ACS Actividades de Construccion y Servicios SA

MAD:ACS

Earnings Call Transcript 2018-Q1

[Marcelino Fernandez Verdes, CEO & Director]

Good morning, everyone, Marcelino Fernandez here, and thank you for attending this conference call. I'm accompanied here by Ángel García Altozano, General Corporate Manager of ACS, and the rest of my team. We will briefly analyze ACS' first quarter results, which were released yesterday evening. And at the end of my presentation, we will, as always, be happy to take your questions.Let's start by summarizing the key financial figures. As you can see, there have been significant FX impacts. It is important to point out that around 2/3 of our sales are in U.S. and in Aussie dollars. However, the strong operating performance has more than offset these currency headwinds. Sales of EUR 8.7 billion rose by 3.7%, and adjusting for currency effects, the underlying growth was strong at about 15%. EBIT increased by 8% to EUR 473 million. FX-adjusted growth was very firm at 17%. We achieved net profit for the first quarter of EUR 250 million, an increase of 7.4%, which rises to over 13% on an adjusted basis. Net operating cash flow improved in Q1 '18 by over EUR 110 million year-on-year. And if we look at the last 12 months, it stands at EUR 1.6 billion, up by 41% year-on-year. This strong cash flow generation is the key driver behind the significant over EUR 1.3 billion reduction in net debt year-on-year to EUR 359 million.Lastly, the backlog, which adjusted by currency effects, grew by 10.3% to EUR 67 billion. Let me give you more color on this top line. Total sales accounted for EUR 8.7 billion, rising by 14.7% adjusted for nearly EUR 1 billion currency impact. This growth is backed by the strong performance in our key markets. The U.S. businesses grew by over 24% in local currency terms to EUR 3.2 billion. Australia reached EUR 1.6 billion in sales, growing by 9.7%. And it's worth highlighting the rebound of the domestic market across all activities, which grew overall by 12.5% to EUR 1.2 billion. By activity, Construction grew by 16% on a like-for-like basis. The strong performances in the U.S., Canadian and domestic markets stand out. At Industrial Services, sales increased by over 12% like-for-like to almost EUR 2 billion. The rebound in the domestic and Mexican markets, supported by a boost from the energy projects in selected South American markets, have more than offset the impact from FX. As for our Services activity, Clece, sales increased by 6.7% to EUR 372 million, driven by a robust domestic market. EBITDA. EBITDA expanded in all our activities in line with sales growth. In Construction, EBITDA reached around EUR 400 million, with a growth of over 13% like-for-like. In Industrial Services, EBITDA rose 10%, adjusting for FX. And in Services, Clece, registered an increase of over 9%.Let's look at the net profit breakdown. Construction achieved 13.2% growth in net profit despite the currency headwinds to over EUR 103 million. Industrial Services also increased its profit contribution to EUR 125 million, up by 5.4%. And Clece, excluding the capital gain from the sale of Sintax in '17, grew net profit by 10.5% to EUR 11 million. At the group level, the reported net profit for the first quarter of 2018 stood at EUR 250 million, growing by 7.4% or 13.4% FX-adjusted.Net debt. Let's look at net debt evolution in this first quarter. At the end of December '17, we had net debt of EUR 153 million. During the first -- within the first 3 months of '18, cash flow from operating -- from operations, before working capital and CapEx, amounted to EUR 568 million, growing by 12.2% year-on-year. The operating working capital variation imply a cash outflow of EUR 963 million due to the seasonal effect and EUR 50 million better than in the first quarter of '17. Net investment implied a cash outflow of EUR 161 million, which correspond to a net CapEx of EUR 93 million and EUR 68 million from net financial investments mainly in energy projects at Industrial Services. Additionally, an inflow of EUR 100 million was collected from the sale of Urbaser in '16. As for shareholder remuneration, the EUR 105 million outflow corresponds principally to the ACS scrip dividend paid in February 2018. And finally, other adjustments include the reclassification of EUR 436 million from MásMóvil as a short-term financial investment. We thus finished the first quarter with a net debt position of just EUR 359 million. Now let's take a look at the last 12 months movement in net debt. The strong cash flow generation has enabled us to significantly reduce net debt by over EUR 1.3 billion. As you can see in the slide, at March '17, the net debt position was EUR 1.7 billion. Since then, cash flow from operations before working capital and CapEx amounted to EUR 1.7 billion, up 16.5% year-on-year. Operating working capital variation implied a cash inflow of EUR 242 million. Net investments resulted in a cash outflow of EUR 291 million. And shareholder remuneration was EUR 531 million, corresponding to dividends paid to ACS' shareholders, and HOCHTIEF and CIMIC minorities.Moving to the backlog breakdown by activities. The Construction order book amounted to EUR 55 billion. Adjusted for EUR 7 billion FX effects, the backlog grew by 8.6%. The Industrial Services backlog at the end of March stood at EUR 9.3 billion. Adjusted for EUR 1.1 billion of FX effects, the backlog grew by 18.9%. And Clece was 21% higher at EUR 2.4 billion.Backlog. The backlog profile in our key markets, together with the EUR 600 billion project pipeline we have identified, highlights our positive growth prospects. This includes the EUR 200 billion in PPP projects in our core markets of U.S., Canada, Europe and Australia. These countries represent 85% of our current backlog.So to conclude, let me summarize these results. We've achieved a strong performance with revenues and operating results growing by over 10% adjusted by FX impacts. We have a positive trend in our net income, which is growing by 7.4%. And we have a solid and diversified order backlog in key markets, growing by over 10% on a like-for-like basis.The 3-month period enables us to confirm our targets for the year, low double-digit growth rate in revenues on a like-for-like basis and net profit for 2018 of around EUR 850 million. And earlier this week, at our AGM, we released a target for net profit growth of over 35% in 2019 versus 2018 -- sorry, 2017. My team is just helping me on that. Thank you very much, and we are now ready to answer any questions you might have.

