Fomento de Construcciones y Contratas SA

MAD:FCC

Earnings Call Transcript 2018-Q1

[Miguel Coronel Granado]

[Foreign Language] Hello. Good morning. My name is Miguel Coronel. I'm in charge of management control at the FCC group. Thank you for connecting to this new web conference. In this case, we're going to present the results of the first quarter of this year.I'd like to say that there's been an improvement in the net attributable result, which is more than twice the amount we got last year in the same period. And this shows that this is a recurrent contribution. There's been no exceptional contribution. It's just the usual culprit.Behavior of operations has been very positive in each of the operational areas. And we've added to this all the financial efficiencies that we have described in previous occasions, and that now can been seen much more clearly.If we go to the different items in the P&L account. We have here EUR 1.33 billion total revenues. These are revenues coming mainly from construction, international construction. But I have to say that we also have the impact of the depreciation of some currencies, especially the U.S. dollar, which has depreciated again on a year-on-year basis. So if we were to adjust exchange rate impact in all the international operations of the group, other currencies versus the euro, consolidated results would not go down, but rather there was an increase of up to 1.9%.Now as for different geographical areas, with this exchange rate impact, there was a slight reduction of the international areas, 1.9%. The contribution of international business was slightly over 44% of the total. This change, compared to 2017, has to do with exchange rate differences and also the conclusion of some projects, such as in Mersey Bridge in the area of Construction. There were other projects that were also in a final stage, and those have not been compensated out for -- with some of the projects that are now being launched and still at an initial phase.In Spain, revenues were quite stable. In consolidated terms, slight increase, 0.1% -- 50%, 56%, sorry. Water was very important, 3.6% increase, more activity in concessions in Water. A little increase in networks and technology contracts that were started last year. In environment, we also had a 1.8% growth. Very organic growth. More activity in services and contracts in the perimeter of the group. And finally, in Cement, we saw a slight increase of 0.4% in the domestic market. Although, here, I must say there are several exceptional factors that have moderated this growth. I will explain this later when we look at each activity.The operating profit has grown 15.3%. All business areas have contributed to this, mainly Cement. And to this, we have to add the policy we followed to try and focus on more profitable projects and contracts, also synergies and reduction of support and structural costs in the group, which have come down by 11.8%.I also would like to say that there have been no operating or financial results which are nonrecurring. These are all organic, very clean results. There's been an improvement in financial results. This has made it possible for the increase in profit before taxes to reach a much higher level of last year. All of this at the end leads to an improvement in net profit, a little over EUR 50 million.Now if we analyze each business area. If we start with the environment, which is the one that contributes the most. Here, our revenues went up to EUR 600-and-some million. As I said before, there's very diverse demand here, more activity, more volume. This has been seen in all geographies and all activities, but mainly in some subsectors, such as recycling and the reuse of recycled material.The second most contributing market was the U.K., after Spain. Here, we see a 1.6% reduction, but this is due to the depreciation of the currency, in this case the pound sterling that fell by 2.6%. There are some other minor impacts such as less contribution from taxes, landfill taxes. And also, the fact that general development phase, some of the plans we have for energy, [ solarization ] has not been as great as we thought. So we see that, in the U.K., these revenues could have grown 2.6%. So it's important to mention this differential when you see this 1.6% drop.In Central America, there was also an improvement, up to EUR 1.108 million, very balanced activities in the area. Here, there are countries where we have a stronger, more consolidated presence, like Austria and Czech Republic. In other markets, minor markets, there's been growth. For example, in the U.S., our revenues grew. [ And we've seen ] there's another quarter, so in this case 38.1%, and it's because of the fact that the contracts we are obtaining in Texas and Florida are increasingly attractive.All in all, this is our operating profit, EUR 679.3 million; EBITDA of EUR 103 million. We see greater profitability of some activities, especially, recycling, for example. And this quarter, we can see what's happened in the international market.Now talking about Water here, we are talking about [ EUR 344.9 million ]. As I said before, there's been an increase in technology and network activity, not only in Spain, but mainly on an international level, with more moderate growth in concessions and services, but more intense in the domestic market of Spain.In Spain, revenues grew by 3.3% from Water assets starting to be operated and exploited, and investments in technology and networks for treatment and distribution still remain at a very contained level.As far as Spain and Central Europe, there has been a 15.5% growth based on the comprehensive water management. This is one of the few currencies, the Czech crown, that helped us in a positive way. There were also some tariff changes and changes in some of the concessions that we have in operation. In Portugal and in Italy, also within the European Union, there has been a good performance because of our comprehensive operations.In Latin America, this number fell EUR 2.2 million, and it's