Fomento de Construcciones y Contratas SA

MAD:FCC

Earnings Call Transcript 2018-Q3

[Miguel Coronel Granado, Director of Market and Management Control]

/>[Foreign Language] Good morning to one and all. I am Miguel Coronel from FCC. I'd like to thank you for connecting to this presentation of the results of the group. During the first 9 months of 2008 (sic) [2018], as usual, I'd like to underscore some of our key numbers, for example, an increase of almost 15% of the net attributable profits, reaching EUR 176 million compared to EUR 153.5 million in the same period last year. This increase has been sustained by all the operations in each and every one of the business areas as well as the improvement in financing costs, which have been accompanied by [ merely ] accounting record of a financial cost that I will explain later on. On the 28th of September at the end of the second quarter, we completed the sale of a minority share, 49%, of FCC Aqualia to the Australian fund, IFM. For a value of EUR 1.024 billion so the subsidiary continues to be integrated within the group. The main destination of the funds that we have received has been to reduce financial debt for an amount slightly greater than EUR 800 million. So together with the new funding, we will be able to cancel the syndicated loan -- the previous syndicated loan, and the remaining amount from the sale will be used for other corporate projects as we already send the report that we sent to the securities exchange division. The Water management area will continue with its present strategy and operating structure. If we analyze evolution of the most important items of the P&L, the turnover reached EUR 4.35 billion with a year-on-year increase of 2.2%, thanks to greater activity in Environments and Water together with Cement, and it compensates for the slight reduction in Construction. Here we have to take into account the impact of the depreciation of certain currencies with regards to the euros, especially the U.S. dollar, which has fallen 6.7% year-on-year. Adjusted by exchange rate in the different areas of international activity of the group, consolidated revenues in constant currency terms would have gone up by 3.7% during the period. Now when it comes to those pivoting geographical areas, international revenues went up by 3.1%, with the weight on the greater than 44% of the total. This increase is thanks to the new projects in Water in Latin America, Middle East, Africa together with more environmental activity in the U.K. and Central Europe. In Spain, our revenues continued to increase slightly, 1.5% until September with a contribution of a little over 55%, and Cement will see an increase of 11%. More moderate growth in Environment, just 0.1% . EBITDA, on the other hand is growing 10.7% up to EUR 660 million due to the increased profitability generated by all the areas of the group in combination with greater efficiency and also the year-on-year reduction of structural and administration cost for the whole of the group, which was 6.9% decrease. Net financial profit increased 14.5% compared to the previous year, up to EUR 179.6 million. This reflects the accounting cost of EUR 59.3 million, and doesn't have an effect on cash, because since we've canceled the previous syndicated loan of FCC S.A., there's an obligation to include it. We have to do it in line with the international accounting standard #9 for financial instruments. So part of the principal that was returned had to be registered as a financial cost, the EUR 53.3 million. So this doesn't have any impact on cash. So if we exclude this record financial costs that are reflected in cash were reduced by 23.4% because of the progressive effect of greater efficiency. In this evolution of 23.4%, there has been no time to do anything with minorities sale to IFM, because it only had them at the end of the -- September. Now let's look at the different business units. [Foreign Language] Environment. Turnover reached EUR 2.095 billion, an improvement of 2.8% compared to last year. This was due to an improvement in the perimeter and the impact of new contracts. In Spain, revenues went up by 2.1% reaching EUR 1.188 billion, thanks to the good evolution of existing contracts that were renewed and those that were extended in previous periods. The second most important market in terms of contribution, the U.K. Turnover goes up to 1.4%, again with a positive effect of [ amortizations ] and other operations such as Allington and Bletchley after this compensates for the negative evolution of the exchange rate of the pound sterling. In our third main operations theater, Central Europe, our revenues increased by 6.6%. The work we are doing in Czechia in reclamation and decontamination mainly of industrial soil has been very helpful as well as the safer evolution of most activities in Austria, Romania, Bulgaria or Slovakia. Although I should say that the Czech crown has been one of the few currencies that has had a favorable evolution compared to the euro. In the U.S. and other minor markets, the growth was 12.4% due to the positive delta in the contracts for collections of urban waste in Texas and Florida. EBITDA reached EUR 324.4 million, a 6% increase versus last year. This is due to the evolution that I explained, increased profitability and recycling activities. The good performance of our plants in the U.K. and all of this has made it possible to compensate for the increase in fuel prices. Water. In Water, EUR 826 million in revenues, 8.2% more than last year. Technology