Duro Felguera : Annual General Shareholders' Meeting 2017

Annual General Shareholders' Meeting 2017

Company hopes to solve most of the uncertainty from recent months over the rest of this year and 2018

The Annual General Meeting (AGM) of Duro Felguera, held today, approved the annual accounts and balance sheet for 2016. In this period, the company's sales were 709 million Euros, 8% lower than the previous year, while the EBITDA (earnings before interest, tax, depreciation and amortization) was 8.6 million Euros, as opposed to -96 million in the previous year. The net consolidated result was -18 million, as compared to -69 million in 2015.

As announced, there are three main reasons for these figures: the unexpected events at the end of the combined cycle project in Manchester (United Kingdom), high financial costs and the cost of arbitration processes currently underway.

Financial costs were very high due to interest on both the bank debt in Euros and the debt in pesos for the Vuelta de Obligado project (Argentina). Meanwhile, the costs of arbitration are also significant, although they form part of the claims lodged and awaiting resolution.

As is well known, Duro Felguera is involved in various litigations awaiting sentence, among which are the Roy Hill mining project in Australia, the power plant at Vuelta de Obligado, the arbitration for which will be resolved in Argentina, and the diverse mineral handling projects in India which are still awaiting sentence. There is still an outstanding balance of 83 million Euros for the Termocentro project (Venezuela), and a further 16 million should be added to this amount for work done but not yet invoiced.

The Roy Hill mining project in Australia has been subjected to the International Arbitration Centre in Singapore. The bonds called on, unpaid invoices and additional work that has not been acknowledged all add up to a claim of an approximate value of 204 million Euros.

The differences with the client over the Vuelta de Obligado project in Argentina are also in arbitration for 125 million Euros, still awaiting resolution. In this case, the extraordinary costs are due to diverse factors, mainly incidents beyond the control of Duro Felguera which led to greater scope in supplies and services, and effects from hyperinflation in Argentina, not reflected in the official indices. Furthermore, the company has various claims open in India.

The total amount of outstanding invoices and claims in arbitration reaches almost 500 million Euros.

Ángel Antonio del Valle Suárez pointed out that 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.

More cash flow and a better strategic positioning

The Board of Directors agreed to carry out various different measures to improve the company's liquidity, by selling off real estate and production assets that do not form part of the core business, and to save on structural expenses in such a way as not to significantly affect the business.

At the same time a mandate was issued to the investment bank Rothschild to reinforce the company's strategic position in any way possible in order to strengthen its solvency and lead to future growth, and to provide support in renegotiating the debt with banks.

The management team has also been reinforced, mainly by the appointment of José Carlos Cuevas as the new Chief Financial Officer and Miguel Zorita as a new advisor to the Board in the financial restructuring process.

In relation to the restructuring process, the financial entities have proposed signing a standstill agreement to delay payment of the debt until a definitive agreement is reached; this is being looked into and could be signed very soon.

New contracts

Despite this complicated scenario, the company has won some major contracts over the last few months. We could highlight the following:

1. 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.

2. In Canada, Felguera IHI signed a contract to build a 20,000 cubic metre LNG tank, for 26 million Euros.

3. 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.

4. 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.

5. 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.

6. In Bahrain, our subsidiary Felguera IHI will carry out the engineering for the construction of two cryogenic butane and propane storage tanks for a total value of almost 12.5 million dollars.

7. In Dubai, we have signed a turnkey contract with the Electricity and Water Company (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 2019.

8. 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 2019.