simply because of the end of some works. We have one in Guatemala, another one in Mexico, in Uruguay, and in some other international markets like Middle East and Africa. We've started to develop a plant in Egypt, and that is why we have a 42% growth. So at the end, we had a growth of 1.4%, EUR 51.9 million, which is basically very much in line with the good behavior of the concessions and services activity.As for Construction, revenues went down. Here we have the negative impact of exchange rates. There are many relevant contracts that are denominated in dollars. And also, there's been less activity in Spain in the domestic market, because last year, a lot of relevant works came to an end. The new stadium at the Atlético de Madrid, for example. If we adjust for everything, for example, exchange rates, we'd see that there's been a slight decrease, but only 3%. And this is something that we believe is also due to the low volumes of investments in infrastructure and the lack of projects that are in line with our goal.The second area of activity, which is Middle East and Africa, you can see how revenues went down by 1.7%, again because of the dollar effect, that 3% devaluation during the period. In Latin America, our profit fell by almost 11%. But there's also been an execution factor, for example, the end of construction of Santiago-Lampa highway in Chile and the exchange rate impact.As for Europe, Europe and other minor countries, our business went down as well. We delivered the Mersey River bridge in the U.K. and also the Dublin Airport. I have to say that other contracts that are just beginning, we've been awarded some recent contracts, and we're going to work in Romania on their rail lines, but they're not contributing yet.So EBITDA, EUR 16.5 million, a difference of 5.1%., so that's an increase compared to 4.4% last year. And here, we see total contribution of an improved operating profit, the better margin and lower cost structure -- lower structural costs.Finally, Cement. Revenues in consolidated terms went down by 1.8%, up to EUR 82.1 million. This is because of our operations in Tunisia and also because of the impact of exchange rate.In Spain, our revenues grew little, but they grew. This is a combination of the Spain demand growth, especially in the private market, construction, refurbishment, et cetera. There's been a negative calendar impact, and this is quite substantial in terms of the number of days of operation. And for those who live in Spain, you will know that the month of March was very humid, very rainy, and that made it difficult to work in construction in March.In Tunisia, our revenues fell by 26.4%. The dinar depreciated up to 17%. And there's also the combination of lower volumes in the domestic market, but this has been compensated with a price increase.In the U.K. and other markets, we're talking here about exports, they grew 17% because of a strategy to develop to try and find alternative markets to improve things and compensate for the closure of the Algerian market. Here, we see a growth in EBITDA of EUR 18.4 million. This is because of a combination of an improvement in the operating profit of the group, but also the sale of CO2 rights. We didn't use this facility last year. And in this first quarter, this has been sold for an amount of [ EUR 6.1 million ]. There's also a negative effect, which was the evolution of energy costs during all the quarters of last year, which obviously, produces some headwind, and they will have an impact on our year results.So those were my comments about the different operating areas -- operational areas. Now I will talk about cash flows and our debt structure.Gross debt was reduced slightly, by 1.3%. Discount and cash, consolidated debt closed at this amount, 5.6% increase compared to December last year. And this is -- this increase in net financial debt was because of circulating capital expansion. In the first months of the year, this always happens, but it tends to reverse in the second half of the year. A number of different components of cash flow, apart from all these things, you also have to take into account investments. Last January, we paid to buy a water business in the Czech Republic. So we gained back the whole capital of that firm, and so that transaction we had to pay EUR 92.5 million, which we have already agreed in 2017. There are also some other investments, one particularly important for growth. For example, the plant in Edinburgh with more than EUR 21 million in the period. So all of this is having an impact on this evolution of our financial debt.Now regarding the structure of the debt, if we divide it into components, there hasn't been many changes. The net debt with recourse EUR 1.41 billion. This is the syndicated loan of June 8 last year. Here, there's been no significant change.As far as financial debt without recourse, it ended at EUR 2.36 billion. No appreciable changes here. We have the bonds that were issued last year. And to this, we have to add debt from international activities, mainly in the U.K., and to a lesser extent, in the Water business in the Czech Republic.I want to mention now the effect on our debt and on the strength of our statement of an agreement that we signed to work in Aqualia with a financial partner, and this partner will contribute some capital, and this will help us reduce our financial debt.As a conclusion, before we end and start with the questions, I believe that these results of the first quarter, once again, ratify what we already exceeded at previous presentations. There has been growth in recurrent profit, and we hope that this will continue -- that this will gain traction in the next few months. We have a more efficient, a lighter structure of debt. You can see the situation is much more sound, so we should be much more competitive and strengthen our position in all the business areas.That's all I wanted to say about the first quarter. Thank you. And let's move on to any questions that you may have. We will start taking questions in Spanish.

