Fomento de Construcciones y Contratas SA

MAD:FCC

Earnings Call Transcript 2020-Q3

[Miguel Coronel Granado, Director of Management Control & Capital Markets]

Hello. Good morning. I'm Miguel Coronel, Director for Markets of the FCC Group. We are delighted to have you here with us this morning. We have -- we're going to present the earnings of the last quarter. I would like to mention 2 elements of this earnings. First of all, the evolution of the company's EBITDA, which reached EUR 761.5 billion. It grew by 2.8%, and this increase was due to several elements. First of all, we observed a progressive recovery of operational activities, especially in the third quarter. Secondly, there was a greater contribution of concessions, which had already been observed in previous months. And finally, there was a higher contribution of sales of CO2 rights in the Cement area, especially in the third quarter. But if we adjust this last factor, the accumulated EBITDA until September had -- well, recorded a slight fall with respect to the same period of 2019. Now the attributable net earnings reached EUR 174.5 million, which is 25.1% less. Of course, we need to mention the strong impact of foreign currencies, which accounted for minus EUR 43.6 million as compared with EUR 23.7 million positive of last year. So if we excluded this impact, the reduction of the net attributable profit would have been 4.8%. There's quite a significant difference, as you can see. Now if we turn to the P&L and we look at the evolution of revenues. At the consolidated level, they reached EUR 4.4 billion. They were 2.8% less than in 2019. Obviously, all our business areas were affected by the pandemic that we are living through. It is true that the concessions area, as I said before, did increase its contribution because of the acquisitions we made previous FY. But the performance was quite stable in our main areas of Water and Environmental activities. Now in Spain, revenues increased by 6.5%. They reached EUR 2.659 billion. And Environment underwent a small reduction of 0.5%, with slightly less activity in municipal urban services, which are not essential, especially during the months of the lockdown first and second quarter. As regards to Water, there was a contraction in Spain of 3.1%. Here, there was a slight reduction of the invoiced volumes basically related with nonresidential customers and there was lower activity in technology and networks related to integrated cycle. In terms of Construction, there was an increase of 33.9% because the rhythm of execution of contracts was quite healthy. And these were contracts that we obtained over 2019. Also in the area of Cement in Spain, well, this area suffered more than other areas because of the lockdown, but we have to mention in the stand-alone third quarter, the area caught up with the previous performance. And therefore, in the end, it was only 6.7% for the whole period. In terms of the U.K., well, it's basically Environment. There was a reduction of 11.6% in revenues here with a combination of different factors. There was less contribution to the revenues related to an integrated plant in Edinburgh, which was commissioned last year, and there were lower revenues derived from the environmental activity to do with water treatment because of the lockdown measures that I mentioned before. In other geographies, in Europe, the European Union, we had an increase of up to 13.5%. Here, well, we should mention Construction because new contracts were launched. There was a new highway in the Netherlands and also advances in other infrastructures in Belgium and Portugal. And also in the European Union in terms of the Environment. In Poland, we also saw a significant spike. In other markets, well, we also had good results. Other jurisdictions outside Europe, well, in the Middle East and Northern Africa, revenues fell by 57.2%, especially in Construction area because of the lockdown -- the extreme lockdown decreed in Saudi Arabia. Other business areas, however, such as Water, did keep up their growing contribution, but of course, the acquisitions made in Water treatment activities played a role. I'm talking about investments in Saudi Arabia and in the UAE. Now in terms of the Americas. Revenues went down by 56.6% because of the lower level of contracts, especially in Panama. Of course, this was also due to the lockdown in those countries. It also happened in other significant countries for us, such as Peru. Now on the positive side, we should mention the U.S., which had a growth from new contracts, especially in the area of Florida. Now if we now turn to the different business areas in greater detail. First of all, the Environment, well, the business -- the turnover was, well, fell by 2% in this area. In the U.S., well, we also worked quite hard in water treatment. And in the U.K., we had a slight fall, which unfortunately was not compensated for by our urban cleaning activities. Now if you look at different geographies in Spain, revenues were quite stable, EUR 177.6 million. In Spain, well, some of the nonessential services, as I said, had to be suspended during the lockdown, and we had income related to the development of a treatment plant that we have in the Northeast of Spain -- in the Northeast of the Madrid region. Now in the Environment, the turnover was down by 12% because of lower volumes in the treatment activity because of the