ACS Actividades de Construccion y Servicios SA
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ACS Actividades de Construccion y Servicios SA
MAD:ACS
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Price: 44.3 EUR 0.54% Market Closed
Market Cap: 11.3B EUR
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Earnings Call Transcript

Earnings Call Transcript
2021-Q1

from 0
U
Unknown Executive

First quarter results presentation. We will briefly analyze the key aspects of our results, which have been in the release, and then we look forward to any questions you might have. As you all know, COVID-19 has had a big impact across the world, affecting our health, our behaviors and global businesses and economies. In this situation, ACS' operations have shown good resilience in profitability, all business areas except for Abertis. In this first quarter 2021, the recovery trend continues, especially in the bidding process where we see more activity, as we will detail later on. To analyze the first quarter 2021, we are referring growth rates to the 2020 pro forma figures, where we have re-intensified industrial services at discontinued operation after the recent agreement with VINCI. Also, we have adjusted contribution from Thiess, accounting only the current 50% stake as a pulling method in both years. At the operating level, sales decreased by 10.6% to EUR 6.4 million affected by currency headwinds, especially the U.S. dollars that has depreciated by 9% versus the euro. FX-adjusted, sales went down by 7.5%. The backlog stood at EUR 63 million, growing 2.1%, supported by a strong recovery of orders intake. EBITDA reached EUR 329 million, declining 4.3% and improving its operating margin in America and Australia. Excluding Abertis contribution, it decreased by only 1.2%. EBIT decreased by 7.9% and reached EUR 205 million. The group's net profit reached EUR 195 million. Not considering Abertis, it would have been 8.5% higher than in 2020 comparable period. As of March 31, 2021, the group had EUR 3.7 billion of net debt, EUR 1.3 billion higher than a year ago, the significant reduction of factoring of more than EUR 800 million and EUR 362 million cash reclassification of our industrial services business. Assets that held for sale explain this increase. Our business strategy has focused on strengthening our presence in main regions where we operate, maintaining the balanced distribution of activity. Currently, 90% of our sales come from our main 3 markets: 60% from North America, this is the U.S. and Canada; over 19% from Australia; and 11% from Spain. The remaining 10% came from Germany, 3%; the rest of Europe, another 3%; and Asia and South America will be presently about 4% of the overall sales. Continuing with Q1 performance, South American market reached EUR 3.8 billion sales. The significant FX impact from the dollar depreciation plus the slowdown of the activity compared to a strong first quarter of 2020 not yet affected by COVID-19 explains the year-on-year sales decrease. Actually, current sales are 2% higher than the first quarter of 2019 level. In Australia, total output remained stable in local currency, while the Spain, had its sales slightly decrease of 1.2% coming from construction activities, which could not be entirely offset by the increasing facility management. In construction, sales reached EUR 5.9 billion with an EBITDA of EUR 338 million. Margin over sales increased by 30 basis points versus Q1 2020, thanks to an improved operating efficiency in North America and Australia. Meanwhile, in concessions, EBITDA dropped to negative EUR 2 million from EUR 13 million in the previous year, driven by a various contribution with service still affected by traffic restriction due to COVID-19. Finally, services, where sales recovered after the end of lockdown in 2020, likewise, operating margin return to regular levels pre-COVID. Net profit by activities. Construction net profit, practically unchanged, amounted to EUR 73 million. Consumption net profit was a negative EUR 4 million following the EUR 9 million reduction in Abertis contribution. Industrial services reached EUR 110 million, 8% lower than previous year due to the impact of the pandemic. A EUR 7 million contribution from services recording from COVID impact, plus positive results from corporation due to the non