Ellaktor SA

ATHEX:ELLAKTOR

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the ELLAKTOR Group conference call to present and discuss the analysts and institutional investors briefing on the first quarter 2020 ELLAKTOR Group's results. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Anastasios Kallitsantsis, CEO of ELLAKTOR Group; Mr. George Provopoulos, Group CFO of ELLAKTOR; and some representatives of the IR team. Mr. Kallitsantsis, you may now proceed.

[Anastasios Kallitsantsis, executive]

Thank you. Ladies and gentlemen, good afternoon and thank you all for joining us for ELLAKTOR's First Quarter 2020 Financial Results Call. I'm Anastasios Kallitsantsis. I'm the group CEO. And I'm joined today by ELLAKTOR's newly appointed group CFO, Mr. George Provopoulos whom I'm very pleased to introduce to you today.

As the transformation of ELLAKTOR Group is progressing, George brings significant expertise, which is required to see this large-scale project through. George brings 25 years of experience from the banking sector, serving in senior positions with Piraeus Bank, 1 of the 4 Greek systemic banks. During this -- his long career with Piraeus Bank, George served as group CFO, acting CEO as well as Vice Chairman of the Executive Committee and COO. So I would like to formally welcome George to ELLAKTOR.

Moving on, just a few words about the current macro environment. The trajectory of the COVID-19 epidemic in Greece continues to be smooth with a downward tendency. Therefore, from an epidemiological and healthcare standpoint, Greece has performed very well compared to other countries. The next challenge that the country, the great government and Europe, more broadly, are facing is how to respond to the onset of this global economic crisis. The announcements based by European Commission regarding the EUR 750 billion recovery plan is a very ambitious program. And though the details will need to be outlined, it is a program that Europe needs.

In this context, Greece will be allocated EUR 22.5 billion in the form of grants and EUR 9.5 billion in the form of loans from the European Commission, reaching total accounts for 18% of the country's debt if approved. This improves the medium-term prospects of the economy. And according to the Greek government, infrastructure spending will be a priority going forward.

Before I hand over to George to run you through the financials of our group in detail, I would like to make some remarks regarding key metrics and our outlook.

The performance of the first quarter 2020 with EBITDA at EUR 51 million shows the resilience of the group as all segments' EBITDA improved versus the previous quarter, the fourth quarter of '19. This is despite the impact from COVID-19, which affected the group and our Concessions and the real estate segments in particular. Furthermore, EBITDA margin improved by -- in Q1 '20 to 22.5%, which is the highest of the last 5 quarters.

Cash and liquid assets at the end of March of 2020 remains relatively stable at EUR 458 million versus EUR 463 million at the end of 2019. Net debt at the end of Q1 2020 stood at EUR 1.089 billion with net debt-to-EBITDA ratio at 5.4x on the basis of an annualized Q1 '20 EBITDA.

Looking at the group's business segment. In Concessions, traffic growth in all our motorways was strong in January and February with Attiki Odos traffic growing by more than 4% and for our other motorways between 7% and 20%. March performance was impacted by COVID-19 pandemic as the Greek government implemented increasingly severe restrictions in movement, leading to a full lockdown in March 23. As the lockdown is being lifted, starting on May 4, we are seeing clear signs of gradual improvement in traffic with Attiki Odos averaging 196,000 vehicles per day between May 18 and May 28, 10 days, compared with an average of 61,000 vehicles in April. In addition to our motorway concession assets, AKTOR concessions signed the Alimos Marina concession agreement on May 23.

In Renewables, we are continuing our ambitious growth program. And in Q1 2020, a further 19 megawatts were connected to the grid. This brings our total installed capacity to 491 megawatts as of the end of March of 2020. It is important to note that the electricity production and sale from the existing portfolio of the 491 megawatt is currently unaffected by the COVID-19 pandemic.