restrictions in place and the effect of smaller contribution from the Edinburgh plant, which is fully operational. In the rest of Europe, income was quite stable. And in some countries, we had slight reductions because of the elements I mentioned before, especially in the U.K., but they were compensated for by higher activity levels in Poland given the rhythm of activity in some of the contracts in that area. Also, as I said before, the United States, together with other markets, did show a very good performance, 68.6%. And as I said, we implemented 2 new contracts in the Central and South of Florida, Volusia and South Beach. The EBITDA in that area went down, but this is because of the effect of the fall in revenues, especially in treatment and the lower performance that we had in our plants together with the impact of some of the scheduled stoppages in some of the plants, which, in general, coincided with this third quarter of the year. Now let's talk about Water now. Here, revenues were very stable. We recorded EUR 882.4 million in revenues. There was an increase in the contribution of this activity. In the activity of concessions and services, we had new contracts in different jurisdictions, France, Mexico, Colombia, and Saudi Arabia, as I said before, which we're able to compensate for the lower activity levels in technology, networks and the development of hydraulic infrastructure. If you look at the different geographies in Spain, revenues were EUR 583.2 million. They shrank by 3.1% with respect to last year. Here, there was a combination. On the one hand, that was lower invoicing to customers, as I said before, nonresidential customers. And on the other hand, the pace of execution of certain works that are necessary for our infrastructure, which were also affected by the measures taken as a result of the pandemic. Internationally speaking, outside Spain and Central Europe, revenues went down by 6.3%, and this is because of technology and networks that are 2 plants that were completed in the area of the Balkans. But the integrated cycle activity, focused in Czech Republic stayed quite stable in local currency. It only had a slight negative impact because of the exchange rate of the Czech koruna. But generally speaking, the figures are quite stable. Now in the Middle East, revenues increased very sharply by over 57%, EUR 129.5 million. And this shows the effect of the commissioning of our treatment plants in Saudi Arabia and some more activity in the development of other plants in Egypt. Now I forgot to mention that in other countries in the European Union, revenues also increased by 7.8%. And this has to do, well, with the same elements that I mentioned for the Middle East, namely the acquisition of new operations. Here, we have a company called Aqualia France that we bought in 2019, which was the culprit for this greater contribution. Now in terms of the Americas or Latin America, the turnover fell quite sharply because of a lower rhythm in the execution of some plants in Colombia, Ecuador. And we still seem to see the effect of the contribution of some new contracts that we have in Mexico and in Ecuador. Now with all of this, the EBITDA was very similar to that to the previous year, EUR 208.5 million, and we have seen greater activity in our integrated cycles but less contribution from technology and networks. So the margin was quite similar to that of 2019. Now let's talk about Construction. Well, as regards to Construction, revenues in this 9 months went down by, well, quite a significant amount. Basically, this has to do with international projects with -- for the reasons I mentioned just now. So Spain did have a significant growth, 33.9% of revenues, EUR 599.6 million. We had a good progress, especially this has to do with the works in the Santiago Bernabeu football grounds in Madrid. In this geography, other businesses also grew significantly with EUR 257.6 million, again the -- because of the contribution of projects in the Netherlands and the Haren penitentiary center in this respect. Now on the other hand, in the Middle East and Africa, revenues were 39.4% lower. This was because of a lower rhythm of advancement, although we are working on the Riyadh Metro network. In the Americas, there was a reduction of 75.2% because of 3 effects. First of all, the -- well, it was the -- we finished the works on the Los Angeles bridge and then the second line of the Panama underground system and then because of the consignments in Panama and Peru, which affected the advancement of the second line of the Lima underground system. But the EBITDA of this area was EUR 43.5 million in spite of this, which, of course, is a fall with respect to the EUR 73.7 million previous year, but this is because of the consignments in these significant markets that I mentioned on an international level. With respect to Cement, here, revenues went down by 10.8% to over -- to EUR 100 million. We still had a reduction in volumes, both in the local Spanish market and in Tunisia, especially in March and April, that it was an effect that we already mentioned. Of course, there was lower exports activities, but we need to mention that there's been a stabilization. If you look at the activity level of the third quarter stand-alone with respect to the same period of the previous year, there's even a small increase, specifically in Spain. The turnover went down by 6.7% to EUR 