and networks have played a major role, especially internationally. We are talking about developmental plants that will be operated and maintained by the group. There was a slight increase in the revenues from concessions, more in internationally than in Spain. In Spain, our revenues grew 1% [Foreign Language] up to almost EUR 600 million, because of a very stable behavior of a [ concession ] activity with a slight seasonal reduction in volumes because of the poor climate conditions in the second and third semester. It has been very rainy on the Mediterranean coast and temperatures were lower than usual. But there's also been some positive contributions from maintenance and operations contracts that has compensated for the seasonal effect. In Central Europe, revenues went up 10.5%. Here the key player is the integral management cycle. We have some contracts to improve the provision of services. Again, the Czech crown has helped. Revenues went down a little bit in integral service contracts. Things are similar to what we already said in the past vein. In Latin America, turnover went up by almost 130%. This is the impact of the contract that I mentioned before. The projects of treatment plants in Colombia and Ecuador. In the Middle East and Africa, revenues went up by almost 72%. Here we have a development of the desalination plant in El-Alamein in Egypt, which compensates for more obsolete projects in Saudi Arabia and Tunisia. So with all of this, EBITDA went up 2.5%, reaching EUR 186.1 million. This is due to the combination of the evolution of revenues in technology and network as well as in integral services. Now let me talk about Construction. Revenues went down by 3.4% during the first 9 months of the year, continuing with the trend from previous years. Here we have the impact of their significant works that were completed last year in Spain. So there's a gap because other works will start later. There is also the impact of the dollar. [Foreign Language] In constant dollar rates our revenues would have been flat. In Spain, our turnover fell by 1.2%. The Atlético Madrid Stadium was completed at the end of last year. And there is still low levels of activity in public works. In the Middle East and Africa, revenues declined 8.6% due to the lesser contribution of certain large works such as the Doha and Riyadh metros together with a negative impact of the dollar exchange rates. In Latin America, things have been very stable. Slight increase to EUR 147 million thanks to the contracts we have in Panama and those are compensated for Chile, for example. In Europe, U.S. and other markets, we see that turnover went down by 3.6% due to the lower contribution of already completed works such as the Mersey Bridge in the U.K. The EBITDA reached EUR 58.3 million, an increase of 15.4% compared to the same period last year. Now the last important area of the group is Cement, where revenues went up 8.3%. We see the demand continues in Spain and there's an increase in exports, both from Spain and from Tunisia. In Spain, sales went up 11%, close to EUR 168 million. There's been a growth in volume -- Cement volume together with that improvement in prices. In Tunisia, revenues went down 6.4%. Prices have gone up quite dramatically, but this was compensated for with the depreciation of the Tunisian dinar, 12.1%. When it comes to exports to the U.K. and other markets, more than 12%, there's been an improvement in export activity of [ quanker ] and Cement to the U.S. and other European markets. The U.K. remains the same. So all in all, EBITDA went up 27.1% compared to the previous year. This is due to the growth I already mentioned in Spain. It was also the increase in electricity prices. And we sold more CO2 rights. So now that we've seen the main areas that contribute to the EBITDA, let me talk briefly about the balance sheet and cash generation. When it comes to cash flow and debt, our financial debt was EUR 4.231 billion, 15% less than at the end of 2017. First, because we paid the syndicated loan and there is also a new one for EUR 800 million, in better and more advantageous terms and conditions both in terms of term and price. On the other hand, in the case of net financial debt, at the end of the quarter, it was EUR 2.79 billion, which was a slight reduction -- or a good reduction rather, of 22% compared to the end of December. The most important things here are the collection of over EUR 1 billion from the sale of the minority share of FCC Aqualia. And we add to that also the operating capital and investments of 92.5% -- EUR 92.5 million that were paid to buy the participation of the minority shareholder in Czechia in the Water business. We are talking about other plants where we made investments in Edinburgh and Houston and in Spain. So with all of this, we can close the quarter with cash equivalent to EUR 1.256 billion. As you can see, we've reduced our debt to the group by EUR 747 billion -- EUR 747 million, sorry, at the end of September, which means 26.7% of the total with a 41.8% reduction compared to December last year. This debt is connected mainly to Environment contracts and a structured and a syndicated loan. On the other hand, net financial debt without resource of a group is EUR 2.049 billion, and there are different debts here: environment recycling, treatment. So those are the more important things I can say about the last 9 months. Again, thank you for your attention. And now if you have any questions, we will start with the questions in Spanish from the floor.

