Fomento de Construcciones y Contratas SA
MAD:FCC

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Fomento de Construcciones y Contratas SA
MAD:FCC
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Price: 9.13 EUR 1.22% Market Closed
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Earnings Call Transcript

Earnings Call Transcript
2021-Q1

from 0
M
Miguel Coronel Granado
Director of Management Control & Capital Markets

Good morning to this earnings presentation of FCC. The results were sent to the CNMV this morning. I'm Mr. Coronel, Market Manager of the Group. The first thing I want to mention is that this first quarter, the different business areas still impacted by the different measures to fight COVID-19. And last year, we started applying varying measures, especially starting in March 2020. So please remember that comparisons with last year are quite complex because of the effects of the pandemic. You may have seen the published results. I want to mention our EBITDA, EUR 254.5 million, 16.5% better than the previous year, and this increase includes an improvement of the operational margin across all the different activities of the group, especially those linked to the development of infrastructure, such as construction and cement. There's also a recovery of margins in these activities. And also in EBITDA, there's also Corporate Services, which experienced an increase because this year, we haven't recorded the impact of our provision of EUR 20 million that we made in the first quarter of 2020 as a result of the insipient effect of the pandemic and those -- that EUR 20 million was reverted in subsequent quarters. The net profit was EUR 139 million. Here, there was a significant increase. In 2020, the figure was EUR 28.1 million. And this is due to what I mentioned about the operational transactions and 2 other elements: a positive impact in terms of FX; and the accounting effect coming from some transport concessions, which were concluded at the end of 2020. They were concluded precisely at the end of 2020. Now if we speak about the evolution of our turnover of the group, the figure was EUR 1.516 billion, an increase of 12.1%. In terms of the income, the areas that are most striking are Environment and Cement. There was a progressive recovery whereas Water and Construction had a more discrete performance because, as I said, they suffered more intensely from the measures, which are still enforced in different jurisdictions in terms of fighting against COVID. Market by market, if we start by Spain, which accounts for over half of the consolidated business, revenues increased to EUR 909 million, 5.1% more. As I said, Environment in Spain, too, had a good performance with an increase in treatment and recovery of waste, also street cleaning. In Spain, in Water, [ wouldn't ] have a reduction in volumes, especially nonresidential customers. In construction, however, the progression of our projects was quite good, better this year with more activity than in the same period of the previous year. And Cement also experienced a decent recovery of volumes, and there was also more demand for materials for the development of different types of work. And the second most important market, which is the U.K., revenues were more stable, EUR 177.8 million. Here, there was a greater contribution of the Construction activity and a little bit less in the Environment area. In other markets, Central Europe had significant moderate growth of 2.2%, stable performance like in previous quarters, EUR 165 million. Here, there was an increasing contribution, construction, some different infrastructure projects that were initiated and very stable performance across our Central European markets, both in the environment area and in the other areas. In the Czech Republic, we have a relatively significant presence. We also had quite a good progression of 7.1%. And the demand performed very positively in the Environment and Water areas. Now if we go -- if we leave the European Union and we go to Middle East and Africa, there was a reduction in revenues of 30% because there's less contribution from some very important projects in the area of construction, such as the metro -- or the underground network of Riyadh, which is making very good progress and also some technology and Water projects. [ For its parts, ] Latin America, well, significant growth of 72.3% to EUR 88.4 million. There was greater activity, especially in water, in some jurisdictions such as Mexico and Colombia. And as I was saying before, in the United States, we also had significant progression in Environment because of the implementation of some water collection contracts. So with all of this, the operational profit increased by 16.5%. And if we exclude the provisions of EUR 20 million that I mentioned, EBITDA over sales would have grown quite significantly anyway in this first quarter. Now if we turn to the different areas in greater detail at an operational level, and we look at their evolution starting by the Environment area. Here, revenues increased by 3.6%, almost reaching EUR 750 million. In this area, we need to mention, as I said, the greater contribution of the United States. We're still growing organically. I also mentioned the good performance of the 7 different jurisdictions in Central Europe. And Spain and Portugal also had slight but solid growth over the period. And specifically, in Spain, our revenues grew by 4.4% to EUR 442 million. I already said that we had greater treatment