177.6 million. And this is reduction, but the selling prices have been quite sustained. In the Tunisia market, revenues did experience a fall of 2.9%, they reached EUR 39.8 million here. There were some different elements. Because, on the one hand, there were lower volumes, a higher price increase and an appreciation of the Tunisian currency with respect to Europe, which unfortunately did not allow us to compensate -- fully compensate for the fall of the 2 previous variables. But like in Spain, we observed an improvement in the third quarter with respect to the figures that we had in the previous quarter. Now export revenues, as I said before, went down by 23.9% to EUR 64 million. Shippings were less from Spain and Tunisia. EBITDA in Cement did grow. It grew by 46.3% to EUR 97.6 million. This is due to 2 facts. First of all, it is true that we had a reduction in the accumulated volumes, which is lower in the third quarter. But on the other hand, we should mention that we sold CO2 rights for EUR 46.2 million over these 2 months as compared with EUR 5.6 million in 2019. Of course, it is true that taking into account this element, the growth of EBITDA is very significant. But if we adjusted it, if we didn't take into account CO2, the EBITDA in this area would have fallen by 6.7%. So there's a significant improvement with respect to the figures that we showed at 3 and 6 months. Now finally, with respect to operational activities and concessions. Here, first of all, I want to mention and remind you that we made an agreement to sell 3 concessions, our stake in 3 concessions in the Cedinsa Group, line 9 and Urbicsa. According to the accounting standards, IAS-5, when we reach that agreement, all the assets and liabilities related to the companies participating in this sale should be classified as such on the balance sheet. But the consolidation in the P&L should stay as it used to be. So the Cedinsa will still be accounted for at a global level, but the other 2 will be accounted for using the equity method. Now having said this, the revenues of this area reached EUR 93.3 million in the last -- in the 9 -- in the first 9 months because of the contribution of the Cedinsa Group and in different geographies in the same way as in previous years, the majority occurred in Spain. The EBITDA was EUR 71.3 million, which accounts -- which is really a very significant growth. We had a significant increase in traffics and concessions in this area. Now very quickly, in terms of the evolution of the cash flow and the finance balances, our financial debt at September was EUR 4.3 billion, that was the gross amount, EUR 596 million less than in December of last year. The net consolidated debt also went down to EUR 3.084 billion because of the effect of the deconsolidation of the debt linked to the Cedinsa Group because of the selling agreement that was reached. Now in terms of investments, I want to mention that the investments that we have made, well, we made an effort to keep up with our growth plan keeping our course steady. Here, I should mention acquisition in water technologies. On the whole, in this 9 months, it was over EUR 53 million that was invested. There was a water treatment plant in Almería for -- a desalting plant in Almería for irrigation and then internationally, there were different concessions in Colombia, Saudi Arabia and Mexico. In terms of the Environment, as I said before, there was a greater contribution in geographies like Spain from different projects -- with treatment projects. And on the whole, we invested EUR 100 million over the 3 months in water treatment plants or contributions made in Spain and in the U.K. And of course, there's the operational investments that we have to make for our organic growth, which is especially important in the United States. In terms of divestiture, the ones that we performed, well, I already mentioned the one for Concession, Transports and Environment in the United Kingdom, but there's still outstanding payments. So they have not had a significant -- well, no, they haven't had any impact on our cash flow. So the cash position is very similar to that of previous years of EUR 1.105 billion, which, as I say, is a very similar amount to the previous ones. Lastly, I want to mention that at present, the structure of gross financial debt and our cash position allow us to keep enjoying a comfortable and very robust position. If we looked at cash position, just considering our bank facilities that are available, this -- well, they exceed more than twice our 12 months maturities at September of this year. That's all I wanted to share with you. So to summarize it, I should say that the third quarter showed a better evolution than previous quarters. Of course, we are in a complex and very uncertain environment. We leveraged, of course, very solid activities. Many of them are essential services. And this allows us to be prudently confident that we will be able to keep up our strategy and keep being able to make our investments and that we can do our best, together with our workers and suppliers turn the corner and go back to a much better situation. That is the long and the short of what I wanted to share with you. Remember that you can always contact us through the usual channels for shareholders, debt holders, et cetera. And now we will have a short Q&A session. We will start with any questions from the room in Spanish.

