ACS Actividades de Construccion y Servicios SA
MAD:ACS

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ACS Actividades de Construccion y Servicios SA
MAD:ACS
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Price: 42.7 EUR 0.99% Market Closed
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Earnings Call Transcript

Earnings Call Transcript
2020-Q1

from 0
U
Unknown Executive

Good afternoon, and thank you for joining this Q1 '20 Results Presentation. I am here with Angel Garcca Altozano, Corporate General Manager, and the rest of the team. We will briefly analyze the key aspects of our results and we then look forward to take any questions you might have.To start with, I hope that you and your family are safe in these difficult times. As you all know, the COVID-19 outbreak across the world has had a deep impact in societies and economies globally. Some regions have been more affected than others but practically all major countries have implemented measures, some restrictions to control the virus spread.Let me explain how the situation has affected ACS activities and operations during the first quarter 2020. The majority of ACS activities have been resilient and feel a little impact except for 2 businesses, Abertis and Clece. Abertis has experienced a drop in activity due to lockdown and mobility restriction, which has caused shortfalls in daily traffic since the second half of March. This has produced a strong reduction in the contribution to the Group's net profit in the first quarter. We cannot go through the rest -- the presentation.They have it. Clece has stopped or significantly reduced cleaning activities and maintenance of social infrastructure that has been closed down due to activity restrictions; schools, leisure, non-essential facilities and air transport. Meanwhile, cleaning services of critical infrastructures has been reinforced such as hospitals and public facilities.A view to the Q1 '20 key figures. At operating level, sales rose by 3.1% to EUR 9.6 billion. Adjusted for FX impact, sales increased by 4.1%. The backlog has stood at EUR 73.2 billion, growing by 1.2% [ by ] ForEx adjustment. EBITDA decreased by 5.5% FX adjusted to EUR 751 million, affected by a significant reduction of Abertis contribution due to traffic restrictions. Excluding this impact and FX, EBITDA remained stable. EBIT decreased by 12% to EUR 491 million due to the same reasons just mentioned. Adjusted by FX and Abertis contribution, it also remained practically stable.The group's net profit reached EUR 201 million. If we adjust for EUR 40 million lower contribution from Abertis and the net impact due to variation in financial instruments fair value with no cash effect, the comparable decrease would be 4.7%.The group had a EUR 2.4 billion net debt position as of March 31, 2020. 0.79x annualized EBITDA. At March-end, the group had a strong liquidity position of over EUR 12 billion with a cash balance of EUR 9 billion plus EUR 3 billion of undrawn facilities.In infrastructure, sales growth of nearly 6%, up to EUR 7.3 billion, reflecting the outperformance in the North American market. Industrial Services sales decreased by 1.6% FX adjusted. International activities rose strongly by 16.2%, 23% FX adjusted. While in Spain, renewal activities have been affected by administrative delays. Sales in Services flat, were affected by the Spanish restrictions due to the COVID-19 outbreak, as I have previously mentioned.Let's break down EBITDA by activity. Construction, EBITDA rose by 0.7% up to EUR 520 million, with slight margin decrease due to the business mix with higher contribution from construction management activities in the US market. EBITDA from concessions dropped to EUR 13 million from EUR 60 million in the comparable period due to Abertis contribution, which only reached EUR 3 million in this first quarter. As for Industrial Services, solid margin stability was shown, underpinned by a light and flexible cost structure and low capital intensity. And