ordinary financial results, which last year contributed negatively. Overall, the group's reported net profit as of March 2020 amounted to EUR 195 million, 3.8% higher year-on-year. Let's summarize our business performance in the first quarter. Traffic was still affected by mobility restrictions but benefiting from Abertis diversified portfolio. You can see a traffic evolution by country in each slide. Traffic recovery is expected whilst restrictions due to COVID are relaxed over the next months. Still averages over it in revenue went up by 2%; and EBITDA, up by 6%, mainly due to the full consolidation of RCO in Mexico and Elizabeth River Crossing in Virginia recently acquired. The inclusion of these new assets strengthened Abertis' growth platform in North America and facilitate the analysis of future opportunities. Moreover, Abertis continues to explore new investment in the brownfield projects with diversified continuing portfolio and sources of revenue. Meanwhile, Abertis net profit per PPA amounted to EUR 84 million for the first 3 months, a reduction of 29% generated COVID contribution to ACS, net profit to EUR 106 million. In addition, last April, Abertis proceeded with a dividend payment of EUR 300 million. Backlog evolution. Let's move to the backlog evolution. As of March 2020, working has remained robust at EUR 63 million, 3.1% higher than the previous year. By core countries, we sum up over 80% of the backlog. The U.S. backdrop grew by 7.4%, FX adjusted, up to $28 billion. Australia is one that stood at EUR 18.3 billion, 4.8% like-for-like. And Spain reached nearly EUR 5 billion with a slight decrease of 1%. This positive evolution is backed by a strong order intake during the first quarter of the year, over EUR 7.7 million, equivalent to a book to bill ratio of 1.07. Furthermore, we have a positive outlook based on a stimulus plan and green deal agreements as part of the crisis response from government. Some of them have been already announced, but the current project pipeline, including infra thesis,, provide us confidence for the future. Major recent awards include a high-voltage transmission network in recent for over EUR 1 billion, a 10-year operation and maintenance contracts of infrastructure in the country of regional network to Wales in UGL -- in New South Wales for EUR 958 million. And road work in the U.S. amounting to over EUR 500 million. As March 2021, a group reported a net debt balance of EUR 3.7 million. This figure is EUR 1.9 million higher than the net debt reported at year-end 2020 as a consequence of the seasonality effect of the period, which impacted even cash outflow from the operating working capital variation of approximately the EUR 1 million, in line with previous years, driving the net FFO from operations to negative EUR 769 million. The reduction in factoring balance in the last 3 months, EUR 269 million and the reclassification of investment businesses, cash of EUR 662 million as discontinued operation after the agreement with VINCI at the end of March 2010. Just to finish, I would like to highlight that the group first quarter results have confirmed the resilience of our businesses backed by decision to focus in the more developed markets. Obviously, at the blackout period called by the special situation provided by the pandemic, the order intake, a significant recovery in these core markets, providing more visibility in our outlook for the coming quarters. As our Chairman mentioned in our recent AGM, the recovery months clearly reflect at Abertis. After the year of trending global mobility restrictions, 2021, we are seeing an uptick in traffic on highways and one that we're confirming expected increase in their profitability going forward. This evolution together with the good performance shown by the rest of the business make us confident on the 2021 results. Looking to the future, we believe that our capacity to create value will start in those sectors and activities where our extensive experience and resources can be most efficient and also can help to achieve our sustainability goals. In short, we are focusing our views in the areas of construction and concession, where we are pursuing good opportunities to achieve the profitable growth target we have. Thank you very much, and we are now ready to take any question you might have.