[Operator]

[Operator Instructions] The first question will be asked by Victor Acitores from Societe Generale.

[Victor Acitores Peñafiel, Equity Analyst]

I have 3 questions. The first one is with respect to Transport assets, I wanted to understand something because once you execute the sale of the assets that you mentioned, at a consolidated level, you will just be left with Mexico. What is the value of that stake in Mexico? And then the rest of the assets which are not in Mexico and which are calculated with the equity method, what would be the value on the books? I would like to understand the book value once you remove that EUR 400 million in equity that you will be receiving? The second question has to do with the deconsolidation of your debt of the sold assets. So you have deconsolidated the debt of the concession assets. And my question is whether you have also deconsolidated the debt of the energy assets that you have sold in the U.K. but which have not yet been executed? And the third question had to do with working capital of the group over the 9 months and how the figure compares with the first 9 months of 2019?

[Miguel Coronel Granado, Director of Management Control & Capital Markets]

Victor, well, with respect to the questions on Transport concessions, we still have 3 concessions globally -- that will be consolidated globally once we complete the selling of those 3. Only 1 of them will be consolidated globally. Then we will have [ Alconsa ], which is a highway that runs through the A3 Highway that goes from Madrid and Valencia. The other one is in Veracruz in Mexico. And there's a third one, which is primary care centers on the Island of Majorca. So those would be the 3 we would be left with. Those 3 would be still consolidated globally, Cotuco which is consolidated with full contribution of assets and liability, now has a book value of EUR 40 million, specifically Cotuco. And once we complete that sale and we receive the money -- when we receive that EUR 409 million for those 3 concessions I mentioned before, we will still have a total of 11 concessions in the group. Apart from the value I mentioned of Cotuco, the rest of them except for the 3 I mentioned that will be consolidated globally, of those -- so the 11 minus 3 is 8. All of them will be calculated by the equity method, and the total value would be -- that book value is EUR 75 million. So we have EUR 40 million for Cotuco and the other 8 EUR 75 million. If you want the figure, we can give you a more specific figure later on. But off the top of my head, I think it's -- yes, it's EUR 75 million. With respect to what you were asking about the impact of the sale in the United Kingdom, I want to take advantage of your question to repeat something important. Because in the U.K., what we have done is and we have green recovery project, which is a subsidiary, which integrates some of our integrated treatment plants in the U.K., specifically 5 plants. Not all of them, it's just 5. So here, what we are selling is a minority stake of that company. We are not -- we are retaining the majority of that green recovery project company. We are retaining 51%. The remaining 49% will be sold, and we will sell a minority stake. And -- but we will be keeping the controlling stake, and we will -- and the global consolidation will continue both of the EBITDA and all the assets and liabilities included, including the debt of the company. And with respect to what you were asking about the evolution of the cash flow that we had over this period, the operational cash flow, well, here, what we've had is the cash flow over the period from the operational activities of EUR 271 million, it has improved with respect to the EUR 213 million that we had in September last year. And I just want to mention that in terms of workflow, the working capital has been affected by a reduction of EUR 220 million because of the nonrecourse loans because of the evolution of our collection periods has been satisfactory. And if -- and in terms of the performance of our transactions, well, in order to optimize our effective financial cost, we decided to reduce factoring. In spite of that reduction in factoring transactions, we had that evolution of EUR 271 million cash flow -- operational cash flow as compared with '20 -- well as compared with EUR 213 million in 2019. I think that was all you were asking, but if I have missed anything, please let me know. If not, we can go on to the next question.

[Operator]

[Operator Instructions] We don't have any further questions. I will give the floor back to the speaker.

[Miguel Coronel Granado, Director of Management Control & Capital Markets]

Okay. Thank you very much to all of you. If you have any questions, you know where we can find -- where you can find us. Thank you very much. Good morning to one and all. [Statements in English on this transcript were spoken by an interpreter present on the live call.]