activity. There was some -- there were some extensions in [indiscernible] plant in Alicante and some other contracts. And also, I think we should mention the greater activity we had in what we call a green area. Cleaning, especially in certain areas, such as the central area of Spain, we had a special winter campaign in different councils to face up to the exceptional storms we had in January. In the U.K., the turnover went down by 7.9% to EUR 151 million. Here, we need to mention that last year, we had -- we sold some machinery, some waste collection machinery that we transferred to accounts. And it was just a pass-through that had no effect on EBITDA, but which contributed for EUR 8.4 million in revenues. If we adjusted this plus a slight negative effect of the foreign exchange, the reduction in comparable terms would have been practically zero. So it's really a very stable situation. In Central Europe, revenues increased by 7.3%. And here, I would like to mention the robustness of all the different markets, especially the increase in contract in waste collection in Poland. And last year, we started rendering waste collection services in [ Omaha ], capital city of Nebraska. We also had a contract in Florida. So the EBITDA was -- increased by 2.7%, reaching EUR 116 million, which is in line with the evolution I mentioned at the level of revenues. Now the second most important utility in the group, which is our integrated water cycle. Here, revenues went down in the quarter by 5.2%, it reached EUR 271 million. And this is basically due to the fact that there was a lower production in Technology and Networks, the activities related with the development of hydraulic infrastructure. This activity went down by 28%. The reason is because there was a lower rhythm of execution because of the progression of the different projects, especially for the international area. So if we look at the core of the group concessions and services, the evolution was practically stable. Now in Spain, revenues were EUR 184 million. They went down by 1.6%. And here, there's 2 effects. First of all, there's a certain accounting effect because the criterion we have been using since June last year has changed in terms of the recording of the different fees that we collect on behalf of some regional customers. This is a kind of pass-through. So we have now decided not to include this in our P&L. And this has an effect of about EUR 4.7 million [ less ] in revenues this year. And also, there's a certain reduction in the invoiced volumes for nondomestic consumption, which is more visible in some integrated water cycles on the coast or on some of the islands because of the COVID-19 pandemic. But if we exclude the accounting effect in comparable terms in Spain, revenues would have stayed stable without any change in spite of the effect of COVID. Now if we now look at other markets, specifically Middle East and Africa, this is where the reduction in revenues is concentrated, EUR 27.3 million. This is a fall of [ 39% ]. But here, there was a lower contribution because some of the plants are about to be completed. Some -- one of them in Egypt, for example, in Cairo and also the progression of other projects in some markets such as Saudi Arabia. In Central Europe, if we go back to Europe, revenues were very similar to the previous year, EUR 25.10 million. Here, the most important thing is an integrated cycle that we have in the Czech Republic and the evolution has been quite encouraging if we -- and rates really performed very well. In the rest of Europe, we have Portugal, Italy, France, and revenues did increase by [ 3.5 ]% to EUR 18.9 million. And here, the combined effect for Spain and Czech Republic was positive. Also linked to our concessions, we have some specific projects to maintain and improve the network, which also allowed us to reinforce growth. In Latin America, the turnover also was higher by 37%, and as I said before, this was because of the advance -- the advances in our concessions for the for water production built in Colombia. And in Mexico, the EBITDA practically stayed stable, especially because concessions was very robust, EUR 61.6 million and also heavier weight of concessions had a positive effect. And so the operational margin increased to 22.7% with respect to the first quarter of 2020. Now if we turn to Construction. As I was saying before, we had a slight reduction. Revenues were EUR 356.5 million, 3.1% more. I didn't mention it before, but it is true that the FX effect and certain weakness of the U.S. dollar and some contracts we have denominated in U.S. dollars had a certain effect, and this should be mentioned because if we adjust this by FX at constant currency, the fall would have been [ up ] 0.3% instead of 3.1%. But it is true that there was less progression in some international projects than we would have expected, but very, very slight, especially some of them in the Middle East. Most of them were compensated for by the development of new projects that we have been awarded in the last few quarters. Now specifically in Spain, we did have a good performance in revenues, they increased by 2.1%. We're still progressing very well with our different projects and especially some of the projects to do with nonresidential building. And the rest of Europe, as I said before, we progressed by 10.1% to EUR 71 million, and this activity is gaining momentum because we have received different awards, such as in the U.K., in Wales and also some roads in the center of Norway. So