Ellaktor SA

ATHEX:ELLAKTOR

Earnings Call Transcript 2022-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 and live webcast to present and discuss the ELLAKTOR Group's first quarter 2022 results. [Operator Instructions] The conference is being recorded.

[Operator Instructions] At this time, I would like to turn the conference over to Mr. Efthymios Bouloutas, CEO, ELLAKTOR Group; Mr. Dimosthenis Revelas, CFO, ELLAKTOR S.A.; Ms. Aphrodite Avramea, Head of Strategy; and Mr. Ioannis Mamakos, Investor Relations Officer. Mr. Revelas, you may now proceed.

[Dimosthenis Revelas, executive]

Thank you. Good afternoon, ladies and gentlemen, and welcome to ELLAKTOR's conference call regarding the first quarter 2022 results. Mr. Efthymios Bouloutas, ELLAKTOR Group CEO; Mr. Aphrodite Avramea, Head of Strategy; and Mr. Ioannis Mamakos IRO, are participating in today's call.

A press release announcing ELLAKTOR's financial and operating results for Q1 2022, the interim consolidated condensed financial information, as well as a presentation were issued earlier today before market opened. For those of you, who haven't seen those, they are available on the Investors section of our website, www.ellaktor.com.

On our call today, we will share with you the business update and review of financial results, which will be followed by a Q&A session. Let me now turn over the floor to Mr. Bouloutas, our CEO.

[Efthymios Bouloutas, executive]

Dimos, thank you very much. Good afternoon, ladies and gentlemen. Thank you very much for your participation in ELLAKTOR's conference call. We -- I'm going to refer to pages in the first Q presentation, first quarter 2022 financial results that was published in our website earlier today. If you can turn your attention to Page #5.

Our first point is that the first quarter group revenue came in at EUR 220 million, posting a healthy gain of 14% higher versus the same quarter of last year. This is a material gain, especially considering the global economic conditions. The first Q group EBITDA comparable result came in at EUR 67 million, up 65% versus the respective figure of first Q of 2021, with an EBITDA margin at 31%, higher by 10 percentage points versus the first Q of 2021. The reported EBITDA for the period is EUR 58 million or 43% up year-on-year. The differences between the comparable EBITDA and the reported EBITDA relate to a one-off charge of EUR 9 million related to January's traffic disruption and caused a difference only on the concession part in our group.

If you remember, in January, we had an extreme weather event where Attica ring road was closed for almost 24 hours for the first time in its 25-year history, with approximately 3,500 vehicles stranded at the highway. The Greek State, together with ELLAKTOR, came in with an investment scheme of EUR 2,000 per vehicle to avoid further legal complaints. So the EUR 9 million charge that we took on the first Q of this year on our concession subsidiary, EUR 7 million corresponds to an estimated payment for the stranded vehicles, while an amount of EUR 2 million corresponds to administer the fines. A petition to the administrative court of first instance has been filed by the group in respect to the fines, while the EUR 7 million payment will be claimed back by the insurance policy of the group.

The third bullet point is that the pretax profit for the first Q came in at EUR 12 million, higher by EUR 19 million versus last year, making the first profitable quarter in a row. Finally, net income for the first Q stood at EUR 7 million, the first positive reading since the first quarter of 2019. What we believe is very important is the 2 important milestones were reached. The first milestone is the positive net profit after tax for the group after approximately 11 negative quarters. And the second, again, very important, the construction EBITDA is marginally positive. We posted an increase -- a positive reading of EUR 30,000, which is nonmaterial; however, it's very important for us. These 2 events were clearly map in an own strategic plan of last year as an event for 2022.

Moving on to Page #6. Here, you can see the graphs of our revenue on a quarterly basis and our EBITDA on a quarterly basis, again, for the past 5 quarters since the new management team took over, and we had the change in the management and later changed the capital structure with the share capital increase. On the tables, you see the item is a quarterly comparison between first Q of 2022 versus first Q 2021, but also for the first time, we present the last 12 months, i.e., the last 4 quarters to take away the impact of seasonality and to be able to distinguish 2 underlying trends.

On the graph side, you see the evolution of our revenue, which was sequentially for 4 quarters increasing. On the first Q of 2022, we have a decrease versus the 4Q of 2021. However, we need to point out that Q1 is always seasonally the weak quarter for the construction business.

Now on the EBITDA graph, here again, you see the sequential increase between EUR 41 million, which is the number that we started for the first Q of the previous year, and EUR 67 million, which is the comparable EBITDA that we will present today. Again, here, you see the 2 extraordinary charges that we took second Q of 2021, EUR 26 million related to an arbitration in Qatar and EUR 9 million for the first Q of 2022 related to the extreme weather condition reinvestment of the vehicles.