In Environment, prospects appear strong as Greece needs to urgently proceed with new infrastructure projects in order to comply with national and EU's Waste Management legislation. We remain in prime position to capitalize on this favorable macro dynamic. In real estate, in the first 4 months of full operation of Smart Park's Phase 2 expansion and before the onset of COVID-19, performance was very strong with footfall increasing by 23% and the sale of its outlets by 33%. The segments, though, was affected by the onset of COVID-19, and most importantly, the government measure of 60% rental payments for shops that were closed, which meant all retail shops except supermarkets and pharmacies. Since the reopening of shops on May 11, performance is gradually being restored.

Finally, regarding Construction, our restructuring project is continuing with its ultimate goal being to return contraction to breakeven and the cash-neutral position. The main targets of these restructuring projects remain to rationalize its cost base, introduce a new group procurement office, further exploitation of the segment's assets and to pursue discussions for additional potential funding.

Now I will pass the floor to George to run you through our group financials in detail. George, please?

[Georgios Provopoulos, executive]

Thank you, Sakis, and thank you for the introduction. I'm very pleased to have joined ELLAKTOR, and I'm committed to help deliver the goals of this management team and Board of Directors.

I would like to present the Q1 results by following some slides from Q1 2020 group results presentation. If you go on Page 5 of our presentation, group net revenue stood at EUR 225 million in Q1 '20 compared to EUR 257 million in Q4 '19 and EUR 359 million in Q1 '19, a reduction of EUR 134 million. The year-on-year decrease came mainly from the Construction sector, where revenues decreased by EUR 135 million from EUR 261 million to EUR 126 million.

EBITDA stood at EUR 50.5 million in Q1 compared to minus EUR 3.2 million in Q4 '19, excluding nonrecurring losses in their national PV projects and EUR 61.5 million in Q1 '19, posting a reduction of EUR 11 million year-on-year.

EBITDA margin improved to 22.5% in Q1 '20, which is the highest in the last 5 quarters, as Sakis mentioned before.

The delta of EBITDA year-on-year by EUR 11 million is related to lower gross profit by EUR 7 million, the higher administrative expense by EUR 2 million, mainly due to the restructuring of the Construction segment. And by EUR 2 million due to the lower other income and other gains versus Q1 '19.

Profit before tax was at EUR 2.7 million in Q1 '20 compared to minus EUR 47.8 million in Q4 '19, adjusted for nonrecurring losses of international PV projects. And EUR 20.3 million in Q1 '19, while net results after tax and minority interest was a loss of EUR 8.8 million compared to profit of EUR 2.6 million in Q1 '19.

On Page 6, you could see that the net debt stood at EUR 1.089 billion at the end of March 2020 compared to EUR 1.028 billion at year-end 2019 with net debt-to-EBITDA ratio standing at 5.4x. It has to be mentioned that the debt incurred to fund growth at the renewables level did not fully contributed in Q1 '20 EBITDA, but will generate run rate EBITDA going forward. If we consider the additional EBITDA contribution by the funded and newly built RES portfolio, the net debt-to-EBITDA ratio would be lower.

On Page 8, you see the analysis of P&L of Q1 '20 versus Q4 '19 as well as versus Q1 '19. I would like to mention that compared to Q4 '19, all segments' EBITDA improved, despite the impact from COVID-19, which impacted the group Concessions and real estate segments, in particular.

On Page 9, we present the development of costs, in which you see all lines are lower either versus the previous quarter or versus the same quarter of the last year. Group's target is to improve further its efficiency through reviewing oil cost with a zero-based approach. Also, the recent introduction of a new group procurement office will help to improve further the cost of sales, improving the margin of certain projects.

On Page 12, total assets were at EUR 3.048 billion at the end of March 2020 versus EUR 3.056 billion at the end of 2019, recording a marginal delta of minus 0.3%. Group's total equity stood at EUR 524 million at the end of March 2020 compared to EUR 533 million at the end of 2019, a decrease of EUR 9 million due to losses after tax. Total equity attributable to shareholders was at EUR 402 million versus EUR 414 million at the end of December 2019.

On Page 14, we present the cash and liquid assets at the end of March 2020, which remained almost stable at EUR 458 million versus EUR 463 million at the end of 2019.

Operating cash outflows amounted to EUR 39 million versus of outflows EUR 55 million in Q1 '19. The investment cash outflows amounted to EUR 1.4 million versus inflows of EUR 23 million in Q1 '19. Cash inflows from financing activities reached EUR 38 million versus outflows of EUR 13 million in Q1 '19.