we're going to be seeing a greater contribution in these other markets. In the Middle East and Africa, this is where, as I said before, the negative effect was seen, we reached EUR 5 million in the EMEA area. Well, here, there was a positive development of the 3 lines of the Riyadh underground system. And the budget is aligned with the schedule. It's about to be completed. In Latin America, in the United States, we have double -- the activity doubled, and we also had construction projects in Chile and Mexico. The EBITDA in this area, though we had this slight reduction in revenues, especially at constant currencies, did grow by 3.9%. The operational margin increased to 6%, which allowed us to reach EUR 21.5 million in EBITDA. So all in all, disruptions were less. And so the -- our -- we were able to reach a good margin in our activities. Lastly, Cement, especially to do with infrastructures. Here, revenues increased by 15.4%, EUR 105 million, especially this was an increase in volumes. Both because of local demand in the markets that we have production facilities in, Spain, Tunisia and also exports have been much better. We export to other markets in the European Union, such as the Netherlands and the U.K., and they also contributed to the growth that we have had. So the performance was quite positive on the whole. In Spain, specifically, revenues increased by 12%, EUR 61.6 million. In addition to good performance of volumes, I want to say that prices remained rather stable, and this allowed us to improve our operational margins. In the market of Tunisia, where we have a production facility, the turnover increased by 26.7% by EUR 16.7 million, and there was also an increase in price. And the 2 elements, price and volume, allowed us to compensate for a certain negative effect of the dinar with respect to the euro, and in spite of that, there was an increase. As I said before, exports also increased by 16.9%. And I also want to mention that we managed to reopen some exports to Libya. The EBITDA in a business like this one had a positive effect in terms of revenues, it grew to EUR 20.4 million. And in terms of cost, in spite of the increase in the price of fuel, we had a good evolution in terms of our production efficiency. We also sold a few CO2 rights, EUR 3 million in terms of euros. And this allowed the operational margin to rise to 19.4%. Without those rights, we would also have had a positive effect. Now if we turn to an analysis of the evolution of our cash flow, our investments and our financial structure. In terms of operations, I want to mention that our current capital -- well, had a good performance in this first quarter. We reduced to zero all the credit transfers that we had performed so far, especially in our Water areas. So at the close of the first quarter, practically, we're not using any credit transfers because of the regeneration of positive cash flow in our activities. In terms of investment, I just want to say that in Environment, we have EUR 53.3 million. So we're still progressing with our treatment projects that I mentioned in previous years. The biological mechanical treatment plant in Loeches, very close to Madrid, has already been commissioned. Also, there was another project for the -- in Lostock in the west of the United Kingdom. And in Water, we also invested in improving our networks and our concessions. I would like to mention in terms of divestitures that we -- at the end of this quarter, we transferred -- and this was announced previously. We transferred 51% of [ CICSA ] and our 49% stake in a suburban railway in Barcelona. So on the how the investment flows, generated an excess of EUR 270 million over the period. And this allowed us to initiate repayment of our financial debt and we removed our credit transfers. And so this just showed up our financial structure, increased our treasury position and something that we consider quite positive. So the financial debt, the net debt -- the net consolidated debt of the group went down with respect to December last year by 6.6%. I just want to mention that we reached a net cash position, what we call financial debt with recourse, our holding company has no financial debt on the contrary. Net at the 30th of March, our net cash position was EUR 300 million. So the net financial debt is concentrated in the 2 utilities of the group: Water with EUR 1.3 billion distributed across different areas, specifically capital markets and especially in the areas where the operational earnings are generated; and then Environment has EUR 1.4 billion in financial debt. It is structured across the different markets [ and less ] where the activity is generated, Spain, the U.K., et cetera. Regarding Cement, it has a residue of EUR 160 million in net financial debt but there was a significant reduction in the quarter of about 7%, which was possible because of the good operational evolution I mentioned before. So those are the comments I wanted to make. I want to remind you that there's still an impact of the COVID pandemic. There was an evident improvement on the whole of our activities. We had a few effects that I mentioned to do with the FX and divestitures. But all in all, there was a significant increase in our net profit, our revenues, our operational efficiency and in terms, of course, of our shareholders' capital. I don't want to run on. So thank you very much for your kind attention. And now I will open the floor for questions. So could we start with questions in Spain? Thank you.