Turning in -- if you take a look more closely on the table side. There, we can see a very healthy increase on the concession in both the revenue and also on the EBITDA, 40% on the revenue on a quarterly basis, 21% in EBITDA. Here, we relate to a quarter where we had a partial, effectively closure of the highway due to administrative COVID measures that the Greek government has implemented. So on an annual basis, last 12-month basis, the delta in revenues is 30%, which is very similar to the concession delta in EBITDA, which is 29%. This number will probably slow down as the situation normalizes. And we compare to comparable quarters, i.e., a quarter where we didn't have a national lockdown.

Also on the renewable segment, effectively, the situation is flat, as we have not reported any additional capacity in the system. We see another notable increase is regarding the environment sales and especially on the EBITDA, which is due to higher recovered recyclable prices and higher they had market spot electricity prices for our biogas fuel. So in total, the last 12 months sales are posting a figure of 10%, 14% on a quarterly basis, 10% on an annual basis. While on the EBITDA level, the quarterly results are EUR 67 million versus EUR 40 and on a comparable basis, again, the last 12 months EUR 218 million versus EUR 25 million of last year.

Moving on to Page #7. I would like to turn your attention to some recent developments in ELLAKTOR Board's reaction to that. On May 6 of 2022, MOTOR OIL Corinth Refineries announced it acquired the shares of ELLAKTOR corresponding to a stake of almost 30%, 29.9% to be exact from Kiloman and Greenhill at a transaction price of EUR 1.75 per share. In addition, at the same day, Reggeborgh Invest announced that it has entered in a framework agreement with MOTOR OIL with the objective to procure that ELLAKTOR sales and transfers 75% stake in all assets of a renewable segment, i.e., operating and pipeline to MOTOR OIL, subject to corporate and regulatory approvals.

There's been an agreement in principle of the enterprise value of the segment at EUR 1 billion on a debt-free and cash-free basis. And this figure is subject to transaction profitability related adjustment. Now Reggeborgh Invest agrees to vote in favor of MOTOR OIL receiving customary minority protections. And again, the framework agreement provides for some call options between Reggeborgh and MOTOR OIL, in particular, Reggeborgh has an option of buying back MOTOR OIL's shares, 50% of MOTOR OIL's shares, starting immediately for a duration of 3 years, while MOTOR OIL has an option -- put option to sell 50% of the shares that they acquired to Reggeborgh Invest with an exercise period starting 2 years from the date of reannouncement and ending at 3 years of the date of the announcement. The pricing for these options were not disclosed in the relevant disclosures.

Turning on to Page #8. Another corporate event that materialized at the same day, i.e., May 6 on 2022, is that Reggeborgh Invest Holding, Reggeborgh ELLAKTOR Holding, which a Dutch company, owned -- fully owned by Reggeborgh Invest, announced the initiation of a voluntary tender offer process by forming the Hellenic Capital Markets Committee and the Board of ELLAKTOR and submitting to them a draft of the information in the memorandum. The voluntary tender offer is addressed to all shareholders, but the ones that Reggeborgh Invest currently holds, which is 30.5% of the outstanding shares at the price offer of EUR 1.75 per share.

MOTOR OIL announced as the second largest shareholder in ELLAKTOR, they have confirmed that they will not tender their shares. And the Offeror has declared that it will not acquire any shares until the expiration of the acceptance period. So there's not going to be a bid in the market, but only through the exchange members. The Offeror also declared that if they acquire more than 90% of ELLAKTOR shares, they will not exercise its right of buying out the minority shareholders. This theoretical interpretation in MOTOR OIL are not tendering the shares. So the maximum the Offeror could get is 70% of total outstanding shares.

Another intention that the Offeror made public is that ELLAKTOR remains listed to the Athens Stock Exchange.

Now turning on to Page #9. These were events in the previous 2 slides that I've described are events that were shareholder-driven as the company did not have any participation.

In the Slide #9, this provides a list of actions that the ELLAKTOR Board took since they became aware of these developments. So MOTOR OIL's offer regarding the renewable business was received on May 11 and was presented and discussed in a specially convinced Board of Directors meeting. ELLAKTOR is in the process of assessing and evaluating MOTOR OIL's proposal and has appointed financial advisors to provide a fairness opinion report. And following the execution of confidentiality agreements since the days of the announcement, a fully blown legal, financial and technical due diligence process is underway.