At the end of April '20, in which the lockdown were in place for the whole month, cash and liquid assets were at EUR 445 million versus EUR 458 million at the end of March '20.

Now let me go through the segmental analysis of Q1 '20. On Page 17, related to the Construction sector, the group has continued its strategy focusing on new construction projects in Greece and Romania as well facility management service in Qatar. Backlog stands at EUR 2 billion, including projects where AKTOR has been declared preferred bidder. 96% of the backlog is related to the 3 mentioned countries. Construction's EBITDA was at minus EUR 1.2 million in Q1 '20 versus of minus EUR 38.7 million in Q4 '19, adjusted for nonrecurring losses in international PV project and EUR 4.3 million in Q1 '19.

Moving now on Page 18, in which we have the Concessions highlights. Revenue stood at EUR 50.4 million in Q1 '20 versus EUR 60.7 million in Q4 '19 and EUR 57.4 million in Q1 '19. The decrease of revenues in Q1 '20 is due to the decreased traffic by 11% in Attiki Odos as well in Moreas as a result of restriction in movement and eventually full lockdown by the states in response of the COVID-19 epidemic.

Note that traffic has dropped -- also dropped in Olympia Odos by 10% and Gefyra by 11%. As you see on the bottom-left diagram, there are clear signs of gradual improvements in Attiki Odos traffic since early May. Concessions EBITDA amounted to EUR 31.3 million in Q1 '20 versus EUR 30.3 million in Q4 '19 and EUR 38 million in Q1 '19, marking a decrease of 18%.

On Page 19, we present the RES highlights. Revenues stood at EUR 23.9 million in Q1 '20 versus EUR 15.1 million in Q4 '19 and $20.4 million in Q1 '19 or up by 70% year-on-year due to the increased installed capacity. Installed capacity was at 491 megawatts as of 31st of March '20, of which 196 megawatts in trial operation. An additional 88 megawatts is under construction. EBITDA stood at EUR 19.8 million in Q1 '20 versus EUR 10.6 million in Q4 '19 and EUR 16.3 million in Q1 '19.

On Page 20, we have the Environment segment highlights. Revenues stood at EUR 22.4 million in Q1 '20, largely unchanged from Q4 '19 and up from EUR 18.4 million in Q1 '19 or plus 22% year-on-year due to the increased completion rate of construction projects. EBITDA stood at EUR 4 million in Q1 '20 versus minus EUR 2.2 million in Q4 '19 and EUR 4.4 million in Q1 '19 or minus 8% year-on-year due to the decreased profitability of the environment construction projects and increased overheads from the full consolidation of ASA Recycle.

Last, on Page 21, we have the real estate highlights. Revenues stood at EUR 1.8 million in Q1 '20 compared to EUR 2.3 million in Q4 '19 due to the impact from COVID-19 and EUR 1.6 million in Q1 '19. EBITDA stood at EUR 1.3 million in Q1 '20 versus EUR 0.9 million in Q4 '19 and EUR 0.7 million in Q1 '19 or plus 79% year-on-year, continuing the strong performance prior to the pandemic from the full operation of Smart Park Phase 2 expansion.

Since the reopening on May 11, '20, performance is also being gradually restored. And this is my -- end of my presentation. Thanks.

[Anastasios Kallitsantsis, executive]

Well, please, we would proceed with Q&A. And we are waiting for the questions to be answered by the team.

[Operator]

[Operator Instructions] The first question is from the line of Karanikas, Vangelis with Euroxx Securities.

[Vangelis Karanikas, analyst]

I have a couple of questions regarding Construction. And if you could provide some more color on the operating losses, the EBIT losses of the quarter. If they are coming from Greece or if it include any provisions for projects abroad? And how does the pandemic affected domestic construction operations this year? And the second one on Construction. If you could provide an average duration of the backlog, the EUR 2 billion backlog and even more useful, perhaps an indicative profit margin that we could have as an estimate? Second question regarding Concessions, if you -- would you expect any compensation from the state for the COVID-19 and the loss in total revenue? And if yes, what amount, just an estimate for us would be very helpful.

