from the beginning, set up a qualified negotiating team for the banks, with external advisors, and made itself available to provide all the necessary information. We have just now, after a lengthy discussion process, reached a standstill agreement, which we hope will be formalized in as short a time as possible. At this point I would like to make an incision and point out that a month ago the Board of Directors of Duro Felguera appointed Miguel Zorita as a new advisor to the company s senior executive body. His main function will be to advise the Board during the restructuring process, in the negotiation of the terms and conditions for refinancing the debt, and in drawing up and following up on a business plan consistent with this. Mr. Zorita has broad experience in senior positions, as he was chairman of Deloitte in Spain, CEO of Constructora San José and a board member of Telefónica, among other major companies. But despite all these difficulties, in 2016 Duro Felguera moved forward in its international strategy, consolidating positions in many of the regions where it operates, such as North Africa and Latin America, and opening up new markets such as Eastern Europe, Canada and parts of the Middle East. The company has carried out intense sales activity in businesses and regions where its presence has traditionally been quite low-key. Hence at the end of last year the sum of bids presented and awaiting award was over 12,000 million Euros, while the order intake figure amounted to 625 million. The lethargy of major electricity, mining and industrial investment in general in our country is still forcing Spanish engineering and construction companies to make an enormous effort in internationalization, much greater than that of their competitors in 4

6 other developed countries, where international revenue is between 50 and 70%, while in our case it is around 90%. In this complicated scenario the company has won several significant contracts in recent months, providing proof of the market s trust. I will now summarize some of them: In 2016 the Duro Felguera, S.A. Energy Division signed a turnkey contract with ROMGAZ (70% of which is owned by the State of Romania), to build a 430 MW combined cycle. The contract price is 245 million Euros. In Canada, Felguera IHI signed a contract to build a 20,000 cubic metre LNG tank, for 26 million Euros. It is the company s first project in this country. The Mining & Handling division signed a turnkey contract in Algeria with the iron and steel company AQS to equip a port terminal to receive 3.5 million tons per year of mineral pellets, and to equip the storage facilities at the plant. The total amount of the contract is 95 million Euros. Another significant project in Algeria was signed by Núcleo, to equip the air traffic control and communication towers at five airports in the country, among them Algiers and Oran, which together see over 10 million passengers per year. In Argentina, in a consortium with Siemens, DF will build six open cycle plants with a total power of 381 MW. The contract price is 108 million Euros. You are already aware of the figures for the first quarter of The main figures compared to 2016 can be seen on the screen. Our most relevant achievements in 2017 are as follows: In Bahrain, a country where we have never worked before, our subsidiary Felguera IHI will carry out for the National Gas Company the engineering for the construction of two cryogenic butane and propane storage tanks for a total value of almost 12.5 million dollars. And what is possibly the most significant contract in this first half of the year, both because of the price and because it is the first time we have worked in Dubai, is the turnkey contract signed by the Energy Division with the Electricity and Water Authority of Dubai (DEWA) for a 500 MW extension to the Jebel Ali Phase III power plant by incorporating two new open cycle gas turbines. The contract price is 204 million Euros and the plant will be up and running in the first half of And as recently as this week DF won a contract for the Naftan refinery in Belarus for the engineering, equipment supply, supervision of assembly and commissioning of a vent gas recovery system for the delayed coke unit which we also helped build. The amount of this new contract is 84 million Euros and the facility should be working by the end of As for the other points on the agenda, and in particular those related to the Board of Directors, except for Mr. González Canga, whose appointment as a board member expires next year, all the other members, in accordance with the articles of incorporation, fulfil their mandate this month, and so their re-appointment and the election of new members 5

7 should be subjected to the approval of this AGM. The new independent board members, if you so approve in the corresponding point in the agenda, would be: Elena Cabal Noriega, who holds a degree in Economics and Business Studies. All her career has been in Asturias, as a fiscal advisor and as manager of a consulting company for small and medium sized companies, and at the same time she teaches a Master s degree at the Official Economists Association. Ricardo Córdoba, appointed by co-optation as a board member in April this year, replacing Mr. Valero who resigned for personal reasons. Mr. Córdoba boasts a brilliant background all his professional career has been in senior positions in the multinationals Alstom and General Electric. Other people and entities who were already on the board are well-known to all of you. Nevertheless, on our web site and as stated in the call to this AGM, you can inspect the reports and considerations for the re-election proposals for the board members that the Appointments and Compensation Commission delivered to the Board and which the Board approved. I am now coming to the end of my address. I said earlier that the company has suffered a perfect storm. But thanks to the efforts and professionalism of all our employees and the huge prestige the company enjoys on the international market, even in the worst circumstances we have been able to reach order intake figures that are notably better than those in the previous year, which means we can still trust in a hopeful future. Experts predict that the worldwide trend of recent years, which has combined the new capacity for generating electricity from renewable sources and gas, and which has replaced coal as the modular source, will continue in the coming years. This means there will be great opportunities in the Energy and Services divisions, and in Oil & Gas for regasification plants. As for mining, we have observed a recovery in the prices of raw materials and we hope this will lead to new projects in the near future. This last year has been difficult. In the remainder of this year and the following one we should come out positively from the uncertainties I have described. The Board of Directors, which on 22 June finishes the mandate it was elected for, has over the past two years had to face up to a delicate situation and has had to take difficult decisions. I am profoundly grateful to all the board members. Finally, I would like to thank all DF s employees for the efforts they are making at this time in everything that depends on them. Both the Board of Directors and I myself are committed to preserving the values of this company, its relationship with Asturias and its more than 150 years of history. Thank you for your ongoing trust. 6