Operator

[Operator Instructions] The first question comes from Luis Prieto from Kepler.

L
Luis Prieto
Head of Construction and Building Materials

Luis Prieto here. I had a couple of questions, if I may. The first one is in the AGM, I understand that the Chairman commented on a Plan B if Atlantis shareholders or the Italian government decided against ACS' move on ASPI. I know it's difficult and it's probably too early, but if you could shed a bit of light on what these plan B, C or whatever could entail, that would be extremely useful. Or at least give us a hint in what direction you're looking at. And the second question is regarding industrial services, what's left consolidated there at the EBITDA level. I understand that it's just the energy assets that you have kept, and you reported an EBITDA of EUR 11 million. Is it fair to assume that you're going to end the year with an EBITDA from these assets in the ballpark of sort of EUR 40 million, EUR 50 million? Or am I missing something? Or is there any distortion embedded in this number?

U
Unknown Executive

Yes. To answer the first question. I guess we manifest it, and we are interested in looking to the possibility to invest in ASPI with the idea of consolidating a new platform between ASPI and Abertis, which will become within one of the leader concession operators in Europe, if not in the world. It will have a very diversified geographical footprint and ambitions to make it grow. But obviously, this is something that, obviously, we need to be -- any time you work for a concession, you need to be in agreement with the concession renter, in this case with the Italian government. And we manifest there with them. We are looking into the data rules, and we have to wait to see what movement are the concession renters making. We are ready to it, but obviously, they've got already an offer presented, which is being discussed. And depending upon how it is perceived, our offer, we'll proceed more aggressively or less. It is obvious that we would never act in a situation where we would not be in a friendly atmosphere to the Italian investor or to the government. So we have to see what is their idea, how do they want to privatize the company. For us, it's an interesting asset. But for whatever reason, they prefer to keep the present situation, we have quite a few other alternatives. The plan B that you mentioned is not a plan B. I mean there's quite a lot of concessions being developed, both in America, in Australia and in Europe and also new greenfield operations and also existing brownfield operations that have been operating in the market. We want -- as we said, to focus on the concession operation as well as having the concession arm to be able to convert greenfield into existing operations and make the platform grow, which is the -- I think the advantage that companies such as ours would bring to a concession operator, have the capacity to keep the growth by incorporating new concessions coming from the greenfield state. But it's not a plan B. This is something which is going to happen almost regardless if we were able to reinvest in ASPI. But in attractive conditions, obviously, we would spend more of a fire powder into the transaction otherwise we'll spend the investment capacity in other concessions. And then the second question.

U
Unknown Executive

Yes, it's about the energy assets that are contributing to the EBITDA.

U
Unknown Executive

The energy assets, I wouldn't be able to tell you whether this EUR 11 million is going to be EUR 44 million. Some of these assets are being marketed. It was -- from the very beginning, some have been pursued by some individual investors, specific concession in a small market, which we might get. So I would not be able to tell you whether we'll keep the full amount that we have now at the end of the year. Some, we might be able to sell.

U
Unknown Executive

And also, there are some that are under construction that could be cut at the second part of the year. So it's now -- it's not very easy to forecast what is going to be the EBITDA for the full year.

L
Luis Prieto
Head of Construction and Building Materials

Okay. Okay. And actually, if I may, a follow-up question regarding the alternatives, potential investments. Would you invest in those directly the proceeds from the VINCI transaction? Or through Abertis in a combined way? Is there any light you can shed in terms of what structures we could think about?

U
Unknown Executive

Obviously, Abertis is a very good platform. Abertis, it's a platform where we have another partner, Atlantia. So we don't have any problem in investing to Abertis if the other partner is willing to follow a growth strategy, but that doesn't limit us. If the other partner were not to be willing to invest or were not agree on what investments, we would directly through -- we do it ourselves. So we have the capacity to invest along side or solo.

Operator

[Operator Instructions] The next question comes from Fernando Lafuente from Alantra Equities.

F
Fernando Lafuente Seseña
Equity Research Analyst

Two questions -- well, 3 for me, please. The first one on the outlook of net profit. And following the comments made by the Chairman in the AGM. If you could give us a little bit of -- well, actually, what are your views regarding the evolution of net profit for this year? And also, assuming that, well, adjusting the net debt with the changes in the perimeter and also before the proceeds from Cobra, where are your best expectations for this year for net debt? The second question is on investments. I've seen that you have reduced significantly investments in renewables. I understand that this is it in the sense that you are not investing in renewables going forward, and you will be waiting for the new JV to acquire these assets looking to the next quarter, the following quarters. And lastly, on Atlantia, I was wondering if you could give us kind of a view of -- on the timings. I understand that the Atlantia will hold its AGM by the end of the month. So what are your alternatives here? Can you -- if you decide at the end to make an offer, can you do it before this AGM or you have to wait after the AGM? What are the timings there or your views there?