Operator

[Operator Instructions] The first question will be asked by Alejandro Vigil from Ember (sic) [ Bestinver ] Securities.

A
Alejandro Vigil
Analyst

I have a couple of questions to do with the strategy. Well, you started off the year very well in terms of your earnings, in terms of your debt. So could you give us some guidance as to what you expect to happen throughout the year in terms especially of the evolution of your debt in 2021 in terms of CapEx? And in terms of strategy, it is easy to see that you are in a very solid financial position with potential opportunities related to circular economy, the stimulus plans. So what can you say about, if any, investment opportunities to grow in your key business lines?

M
Miguel Coronel Granado
Director of Management Control & Capital Markets

Thank you very much, Alejandro. The truth is that in the first quarter was quite good, and it showed the huge resilience of our company across all of our activities because of their quality, because of the local presence we have. We are a very long-term supplier, and we are always a role model for our customers. Of course, there's still some uncertainty with respect to when we're going to be exiting the situation we are in. The operational evolution of the first quarter shows what we can expect from the rest of the FY. I do think there should be significant changes in the perimeter because of any new projects, but we should see sustained progression in our main areas. It is true that in area, if we see a recovery in the summer and if we start having more activity with non-residential customers, then that would allow us to increase our earnings. So in a negative scenario, we would remain as the figures that we have in the first quarter. We don't like to give numerical estimates, but this could give you a good idea. In terms of Construction and Cement, I think that we should keep up the pace that we've shown in the first quarter. There was a cyclical recovery, also some retained demand, but the second activity will also offer positive results throughout the financial year. So our expectation is at least as positive as what we have shown in the first quarter in terms of EBITDA. In terms of the other investment projects, well, we'll keep analyzing possibilities, especially in the areas of Water and Environment. Those are the areas that we want to grow in. But in the group, we are highly selective, and we are never going to sacrifice efficiency for any other considerations. So we look at different geographies, basically concentrated in the OECD market. And for Water, apart from the markets that we are already present in, we are also looking at some emerging areas, such as the Pacific Basin. We are quite attentive and open to different opportunities. We are already investing our total CapEx, which is in excess of our maintenance CapEx. So we'll see whether we can do anything in this respect. And just regard what you were saying about European funds, we have been looking at the 20 traction policies that the government wants to invest in. We believe that we, in some way or another, have exposure to at least over 50% of those EUR 70 billion that the government says that they are going to be investing. Well, half of it is going to be given to the different regions. To previous meetings, well, we saw that we were exposed to different areas, rehabilitation, energy efficiency, mobility, also 5G. We have submitted proposals for telemetry, for water treatment, which may be very good for digitization, also the circular economy, all the regulatory changes regarding plastics and materials recoveries, Spain is really lagging behind in that respect, also waste or other projects due to the eco waste collection campaign. So we are analyzing the feasibility also of incorporating hydrogen technology. Spain is lagging behind, but those plans need to be further detailed. But we have a potential exposure to at least half of that EUR 70 billion with a clear potential. So I think that it would be a blessing when this money comes, and the result has to be positive.

Operator

Somebody from JB Capital.

U
Unknown Analyst

I have two questions. Could you tell us what the consumption of the working capital was in the first quarter? And then the net amount that you got from the sale of Cedinsa and Line 1 of the Barcelona underground system?

M
Miguel Coronel Granado
Director of Management Control & Capital Markets

Well, the working capital consumption this quarter was EUR 280 million. You have to take into account that there's an effect of EUR 100 million, which was the reduction of the credit transfers, which is just a one-off thing. And then there was another one-off effect coming from the reduction of receivables and payables related with some fiscal holidays we had in some jurisdictions, which were granted because of the pandemic. There was some other minor effect to do with the activity, the collections activities, that we carried out on behalf of some parties. So that would be another effect of about another EUR 80 million. So there's 2 one-off effects that are quite significant. But the consumption of working capital is the one I mentioned before. In terms of divestiture, between the two, I can't remember off the top of my head. Just one second. Well, the 2 together, the revenues we had was EUR 350 million, right? That's the money that got into our [ till ].

Operator

[Operator Instructions] There's no further questions.

M
Miguel Coronel Granado
Director of Management Control & Capital Markets

Okay. Thank you very much, and you know we are at your disposal. So we are at your entire disposal for anything you may need. Thank you very much.

Operator

This is the end of the event. The meeting is adjourned. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]

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