[Operator]

[Operator Instructions] The first question, Antonio Rodríguez from BBVA.

[Antonio Rodríguez Vicens, Research Analyst]

Miguel, I have a couple of questions. First of all, in Construction, I can see that in the first semester, margin has fallen significantly. What's happened? How is it sustainable in the midterm? And regarding cash allocation, can you tell us about working capital?

[Miguel Coronel Granado, Director of Market and Management Control]

/> Well, when it comes to Construction, what we've done is we have just registered a provision that we've made, that's why the illusion of EBITDA is what it is. As for factoring and working capital, I don't have a number with me. Well, it's very similar to the one we had 6 months ago. Still with a certain level of expansion but similar to what we had 6 months ago. Its behavior is very much in line with our forecast. As for factoring, exactly the same. If we can find it before the presentation is over, I will give you the number, or I will send it to you.

[Operator]

Filipe Leite from Caixabank.

[Filipe Martins Leite, Research Analyst]

Could you clarify how the sale or has the sale been canceled of a company that we haven't heard?

[Miguel Coronel Granado, Director of Market and Management Control]

/>You know that regarding corporate sanctions and things or rumors that appear in the press, we cannot make any comments but it's true that, that asset you referred to is a very attractive one; there's a lot of interest. We'll see what we do, but we cannot say anything about the rumors published in the press.

[Operator]

Victor Acitores from Societe Generale.

[Victor Acitores Peñafiel, Equity Analyst]

Miguel, I have 3 questions. In the quarter, net debt without resource in Cement has fallen a lot. I guess, it's probably because of the use of those funds from Aqualia from the sale of Aqualia. Secondly, could you remind us which are the financial costs of the group? Those at a group level and at a level of different divisions?

[Miguel Coronel Granado, Director of Market and Management Control]

/> Well in Cement, as you know, regarding the funding we had since 2016, we had the obligation to provide contingent capital. The maximum amount in September was EUR 100 million. So we've honored that obligation and that's why we've contributed that money. So with that, we will cancel any contingent obligation. In the case of Cement, its level of debt and cash generation, very good, but as you very well said, that's where it comes from. As for financial costs, as we said on Investors' Day, our consolidated number is 2-point-something for the group, the new funding scheme for [ EUR 1 billion, EUR 2 billion ] approved in September has an average cost of 1.90-something percent and the rest 2-point-something percent. Talking about gross debt -- gross corporate debt, that EUR 150 million with that resource is equivalent to what I said about the group, that those are the differences on the spreads.

[Operator]

[Operator Instructions] Next question from [ Miguel Medina ] from JB Capital.

[Unknown Analyst]

This question is related to a previous one, the provision for Construction in the third semester, is it connected to the Mexico airport? Could you say something about whether there's any amount that you still need to collect?

[Miguel Coronel Granado, Director of Market and Management Control]

/> The answer is no. As for the [ valet ] terminal in Mexico airport, we'll see what the client decides and what our interests are. We'll see how things develop. And in the [ Kelly ] terminal in Mexico, this is already reflected in the balance sheet. We have a stake a little over 14% of the company that has the construction contract. So what we've done is consolidated as participation using the equity method. So there will be no changes in the portfolio that we report regularly. In fact, in the report, I think we are talking about EUR 900,000 is the value of our participation.

[Operator]

[Operator Instructions] [ Filipa Chapa ] will ask the question.

[Unknown Analyst]

My question has to do with the Construction margin and the provision. Could you tell us how much is that provision? And what would be the margin, and also its nature?

[Miguel Coronel Granado, Director of Market and Management Control]

/> We are talking about EUR 15 million, as the provision. We are trying to be preemptive to detect any problems with construction on ongoing projects. So the new policy we have is to be very rigorous in the way we account for the scope risk in ongoing projects at an international level. The normalized margin could be around 5%. That's our target. But it's a business that is made up by projects. And as such, it behaves in a certain way. We are talking about projects that last many years. So that's all I can tell you.

[Operator]

[Operator Instructions] Now the next question is by [ Pablo Certine ].

[Unknown Analyst]

I'd like to know what are the terms and conditions of a new financing? Terms of payment, structure?

[Miguel Coronel Granado, Director of Market and Management Control]

/> Pablo, you mean the new syndicated loan for FCC S.A.? Pablo? I guess you'll return to that. The term is 5 years. The amount is EUR 1.2 billion divided into tranches. Tranche A, EUR 900 million and the second one is revolving and it's EUR 300 million. The conditions are the same, both price and everything. There is no real guarantees, just personal guarantees, and the average weighted cost, I believe, is 1.95%, 1.96% over [indiscernible]. Since there are no more questions, I'd like to thank you. I'd take note of the factoring questions. We'll send you information. Thank you very much, and good morning.