Now the voluntary offer, we expect the Hellenic Capital Markets Committee approval on the information memorandum. ELLAKTOR's Board must provide a justified opinion on the price offered within 10 working days from the commencement of the acceptance period, and a financial adviser to help the Board of ELLAKTOR reach a conclusion that justified the opinion has already been appointed. And this closes the update on the recent developments.

And I'd like to provide a small operational update on parts of the businesses. On the Construction business, new projects of circa EUR 260 million were signed during first Q of 2022. Additional EUR 44 million were signed after the 31st of March of 2022. This brings the current backlog of approximately -- construction backlog of EUR 2.6 billion, up by 53% compared to EUR 1.7 billion 1 year ago. If you count in, let's say, the construction executed and the new businesses, we are adding new business at a rate of approximately EUR 1.4 billion annually, which creates a very healthy backlog.

And also Construction EBITDA for the first Q came in at breakeven, underpinning the sector turnaround and mapping a very important milestone for the management team. On the backlog today, Mr. Kostas Karamanlis Minister of Infrastructure of Transport for the Hellenic Republic announced in an Infrastructure and Transport Conference that the current backlog in nonlisted groups, construction backlog, nonlisted groups in the Athens Stock Exchange accounts for EUR 9.38 billion, which brings ELLAKTOR's, let's say, participation something close to 28%.

However, what is more important is that he explicitly mentioned that this backlog of EUR 9.4 billion is expected to reach EUR 15 billion in the next 4 to 5 years. So the Greek state is procuring at a very healthy rate, and they expect that the backlog will increase substantially in the years to come.

On the Concession segment, we had a recovery of traffic volumes due to pre-COVID levels in motorway concession SPVs. The company was announced as a preferred investor in KalamataRizomylos-Pylos-Methoni. There was also a participation in a submission for BOAK. BOAK is a North Crete highway, which is 1 of the biggest continuous highways that are going to be built in Greece and in Europe of almost 300 kilometers. There we participate in a consortium with 20% participation.

Finally, we're participating in Attiki Odos retendering in alliance with a leading infrastructure investment Ardian of France and the domestic group, AVAX that we have a cooperation together in both the operation and also the ownership of Attiki Odos. On the Renewable segment, we got production certificates in fracking of 53 million megawatts and in South Evia of 35 megawatts. We've got post first Q license for RES aggregator of 300 megawatts. We purchased an SPV holding 18.4 megawatts of wind farm, which is a mature permit.

And finally, we brought earlier the environmental permit that has been granted for wind farm -- 1 of our wind farms in South Evia, project of 160 megawatts, which is the cooperation with EDPR.

Turning in on the Environment segment. The Environment segment became the preferred bidder through ELLAKTOR through a joint venture scheme where ELLAKTOR participated 60% for the revamping and 25 years operation of clinical waste incinerator, which is a very big project with a budget of almost EUR 86 million in NPV terms.

Finally, on this segment, we posted a significant profitability increase compared to the first Q of 2022 and this was driven by higher recovery recyclable prices, as mentioned, in high Day Ahead Market spot electricity prices. These prices are potentially subject to a retroactive revision, but that remains to be seen.

And finally, on the Real Estate sector, we saw a smaller EBITDA contributor. We are proceeding with updates on feasibility studies, and we are in the process of negotiating the terms of the SPA and expect finalization technical due diligence for the Gournes project.

And with that, I'd like to stop my part of the presentation and turn on to Mr. Dimosthenis Revelas, who is going to give you full account of our financial condition and more details on the operations of the group for the first Q.

[Dimosthenis Revelas, executive]

Thank you, Efthymios. On page 14, Group revenues for the first quarter reached EUR 220 million, as already mentioned. That is a year-on-year delta of EUR 27 million. Almost 60% of this is explained by Concessions, 25% by the Environment segment and 18% by the Construction segment. A considerably higher gross margin coupled with lower selling and administrative expenses by 9%, have yielded an EBITDA of EUR 58.3 million for the quarter. That is a 43% yearly increase. Had it not been for the one-off charge of EUR 9 million related to the late January's traffic disruption Attiki Odos and which is included in the other income and other gain loss line in the P&L that you have in front of you, the comparable EBITDA would have amounted to EUR 67.3 million. That is a year-on-year rise of 65%.

In the bottom line, a net after-tax profit of EUR 7 million was recorded for the quarter or a EUR 14 million reading should the one-off charge be excluded.