[Georgios Provopoulos, executive]

Thank you for the questions. Regarding the cash flow on the Construction

[Audio Gap]

Construction were approximately EUR 60 million outflows in Q1, out of which 60% funding -- funded losses recognized in prior years in foreign operations. This is the outflow that we had from foreign operations. The rest came from fund -- to funding Greek operations. Regarding the COVIDs, you mentioned on the Construction. On the Construction, there were some impacts because of the delays of some projects due to the stopped off traffic and this is related, but not a material difference from the previous quarter. I have to say that there is an impact, but not a material one. The most material one was on the Concessions because this is the traffic impact due to the stop of -- restriction of movements. But on the Construction, there were less impact regarding the -- from the COVID-19. Regarding the backlog margin.

[Anastasios Kallitsantsis, executive]

Backlog margin is in the low single digit numbers. Of course, it will depend on how the COVID will be addressed or affect production during -- mainly starting from next September if we see no increase in the COVID...

[Georgios Provopoulos, executive]

Cases.

[Anastasios Kallitsantsis, executive]

Cases. Yes. But that's where we stand. And also, I would like to say that in Construction, what we faced so far, it may delays for supply materials and the most part coming from abroad because lots of factories and suppliers have seized operations during the lockdown. And so we see the revenue is lower than expected. Regarding the Concessions. Well, all concession companies cannot fight the states for the impact of the state restrictive measures to combat the COVID-19 on traffic volumes and revenues and requesting irrelevant compensations. The start of the concession depends on the project, the duration, et cetera. So once we have some further information from the state, we'll keep you informed on the developments of that number.

[Operator]

[Operator Instructions] The next question is from the line of [indiscernible] with [ AXIA Ventures ].

[Unknown Analyst]

I would like to focus, again, a bit on the cash outflows in construction. You mentioned that about 6% of the outflows that were showed were related to settling of prior year's liabilities for flooring projects. Can you discuss the ongoing situation in the liquidity of the division? I recall the previous conference call, you said that you were in discussion with the local banks for securing financing for the division. Can you share an update on these efforts? And as well, if there are any other, to your best of understanding, any other outstanding liabilities to be settled for prior year projects that could impact working capital in the coming quarters?

[Georgios Provopoulos, executive]

Yes. As you correct mentioning, on the construction, we are in a restructuring mode. Due to that, also, you have seen -- you have been announced that we have sold some stakes of Hellas Gold in Q2, but also there were some pending amounts long time before from the previous year that had been collected. That has helped in Q2 to support the business. And as I mentioned, we -- the Construction segment is under a restructuring plan, which is in an advanced progress as we speak. We will be in a position to give more details on that in the next 3 months with the H1 results that will take place at the end of August. But I'll have to say that our goal is to return construction first to a breakeven point and a cash-neutral position and then to profitability with a positive cash flow. The main targets or actions of the restructuring plan are, A, to reduce its cost base by reviewing all cost with a zero-based approach. Second, to reduce further the cost of sales with the recent introduction of a new group procurement office that will improve the margin of certain projects. Third, to further exploitation of the segment's assets as we did already with the sale of Hellas [indiscernible]. And last but very important, to pursue discussion for additional potential fundings, which are under -- on the way as we speak. So this is the current status, and we will be in a position to give you more details in the next 3 months, most probably with the call end of August that will take place.

[Unknown Analyst]

An additional question and it's more of a generic one. The Construction division for many years has been running with very high revenue figures and a significantly larger scale. And I assume that's -- that there are variable costs there related to the execution of the projects plus some fixed costs related to overheads and general corporate purposes. I mean given that the sharp decline in the top line and the scale of the performance, can you, let's say, for the run rate of 2019 or even better for Q1, would you be in a position to say that x percentage could be related to ongoing projects execution and x percentage could be attributed to kind of fixed-cost basis or over that sort of the comparison?