U
Unknown Executive

Okay. The first one is a very easy one. What is my outlook of profit? I think about 10 days ago, the Chairman announced in the AGM that if the concession environment was to be positive and we could get close to 30%, I'm not going to be changing the slide. So basically, I think we are all considering that if Abertis goes in the line that everybody expects, we would get to this amount. Obviously, it is something which is completely beyond our control because as you saw, about a month ago, the French market suddenly put, again, restrictions on mobility. But hopefully, that is something very temporary and it now is in away. So it depends very much on it. The other businesses are pretty much resilient. I think there was a slowdown in order intake in the latter part of the year, which has been in this first quarter, being significantly recuperated. So we are very positive in the regular business, and we are completely on the half of the pandemic effects for the total businesses. In the case of net debt, I mean, it's very difficult to say what is going to be our net debt scenario because, first of all, we hope to get the EUR 5 billion we expect from the sale of VINCI, which hopefully will be in the year. But obviously, the amount which is going to on hand, depends on the investment, how fast and how big the investment will be. So I guess what I tell you is guesswork. Basically, we have the present situation, which is affected by the effects of the first quarter, which obviously, we have a negative first quarter in terms of working capital. So we would basically begin to ease off throughout the year. But the rest, it depends in the investment, how fast do they go and how big. In terms of renewal, you said that we are slowing down renewal. Again, what we -- now is we are not investing renewals in the sense that the renewal development is something that, that's Cobra, which basically is a discontinued operation. Cobra is continuing with its own activities of development as fast as it was before. The only thing is, obviously, it is something which we win on behalf of the potential owner. We do not consolidate at EBITDA level or on consolidated net income, but they continue with the same progress. The investment that we hope to do is this -- if the transaction completes, as we expect, the VINCI transaction, we have a company which is perceived to be 51%, 49%, through which we will invest. And obviously, to this new company, assets being developed by the company. This 25 gigas, which was pipeline pursued by Cobra and even some of vessels that we might have. So basically, initially, our investment would go the normal ways to do through the UN company with VINCI. But new developments have been done by Cobra itself without any reduction in the percent.And then...

U
Unknown Executive

Atlantia, Atlantia.

U
Unknown Executive

The Atlantia. I guess, little as I can tell you, basically, what we've said is that we're interested in the asset. We think the asset fits very well with our target of being invested in concession. Second, we think it is a good combination, Abertis and ASPI for the Italian shareholders. It provides the joint company with a much bigger geographical footprint in diversifying different markets. The problem with ASPI is that it's restricted to the Italian environment, which is obviously in a situation where you've got a different type of risk to have concentrated the single market. It's more riskier than to have a presence in North America, South America and other countries in Europe, and Germany and Spain and even Australia. If you adapt to the acquisition, you get a stronger company. But obviously, it depends very much to what is the attitude of the present grantor, the Italian government. I guess, we're never going to get into a situation where we will dispute bitterly the existing pillars because obviously you get there the CDP, which is a state-owned savings bank, which obviously would not make sense to actually fight the bill with them. But it might be different possible combinations, and we are basically awaiting to see what responses do we get and also while we're doing the analysis in the LatAm. But it's little else I can tell you for the time being. Obviously, by the end of the month, we will have a much clearer picture of where we will go.

Operator

The next question comes from Alejandro Vigil from Bestinver Securities.

A
Alejandro Vigil
Analyst

The first one is regarding the renewables joint venture with VINCI. I know it's early days, but if you can give us some color about what kind of framework of investment are you -- want to develop with them, if you are setting some kind of profitability criteria in terms of total investment in the projects. If you can give us some color about this joint venture. And the second question is about Abertis, the plan B, if FASB doesn't go ahead. It's -- which are the key markets investment opportunities for Abertis? Is it more the U.S. market or is more Latin America? If you can give us some color about the key markets for the company. And finally, about the capital gains from the transaction of industrial services. What are you thinking about these capital gains to just to report them or to use part of these capital gains for cleaning the balance sheet? Your thoughts about that? Because I mind the plus 30% guidance of the Chairman in the shareholders meeting doesn't include this kind of capital gains.