On Page 16, group total assets remained practically unchanged at EUR 2.9 billion. On the asset side, financial assets at amortized cost and at fair value through other comprehensive income are down by EUR 4.4 million following the maturity of EUR 6 million EIB bond and the small share capital injection of close to EUR 2 million in Olympia Odos. The state financial contribution decreased by EUR 22 million as a result of a cash injection into Moreas amounting to EUR 29 million from the from that spot.

Cash balances are higher by EUR 50 million, mainly as a result of an increase in available cash on the concession sector by EUR 32 million and in the restricted cash of the Renewable Energy Sources segment by EUR 19 million.

On the liability side, total equity at the end of March increased by EUR 30 million, something driven on 1 hand by the quarter's net profitability, and an increase in the hedging reserve of Moreas on the other. That is a EUR 20 million positive impact from that reserve. The ratio of equity attributable to shareholders over total assets was almost 11%, 10.7% to be precise, compared to 10.1% at the end of last year and 8.3% at the end of 2020.

Total current and noncurrent liabilities and trade payables rose by EUR 31 million, with trade payables down by EUR 12 million of contract assets higher by EUR 6 million and accrued interest up by EUR 20 million.

On Page 17 as of December 31, as of March 31, 2022, the group's total net debt amounted to EUR 959 million, and this is down by EUR 32 million for the quarter. This is driven by circa EUR 9 million less debt and circa EUR 23 million higher cash and equivalent balances. Almost 41% of the group's net debt corresponds to Moreas, which is a nonrecourse debt.

On Page 18, operating cash inflows of EUR 40 million were markedly improved vis-a-vis a year ago. And in terms of trailing 12 months remain at the highest level over the last several quarters. Cash outflow from financing activities of EUR 34 million are mainly attributable to increase in restricted cash by EUR 22 million and scheduled loan repayments of EUR 17 million. Out of which the Renewable Energy Sector is at EUR 13 million loan repayments.

Over the next few slides -- the next few slides are dedicated to the most important operational and financial highlights of the group's business units. I believe we have already covered the majority of those. In the appendix, you are also being provided with a detailed P&L by segment for the quarter as well as the segmental breakdown of the group's net debt.

With this, I would like now to open the floor for the Q&A session, we may proceed in this stage.

[Operator]

[Operator Instructions] The first question is from the line of with Memisoglu Osman with Ambrosia Capital.

[Osman Memisoglu, analyst]

Many thanks for your time and the presentation. A couple on my side, please. First, related to the tender. Could you give us any color? I know you mentioned that is spending, but when should we expect the approval for the prospectus? That's my first question.

And then with the improvement in Construction, as you had guided previously, should we expect a continuation of improvement or for the remainder of the year, should we expect a flattish performance? That's the second bit.

And then just an overall color angle on where the strategic focus will be, given the potential probable disposal of the renewables business?

[Efthymios Bouloutas, executive]

Okay. Thank you very much. On your first question, we understand that the prospectus has been filed. It has been reviewed by the Hellenic Capital Markets Committee. It has been refiled again, and we expect approval either this week or the latest by next week. Then I think in the prospectus, there's going to be time plan of, say, explicit actions. If I remember correctly, the tender open needs to run for 4 weeks. And we need to issue, say, our view on what the shareholders should do approximately 10 working days after the start -- after the Hellenic Capital Markets Committee approval.

On the second question, we have indicated in the past that we expect that the breakeven in the Construction would happen at some point during 2022. We do not expect the first Q. Construction is an incidentally volatile business. So I would rather refrain from making, let's say, forward-looking comments at this stage. What I can tell you is that the new -- the new contracts that are being signed and the current backlog that has been built is that, this is significantly better margins vis-a-vis in the past. So hopefully, the -- we will see a continuation of improvement in the financial results, even though this cannot be taken for certain.

Now on your third point, we need to -- right now, we need to focus on the transaction. And this is a complex transaction, because it's going to involve a carve out. And we have a series of approvals, internal approvals, Board EGM approvals, then we have approvals related to company's laws. And we -- as we get the confidence of the deal being done, then we will prepare a new strategic business plan, and we will update the investment community our strategic focus, the new strategic program.

So obviously, Construction segment, Concession segment, and Environment segment, become more important than what they were. So every subsidiary becomes significantly more important. And we will update you when we have a specific plan.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

[Efthymios Bouloutas, executive]

Well, thank you very much for participating in the conference call. We appreciate your time and attention. We don't have any further remarks. However, we are available should you need any further information or clarification of line at any point in time. Thank you very much. Have a good afternoon.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect the telephone. Thank you for calling, and have a pleasant evening.