[Operator]

[Operator Instructions] [Foreign Language] The first question from CaixaBank.

[Unknown Analyst]

I have 3 questions. The first one is, could you explain [ that reason ] for those millions of EBITDA, all those adjustments? And the second one is related to condition, the sale of 34% of your participation in a company. After the sale of 49% of Aqualia, is the dividend for shareholders a priority for you? Could there be a dividend, extraordinary or not?

[Carlos Jarque]

[ Felipe ], now when it comes to your first question, those EUR 9.6 million that you said, which we contributed to EBITDA cooperation and adjustments. We include here both our contribution of our Corporate Services center. As you know, they provide services to the different business areas as well as the contribution or the activities of concessions, transport infrastructure and furniture. This is a number that doesn't have many exceptions -- many exceptional elements. So those are the components included there. As for the EUR 4.4 million of other results, we're analyzing this. And if we learn anything new, we'll let you know, but there is nothing really to talk about. These are small contributions of different areas of activity, but it may be small results that may have happened. But there's nothing very important here. But at any rate, we'll look at the breakdown, the most important one is the EUR 2 million. It's nothing really special. It's just the aggregation of several factors, but we'll look at the details and we'll let you know. As far as [indiscernible], yes, we are aware that there are some news in the press that we might divest in that company. This is subject to different approvals from the company and other types of approvals. And I don't know what to tell you. In principle, we're not going to make any comments on corporate transactions, but we felt there was an interest in doing something by some partner. But so far, nothing has happened. And in corporate operations, we can't make comments until something happens or something is almost in the final stage. But so far, there has been no transaction, and we haven't done anything in that regard. As for dividends, again, well I don't really know if I understood your question. I don't know whether it's connected to IFM, the sale of the majority share in Aqualia. That would be used to reduce our financial debt of the group. And the payments of dividends, well, I don't know. It's a power that the board has. The general shareholders' meeting will be informed, and -- but the important thing is for the group to generate cash and for it to be profitable. The rest will be a decision that the board will have to make in due time. Next?

[Operator]

[Foreign Language] [Operator Instructions] Next question from CaixaBank.

[Unknown Analyst]

I want a clarification. Could you break down the EUR 1.6 million in concessions and furniture?

[Miguel Coronel Granado]

No, we cannot give you the breakdown, [ Felipe ]. No, we usually don't give that kind of information. Next?

[Operator]

[Foreign Language] [Operator Instructions] Next question will be made by [ Felipe ] from CaixaBank. [Foreign Language] Looks like there are no more questions during this conference call. Thank you.

[Miguel Coronel Granado]

Well, thank you very much to all of you. Any further questions or any clarifications, please get in touch with us. And thank you all again, good morning.