lastly, Services where margins were halved due to the significant slowdown of certain activities, assuming labor costs and the cost increase in specific supplies for safety and labor risk prevention.Let's look at net profit by activities. Construction's net profit remained stable, reaching EUR 87 million. Concessions net profit was impacted by the EUR 40 million reduction in the contribution of Abertis, Iridium contributed with EUR 80 million. Industrial Services delivered a resilient profit of EUR 120 million with a solid margin performance. And we have a negative EUR 1 million contribution from Services due to the COVID impact. The group's ordinary net profit reached EUR 202 million, 4.7% lower when excluding Abertis impact. Reported net profit amounted to EUR 201 million.Let's take a look at the free cash flow generation during the first quarter of 2020. EBITDA amounted to EUR 751 million. Financial expenses, taxes and other operating items amounted to EUR 160 million. The adverse cash flow from operations, that is before working capital and CapEx, reached EUR 591 million. The operating working capital variation in Q1 implied a cash outflow of EUR 1.2 billion, reflecting the characteristic seasonality of the period. Operating CapEx of EUR 155 million plus EUR 82 million of operating lease payments. Therefore, free cash flow from operations stood at negative EUR 840 million. If we adjust the free cash flow from operations from factoring in variation during the quarter of minus approx. EUR 200 million, we get a negative EUR 639 million, which represents an improvement of EUR 77 million or 10.6% with respect to the comparable figure of Q1 '19.And now, let's look at the net debt evolution during this first quarter of 2020. At the end of '19, we had a net debt of EUR 54 million. And from January to March 2020, free cash flow from operations amounting to EUR 840 million as we have previously broken down. Net project investments accounted for EUR 218 million. Payments related to BICC after CIMIC exit from Middle East was EUR 795 million. And in Q1 ACS has allocated EUR 122 million to increase in HOCHTIEF and CIMIC's stakes. Currently HOCHTIEF's stake is -- in CIMIC is 76.7%. And in addition, in Q1 ACS shareholder remuneration implied a cash outflow of EUR 261 million.Now let's look at the backlog evolution. The backlog stood at EUR 73.2 billion, growing by 1.2% ForEx adjustment. Our backlog is highly diversified in terms of activities, geographies and risk profile. Our core countries showed a positive evolution of [ A dollars ] the US growing by 4.2% FX adjusted to EUR 28 billion, Australia 4.4% FX adjusted and Spain growing by 1.8%.Now here, selected awards in Q1 '20. One of our major recent awards that include different construction works in Wexner Medical Center Hospital in Columbus, Ohio.Several contracts to provide maintenance for UGL's clients in the oil and gas sector in Western Australia and Victoria. Design and construction of the project for a new section of the A15 motorway are in Arnhem, Netherlands. Design and construction of 20 kilometers of S-61 highways in Poland. Several operation and maintenance services contracts in Spain, Asia Pacific and Latin America, Mexico, Peru and Chile. Extensions of cleaning services and facility management contracts of several hospitals and social facilities in Spain.I guess for to summarize, we have to say that the resilience of our operating activities driven by our strategy based on geographic diversification and business model. We have a strong financial and liquidity positions. Our robust backlog and attractive pipeline reinforces our leading position in the group's -- in strategic market and provides visibility. This defense enable us to be confident about the future despite the challenging times we are facing. And once we have better visibility of the consequences in our markets from COVID-19 crisis, we will update the market as required.Thank you very much. And we are now ready to take any questions you may have.