[Georgios Provopoulos, executive]

If I try -- I would like to answer this question because this is part of the restructuring plan. If you go on Page 9 of the presentation, you see that all cost elements are down. Also, it's related to the construction sector, which is -- also revenue has been talked in order to cover these losses with less expenses. And this is the starting of this restructuring plan. You have to wait to see more actions going forward, as I described to you before. But you have to see that the cost base of the construction should be lower as also revenues has been dropped from the previous year's levels of before. So this is the trend, and you have to see more action going forward.

[Anastasios Kallitsantsis, executive]

I would just like to add something that from start of 2019 to end of March 2020, we had a drop in AKTOR's headcount by almost 780 people, most of them -- the bigger part of them from the international activities. But this is just a part of what George mentioned before about the plan we are on the way of implementing now.

[Operator]

[Operator Instructions] The next question is from the line of Cantor, Adam with Knighthead.

[Adam Cantor;Knighthead Capital Management, LLC;Senior Analyst, analyst]

I want to understand a little bit better what the working capital picture looks like at the Construction business. I believe there were meant to be significant past due receivables that were going to be collected by the group. But according to my math, it looks like working capital was about a EUR 50 million outflow during the quarter for the Construction business. So maybe help me understand exactly what's happening as you guys shrink the business here and maybe give me a little bit more understanding of what's going to happen over the next few quarters?

[Georgios Provopoulos, executive]

Yes. As I mentioned before, the operating cash outflows in construction in Q1 were at 60 -- at approximately EUR 60 million in Q1. And that has been covered by the funding mainly from the group. While post Q1, the Construction has collected some amount that was spending for a long time and also has sold Hellas Gold, as I mentioned before, while the restructuring plan is in advance. In Q2 till to date, there's no additional funding from the group. So all the Construction sector has succeeded to manage its businesses with internal sources in the first 2 months of the second quarter as we speak today. So we are underway on the restructuring plan in order to take further actions that will improve margins, the margins will be improved also with this new procurement office that has been established, which is very critical, and we have seen some good results in the first 2 cases that we have examined with the procurement office already, but also by disposing assets like the gold -- the Hellas Gold or other that are in the pipeline to be implemented in the next few quarters and also to further restructure and downsize the overhead. That will improve the cash flow and this is part of our plan. So I cannot be more precise in Q2. I think that we will be in more detail in -- by reporting the Q2 results in August because we will have been completed the restructuring plan, and we can give you more targets going forward about the restructuring of the group, which is a business that will be an enabler for the rest of the business of the segments of the group.

[Adam Cantor;Knighthead Capital Management, LLC;Senior Analyst, analyst]

Can you maybe help me understand how much of the EUR 60 million outflow in the first quarter was related to Australian PV projects?

[Georgios Provopoulos, executive]

Yes. If I remember well, it were roughly EUR 25 million, EUR 24 million, EUR 25 million were related from the Australian project, which has been already in Q1.

[Adam Cantor;Knighthead Capital Management, LLC;Senior Analyst, analyst]

And how much do you think is remaining for Australia for the rest of the year?

[Georgios Provopoulos, executive]

About a similar amount is expected for the rest of the year.

[Adam Cantor;Knighthead Capital Management, LLC;Senior Analyst, analyst]

Okay. And then is there anything else about other assets that you might be looking to dispose of that you can tell people on the call?

[Georgios Provopoulos, executive]

This is part of the restructuring plan that we will be in a position to present in August. I don't want to give some information that has not been agreed or it is in the pipeline to be agreed. I don't know, Sakis, if you want to mention.

[Anastasios Kallitsantsis, executive]

We expect that we might be in a position to cash in the iteration in Romania, EUR 29 million. And there are some other issues, but...

[Georgios Provopoulos, executive]

Assets and claims. So this is...

[Anastasios Kallitsantsis, executive]

Assets and claims. And we're in a -- we expect that we're going to have some additional positive cash flows until the end of the year.

[Georgios Provopoulos, executive]

I would prefer to give you more details with the results in Q2 in which we are going to have the full plan, and we are going to give more details of the full restructuring plan of the Construction sector. Now it's underway. I am new, I'm just 3 weeks on the job. And I think that, that will be better to present the full schedule to you in order to assess correctly.