U
Unknown Executive

Of course, yes, let me start by answering you in the latter one. We plan to report the capital gains that we incorporate. We do not plan to highlight at the carpet. Basically, whatever the capital gains will be out of breaking the budget, so to speak. I think the Chairman implied what is the objective of the regular businesses. The size of this capital gain will be in the medium category. Obviously, cannot -- it's not incorporated here. Whatever we make as a capital gain, we have to report it, and invest most of it, if not all, into new businesses along the lines of what we would like. We've said concession, transportation concession most in the possible consumer businesses and not everywhere but in developed market. Basically, we consider that this type of investment, we feel more comfortable making them in where you got a strong currency, that you do not have tremendous fluctuation, where you've got a stable legal framework, where investors are willing to buy without specific cycle concerns. So North America and Europe and Australia in principle are the preferred market. That does not imply that we could not invest in an asset that we just bought in RCO in Mexico. If there appears to be a whole opportunity, it will be done. But the focus is not to concentrate in those markets, but rather in the developed markets. And in terms of the remodel joint venture, I guess the framework is very simple. Our company, Cobra, is developing quite a lot of renewable assets that were shooting in the pipeline in the 25-gig. And once these assets are really built, you can build them for clients, but these are the ones which we are covering and developing. So the idea was to have the ability to invest in the UN vehicle with VINCI. He wants to consolidate it and why -- they would have 51%, and we will have 49%. But the idea is to do a co-investment with them. I guess, when you say what IRR target do we get, that very much is -- does not depend on ourselves. It depends on the market. Obviously, you're not going to say they are a target for a vision which we will build 2 or 3 years later on. But obviously, they have to be targets which are attractive for the market. The volatility of these projects are really below and depending on the technology and the capacity to generate sustainable cash flow. This is the reason why we think it is worthwhile to invest. And we share values with VINCI, and the idea is as we develop them, keep on putting them. And we have the right to invest, not the obligation on a price to price basis. But the idea is that we will go and put our chips together in an investment, which would provide significant dividend going forward.

Operator

[Operator Instructions] The next question comes from Joao Safara from Banco Santander.

J
Joao Safara Silva
Equity Analyst

Just a very simple question. Sorry if I didn't understand the -- if I look at your cash flow statement, I mean it's mentioned that this includes the industrial services unit. So all of it are -- so working capital, et cetera, this all includes still the industrial services business. But then you do the adjustment in terms of the cash position of this industrial service business in the debt. So I was just wondering, I mean, if I'm looking at it correctly or not.

U
Unknown Executive

In the debt position, when we speak about the debt, obviously, we have had all the assets which were incorporated in industrial services. When you put them up as an asset held for sale after discontinued operation, you put them in the line. So you eliminate these assets from the cash or the debt situation. You eliminate both, the cash and the debt. Since the investment was worth debt, and debt-free was a cash rich company, had about EUR 700 million or EUR 600-plus million. You eliminate that from the cash while we were keeping the green bond asset liability because this is not in the assets that we're selling, it's in the holding company which we keep. So this is basically the reason why it appears as a reduction in the cash. So it is a reduction in the cash that has been reported.

U
Unknown Executive

But Joao, yes, you're right that the cash flow statement includes the cash flow from continued operations and discontinued operations. So both are included in the cash flow statement, okay?

U
Unknown Executive

One thing is the cash flow...

U
Unknown Executive

Yes, cash flow.

J
Joao Safara Silva
Equity Analyst

Yes, yes. No. I was just trying to understand where the -- so my understanding is then that the cash flow that is generated, it includes the industrial services business. And then you do the adjustment for the quarter and cash at the industrial services.

U
Unknown Executive

And as you know, all the businesses in the first quarter have the seasonality effect. So the cash flow -- operating cash flow always is a little bit negative.

J
Joao Safara Silva
Equity Analyst

No. Yes, I understand. I just had the doubt because of a previous question. It was mentioned that in terms of the investments that were being done. And is this, in the end, I mean being industrial services business here, it shows that the investments done in the quarter were very low. So -- sorry, I got a bit lost in when you answered that because I understood that it wasn't included. But -- okay.

U
Unknown Executive

Yes. But also, if you have in the results report, you have the breakdown of the investments, and you can see that there's investments in renewables and divestments as well in renewables.

U
Unknown Executive

That's way the end is 0, that is you have 80 minus 80.

U
Unknown Executive

Exactly. So we have had some disposals agreed last year, and we have some investments, as always, we carry out from Cobra.

Operator

[Operator Instructions] There are no further questions. Dear speakers, back to you for the conclusion.

U
Unknown Executive

Okay. Well, if you don't have any more questions, thank you very much for attending the presentation. You know we are available if after going a bit more in detail to the results you want to get further verification. I apologize for having had so little time from the results presentation and to this meeting, but we wanted to get this today because tomorrow is a semi-holiday in Madrid and we wanted to get the information as soon as possible. So thank you very much, and await any further calls you want to make us. Thank you.

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