Operator

[Operator Instruction] We have a first question from Bosco Ojeda from UBS.

B
Bosco Ojeda

I have a question on the Construction area and one of the Services. On the construction, I guess, the first quarter you probably have not too much of an impact on US because of delayed lockdowns. I wonder, as the year is progressing, were the lockdowns are going to have more material impact? And also what sort of margins could you sustaining in this sort of environment whether you can do something on your cost base on that front?And the question Services is a bit similar. On your core clients, I assume utilities, you probably were not that affected. But do you have any pockets of clients, which are being affected in Services? For instance, on the oil side? Any areas which are particularly affected?

U
Unknown Executive

Construction in USA costs margins. As to their performance in Q1 has been extraordinary infrastructure, mainly in the North American market in the US market. We've been even having a significant growth in that area and is mainly reinforces because, well, look, you know that the crisis has started in the second half of March, then the impact on that has been really reduced.And apart from that, there is a significant reduction there with a lot of solutions are -- attacking all the problems coming from the COVID-19 with new projects coming in. And there is a kind of an overlap between several project that they have some restriction, we're starting to have some restrictions and this new projects where we are very efficient and the company is performing very well. Then, obviously, as I said, we need to wait a little for these Q2 performance in order, let's say, to get exactly how the companies and the US will be affected. And this Q2 is a complete quarter and then we will have better visibility on its side effects. Once we have this, we can share this with all of you.Regarding costs, it is true that the restriction could influence this kind of, let's say, less, better performance, but also is true that when we are sharing all these issues with our clients, there is an openness on that. We have been just looking for solutions when it's necessary.In regard to the Services, you realize that in Services is very resilient, it's a very strong activity. And one other thing that is more important apart form, let say, the significant projects that we are now developing regarding energy projects, one of the significant strengthen is that the regional diversification, the company is very well diversified geographically by different activities and also the company is based on the several kind of different contracts. We have contracts that are maintenance suspension, you have contracts that are supporting in the day to day operations, and you have at the same time significant ones coming from other types of businesses.We consider that our Services activity, as we said in our paper -- in our press release, is performing very well as strongly and is very resilient to the crisis. We will see what is going on in this quarter, but regarding the operations, we are very confident on that. Adding on what [ Marcelino ] said is probably if you look back in history in the Services activity, one of the advantages is depending upon the market conditions, the shift from resources from one area to another is something that with the price of oil that we have now, the oil business are going to lose a lot of work. At the same time, [ any ] activity has given us quite a lot. You might have seen, if you look at our figures that Latin America, basically Brazil, Peru, Colombia and Chile represent 37% of all the sales of the Industrial Services group, which is a tremendous growth. And it is basically due to high volume designs and energy generation facilities.So, the advantage that we have in the Industrial Services is that they've got a quite a wide spectrum of technologies, then they can use depending upon the market condition. We are positive in that respect, one of the reasons why we haven't grown this year is because basically a lot of the renewable energy project, which we had ready to go, has been to some extent delayed by administrative -- I wouldn't say Europe, the current public administration was not all that active in the first quarter in Spain, and it was in kind of slow-motion, and some areas were soft. But we have a tremendous backlog, which is ready to go. So we think the Industrial Services side is fairly would have handled this situation.

Operator

We have no other questions for the moment. [Operator Instructions] We have a new question from Marcin Wojtal from Bank of America.

M
Marcin Karol Wojtal
Analyst

Just a quick question. Can you give us some color on trends in Q2 for Construction and Industrial Services. Are you seeing activity coming back? Are you seeing some of the size that perhaps were impacted now being reopened? Are you seeing a lot of normalization? And maybe you could make some comment for Spain and the US and some of the other regions, just very generally.

U
Unknown Executive

You know that the construction activities are considered by the government as essential activities. Mainly, that construction has been continued working with -- at a relatively normalized way with the only consideration that I explained previously to your colleague the restrictions. The restrictions are may be conditioning us for the pace of the work. But we don't foresee now or we are not having any significant problems in regard of project that has been stopped and for long time, and this is not the case. The reality is that the performance is very, very solid, very good in the different markets, either in Europe.And you know that in Spain was stopped for 2 weeks, but was the only consideration. But then the remaining of the markets that we are awaiting, Europe, America, North and South America, Australia, Asia Pacific, the activities are considered as essential activities and then no significant impact on the activities. It is true that the restriction, these social distancing and several measures that you have to keep at the working places like for instance when you are in the areas that people need to be close to or when they the teams need to work very close, then you have to do this in a more relaxing way.But our clients, as I said, has very, very openly said to look how to extend the terms and conditions of the contracts and then to look there is some kind of cost influence on that. Meaning that maybe, could be, or kind of an impact coming from these restrictions but not any significant one. We are not foreseeing any significant change on that activities.

Operator

We have a following question from Fernando [ Lafuente ] from Alantra Equities.

U
Unknown Analyst

A quick question on your debt position, excluding HOCHTIEF and also our consolidated level. What are the working capital trends that you expect for remainder of the year? I guess, this year has been seasonally weak quarter in terms of working capital. But what do you see in the coming quarters and this COVID could impact working capital in the sector? And that's my first question.And the second question is on your holdings on Abertis -- sorry, on HOCHTIEF and Clece? You said, you mentioned increasing the stake in Clece. Has there been any increase in the stake of HOCHTIEF? And more from a strategical viewpoint, how do you see these 2 holdings going forward? Are you willing to keep on increasing the stake or you are certain opportunistic in move made, I guess, during the month of March '20.

U
Unknown Executive

Regarding the second question, you know that we are really very focusing on capital allocation policy. And this is what we continue doing. And if we have invested in CIMIC through -- via Hochtief in Q1 and some buybacks, it is the course of -- we consider that this is a great market opportunity presented by a very, very attractive price. But it's not a guide for any specific strategy on increasing the stake for the sake of just getting high control or whatever because we have the companies with a very significant stake at the moment.The meaning of your question is like, well, look in the market and you know that our financial situation position and our liquidity position is very, very safe and healthy. If we consider we have a very good opportunities in the market, we will continue try and get advantage of that. If these opportunities are coming from buying back shares or whatever, and this is the best solution, we will think about it, but not because of any strategic decision about increasing the stake, either in HOCHTIEF or in CIMIC. In terms of our working capital, you see the variation of working capital in ACS ex-HOCHTIEF of this first quarter was EUR 456 million, while last year in the first quarter EUR 437 million. So we basically attained the figure. The idea is that we will -- we have the objective of not burning working capital overall. Obviously, this year, things have been different. We do not know will we be able to achieve by the idea. We then will get paid for the amount of work we done before, so basically should not have a major deviation. And as you see, the first quarter of this year in ACS ex-HOCHTIEF, it's been the same number we reported last year.