[Operator]

[Operator Instructions] We have a follow-up question from the line of [indiscernible] with [ AXIA Ventures ].

[Unknown Analyst]

It's a follow-up question. Based on your recent comment regarding the outstanding losses to be recognized related to the Australian project. First of all, and correct me if I wrong, this refers to a cash settlement amount that is due to be paid in the remainder of the year. If -- can you -- are you in a position to indicate some timing? I mean it will be in the second quarter or it could be further pushed for the next quarters?

[Georgios Provopoulos, executive]

Yes. Thanks for the clarification. Yes. The amount that I just mentioned is just a cash flow from the losses that have been already recognized in the previous year. So it's not this year losses. It is just cash payment. The rest amount that I mentioned, it is the rest of the amount that has to be paid until the end of the year gradually.

[Unknown Analyst]

Okay. And an additional question regarding the assets -- that assets/claims that you mentioned, you could be looking to settle. Just bringing into mind what, for example, would require any additional funding from the company in order to be disengaged from these assets?

[Georgios Provopoulos, executive]

Not that I'm aware. I have to say that I'm new, but I do not...

[Anastasios Kallitsantsis, executive]

We don't expect any additional funding to be required for Qatar.

[Unknown Analyst]

Okay. And a final comment regarding Renewables, facing deficit in the so-called [indiscernible] account towards the end of the year. What is the current picture from your receivables? Have you seen any delays in getting the payments from [indiscernible] and -- at this point? Or everything is still operating smoothly?

[Georgios Provopoulos, executive]

I'm looking at that very closely. At least -- I'm trying. Till Friday that I have received the latest information. There were no delays, actually it was as it was planned initially with the normal course of business. So I haven't seen that today's -- what you mentioned, but till Friday, everything was under the previous status.

[Operator]

The next question is from the line of Memisoglu, Osman with Ambrosia Capital.

[Osman Memisoglu, analyst]

Just following on the working capital. Can you comment on the outlook for the rest of the businesses outside of Construction? I guess, for Renewables, you mentioned on the receivables side. Any other color on working capital trends outlook for the year would be helpful. And also for the Renewables business, I guess it's now safe to assume 491 capacity for Q2, if you could confirm that?

[Georgios Provopoulos, executive]

Now regarding the cash flow situation of the RES, the COVID impact has been in Concession as you well understood, which has been impacted due to the movement restrictions. Nevertheless, Attiki Odos, which is our main motorway has a cash of all -- clearly, what we see the recent trend that I described before is that it's a restoration of the daily traffic, which is -- doesn't create additional issues as we speak at least. So even on that, that had the major impact on the cash position, it's significantly well positioned. Also on Page 14 of the presentation, we have some -- the April figures in which you see that the cash position of the group, it is almost stable, slightly lower than March, despite the fact that April was a month with full impact from the lockdown of the economy. So it's the most impacted month during the lockdown period. So this is more or less the situation. On the RES, we have seen no impact. I mentioned to you before that payments are still in place. Environment has marginal but very marginal impact as we speak. And the real estate had some more small impact, but the situation there or liquidity is strong, and we don't see liquidity issues there also. So the group stands in a good position. And only Construction is under this restructuring plan.

[Operator]

[Operator Instructions] And at this time, I will now turn the conference over to management for any closing comments.

[Anastasios Kallitsantsis, executive]

All right. Thank you. Ladies and gentlemen, thank you for today's presence on the conference call. We know that 2020 will be impacted by the COVID-19 pandemic. Nonetheless, we remain cautiously optimistic. The group transformation is progressing. ELLAKTOR has further diversified its Concessions portfolio with the Alimos Marina, the only major Concessions project tendered recently. The Renewables are proceeding with their ambitious expansion program. And although the completion of the 88 megawatt may be delayed due to the pandemic, we expect to reach our goal of 579 megawatts installed capacity in 2021. In Environment, we remain in great position to capitalize on upcoming growth opportunities, while in parallel, we complete the restructuring of Construction. So we expect 2020 to be challenging, yet better than 2019 in terms of profitability. Thank you very much. Thank you all, and have a nice evening.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling and have a pleasant day.