[Operator]

[Operator Instructions] The first question comes from Bruno Silva from CaixaBank BPI.

[Bruno Almeida Da Silva, Head of Research]

I have 3 questions, if I may. The first one, regarding capital allocation policy post the deal with -- on Abertis, and if you could confirm that with your balance sheet position approaching net cash at the consolidated level, is there a target that you have in terms of leverage? Or are you ready to significantly increase cash remuneration to shareholders? The second question, I would kindly ask you if you could clarify your strategy on the position in MásMóvil. And finally, if you could share with us the outlook for the Industrial Services for this year and probably the next. Looking at your order book, what could be a recurring sustainable margin level at EBITDA level?

[Marcelino Fernandez Verdes, CEO & Director]

Sorry. Thank you. Thank you, Bruno. Your first question, capital allocation policy. You know our policy in capital allocation, and you are asking us about post the deal, post the current transaction ongoing. And then it is clear that we will continue just having same approach in our strategy, with capital allocation policy that always is focused on just looking at market, strategic opportunities for M&A, at market strategic opportunities. At the same time, we are always just looking for how to better allocate the capital if the cash position continues being as good as it's been in the last years. And obviously, we are very focused on rewarding our shareholders, and this is one of our main targets. And we will continue this way. You realize that we advanced at our AGM that we are focused on increasing our target in 35% comparing '17 to '19, meaning that implies that we will also reward better our shareholders, and it's exactly what we are aiming to do regarding our capital allocation policy. Obviously, we are very strict and we will like, let's say, to do everything with this investment grade that we are keeping at the group level. And yes, we are obviously just trying to increase our dividends proportionally to our profitability. And for the next question, I'm going to pass the floor to my colleague, Ángel García Altozano.

[Ángel Manuel García Altozano, Corporate General Manager]

As you know, we always said that MásMóvil is a company that we are in because, for historical reason, we're the developers of the Xfera license. We have waited, up until now, until the value was created. We think the company is doing extremely well. There is no -- we don't think we will be very long-term investors in the sense that this is not our core business. But at the same time, we've been practically 18 years into the company. So there's no rush. When we think the value is being achieved, we probably would exit the shareholding. But we do not have any particular timing in mind. It is a very valuable company. We think it is creating more value. And if and when an opportunity arise, we might divest, but we don't have any time in the horizon.

[Marcelino Fernandez Verdes, CEO & Director]

And the third question around outlook, outlook for the year. Industrial Services outlook.

[Ángel Manuel García Altozano, Corporate General Manager]

Okay. In terms of Industrial Services outlook, as you know, one of the strengths of Industrial Services is twofold. They've got a portfolio of services, which is quite wide, probably around 15, 20 different business activities, and they are geographically very diversified. The idea is moving the different skills, the different businesses into the market opportunities which they operate as. Now that the oil price is going up, probably we'll see more oil-related projects. In the past, when the oil was down, it was more gas and industrial activities. So it varies from -- with the market conditions. But basically, in a company that withstood the crisis is faring extremely well. We've been in the EUR 6.5 billion, EUR 7 billion revenues all the time and maintained its profitability ratios. And we think we're beginning to see an improvement in the Spanish market, which has been very, very down in the last few years. Now for the first time, it is increasing here. And also, in Latin America, it's growing. So we have a good outlook opportunity for the business in line with the growth than the market where we, presently, we experience.

[Operator]

[Operator Instructions] There are no further questions in the conference call. I now give back the floor to the company.

[Marcelino Fernandez Verdes, CEO & Director]

Operator, do you think -- I would like just to wait for a while.

[Operator]

[Operator Instructions]

[Marcelino Fernandez Verdes, CEO & Director]

Okay, operator. Then I would like, let's say, to thank the people for attending to this conference call. And all of you know that our investor team is ready for answer your questions at any time. Thank you very much.