Operator

We have no question for the moment. [Operator Instructions] We have a new question from Nicolas Mora from Morgan Stanley.

N
Nicolas J. Mora
Equity Analyst

A couple of questions. First one on factoring and supply chain finance in Australia on HOCHTIEF. It seems CIMIC supply chain finance under review and you've lowered as well the use of factoring in Q1, whilst revenues were basically flattish. Are you reconsidering a little bit today the yields of these 2 items for flexibility on the financial side.Second one, on the U.S. construction. I mean, the outlook from [ some of the guys, either on the CN side ] non-residential is increasingly grim, but what do you see yourself? I mean, you don't turnover, you are the #1 player there. What have you seen? What are you seeing on the ground? We saw Q1 was a lower quarter on order intake. But is it a sign of things to come or is just basically a bit of volatility on the order side?

U
Unknown Executive

As I said, the North America market is really performing well through [ tenor ] as you said and it's true that there is kind of good moment in regard of new constructions. There is also good moment for a lot of private investment there, it is surprisingly but there is a lot of new potential projects, you will see while we expect, let's say, at least half in the next, in the coming months.New project onboard, meaning that now we are increasing our building pipeline. And we foresee this very positively. The only consideration, as I said previously, is that we don't know exactly how this kind of delays or postponements coming from COVID impact will affect us in a very short term. We don't know exactly what is exactly the section, but we are very confident for the overall year and then we expect the construction to continue performing positively for the year-end.In particular, in the rest of this different buildings, reconstruction, offices, hospitals, stadiums everything continue. Now, I mean you know that now in the US people are starting again, let's say, to look a little bit ahead because there is a very, very important witnesses for getting back all the COVID-19 impact. This is in the rest of this construction view in the US market that we consider that will continue to be challenging but positive at the same time.Factory and supply chain, we're considering. What is the truth is that the factory in Q1 this year and regarding CIMIC was down by around [ $200 ] million and what we are doing is more or less keeping the level of factory in a similar position than previously we had.And regarding supply chain financing. The supply chain financing was down in Q1 about [ AU D250 million, AUD 260 ] million in Australia. And when we said that we are reconsidering the supply chain issue in Australia is because of the small- and medium-sized companies contracts. And this is exactly what we are now analyzing in order say to abort any misunderstanding and this is then reconsideration that we want to make, but now as we will continue reconsidering this possibility, but keep in mind that we don't want to affect the small- and medium-sized companies.

N
Nicolas J. Mora
Equity Analyst

Okay. And just one follow-up if I may on Industrial Services. I mean, we've seen over the years you've been able to tap different markets, geographically and different end markets. So the next wave of growth was to come from renewables with maybe a little bit of a short-term. You still see a vast pipeline or you still believe you can deliver on the pipeline you had for yourself and for external clients over the next 12, 18 months. Are you fear some delays as well on new projects or reconsideration from utilities, for example?

U
Unknown Executive

Well, maybe we have to say that, to be honest what has happened here was this some kind of administrative delays in renewables, but we have a renewable project so and so. Also, and our order book is very stable and we consider that it's one of the activities that we are performing in a more solid way.And regarding new contracts and regarding the diversification, as I said and I've explained in more detail previously, the company is very resilient and there is a continue flow of new contracts in the day to day. But keeping always in mind that energy and the new resources that we are using are very consistent and we consider that the company will perform very clearly through the year.

Operator

We have for the moment no other question. [Operator Instructions]

U
Unknown Executive

Okay. No more questions? So if there no more questions, we hope to see you or to meet you in the coming and we hope that on July -- end of July we will release second quarter results and hopeful be in better shape, I would say. Thank you very much. Thank you very much. And keep safe you and your families because the crisis continues to be there. And so take a lot of care. Thank you.

Operator

Thank you very much. Ladies and gentlemen, this concludes today's web conference. Thank you all for your participation. You may now disconnect.

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