Sacyr SA

MAD:SCYR

Earnings Call Transcript 2019-Q1

[Manuel Manrique Cecilia, Co]

Good morning. I'm Manuel Manrique, Chairman and CEO of Sacyr. I'm accompanied at this presentation as usual by Mr. Carlos Mijangos, the company's CFO. Thank you very much for attending this session, analysts, media representatives and investors for attending this session on Sacyr's presentation of results for Q1 2019. We would like to extend our special thanks to those who are connected on the other side of the Atlantic. During this first presentation for the current reporting period, I would like to highlight the strategic positioning that Sacyr has acquired as a very important concession company due to its balance sheet structure and the source of its cash flow, which has been reinforced by 2 engineering successful areas, in the areas of civil and industrial engineering, supplemented by a service division that is proven to be successful and of the right size. So this concession company's profile we currently boast and which will be further deepened in the future makes us stand out as a unique company with the foreseeable and recurrent cash flow with adequate financing diversification. Within the framework of such a strategy, we believe that the result reported for Q1 reflects consistent growth. The highlight being as follows: Regarding operations, I would like to emphasize profitability, how much we have been able to grow. EBITDA climbed by 28%, reaching EUR 143 million. As for EBITDA margin of the group, it shifted from 12.6% up to 14.7%, therefore reporting an increase of 17%. As for EBIT, it rose by 40% and net profit totaled EUR 38 million with a 10% hike. And most surprisingly, it's noteworthy that in terms of operating cash flow, we grew from EUR 62 million in Q1 2018 up to EUR 131 million in Q1 2019, therefore reporting 111% growth year-on-year, all of this with positive working capital. I would also like to highlight the company's reinforcement on consolidation in strategic markets. Our backlog is nearly EUR 43 billion, out of which 72% corresponds to international operations. Construction and Concessions, being the leading division in terms of these percentages, with 88% in Construction and 82% from Concessions. In these strategic markets that we have picked up, we have been able to report some relevant attainment with some significant awards in Chile, the U.K., Portugal, Peru and Spain, respectively. In the case of Chile, we were able to get awarded 2 new highways, 2 hospitals. We had also engaged in the construction of 2 wind farms, among others. In the United Kingdom, we were awarded the enlargement of the Edinburgh tramway. In the case of Portugal, a high-speed railway project. In Peru, we have been awarded 2 major routine management and conservation of a road project. And in Spain, the construction of a new section of a high-speed rail, also the building of new terminals at the Tenerife Airport, the enlargement of Autovía del Turia highway and the construction of several other buildings. From a corporate perspective, I would like to share with you 4 key messages, mainly shareholder remuneration. It was timely announced. It's regular and recurrent. In February, we already paid out the first scrip dividend of 1 new share for every 35 paid-up shares in the amount of EUR 0.051 in cash. We gained investors' confidence because 95% of investors chose to receive new shares. Now we are planning to increase the dividend payout in 2019 vis-à-vis 2018. Second, we also had an investment and asset rotation policy that has been as usual. We sold Sacyr's stake in Itinere for a total amount of EUR 202 million, and after the financial close, and the rotation of 49% offtake in 7 Chilean assets for a total amount of EUR 440 million. And another relevant piece of data shows that we kept on investing in our concession-related projects. In this quarter, we invested EUR 90 million. Thirdly, with regards to capital markets, after March 31, that is the financial closing, we were able to reimburse fully the convertible bond in the amount of EUR 175 million, on the issue of a new bond under better terms compared to the prior one. And as for Panama, we completed all the advanced payments that had to be repaid to the Panama Canal Authority, and during this quarter, this operation amounted to EUR 125 million. Next, Mr. Carlos Mijangos will provide you more details as to the group's results and the results reported by each division and the holding as a whole.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Thank you very much, Mr. Chairman. If we take a look at the group's P&L account, the revenue in the first quarter amounted to EUR 972 million with a variance of 10%. EBITDA reached EUR 143 million, reporting an increase of 28%. EBITDA margin, as we mentioned, went up to 14.7%. An EBIT in EUR 104 million, therefore resulting in net profit in the amount of EUR 38 million, which therefore account for the 10% increase compared to the prior quarter. As for operating cash flow, we [two-folded] our cash flow going to EUR 131 million. As for backlog, we appended the signature of signed contracts but weren't able to go from EUR 43 billion upwards. Therefore, the evolution of the group's key financials kept moving on the same direction, as shown in prior year quarters, showing therefore the softness of Sacyr's results. As for contribution by activity, based upon revenue, the division that reported the highest revenue earnings has been Engineering and Infrastructure with 43%; followed by Services with 25%; Concessions, 21%; and Industrial, 11%. As for EBITDA in Q1, Concessions takes the leadership with 51%, followed by Engineering and Infrastructure, 28%; Services with 16% and Industrial with 5%. As for the concession assets that we find in the different business areas, all in all, EBITDA surpassed 77% of the group's EBITDA with very low risk of demand. As for the backlog, out of those EUR 43 billion, 2/3 correspond to Concessions, 60%. It's followed by the other divisions. So 58% of our portfolio is in Europe, [ 42 ]% in the rest of the world. If we now take a look at the main awards of projects. In Spain for example, we have one section of AVE en Almeria, the construction of a building between Terminals 1 and 2 in Tenerife Sur, the enlargement of the Autovia del Turia highway and the construction of several other buildings. In Latin America, we have strong presence in Chile with the concession project of a new highway, 2 hospitals and 2 wind farms. In the case of Peru, we have one road section in Áncash and 2 other sections for conservation and maintenance in the southern parts of the country. In São Paulo, we were awarded another project for the São Paulo metro. And in Bolivia, we have a geothermal plant project in the pipeline. In Portugal, we had 2 main sections, one for construction and one for electrification maintenance, as well as the collection and transport of waste. And also, the enlargement of the Edinburgh tramway, which is another project after the financial closing. As for net debt evolution. As you can see, this went down quite considerably. As the Chairperson has mentioned, we had working capital in the amount of EUR 69 million, out of which EUR 13 million corresponds to concessions, and therefore, debt comes down. And we have a EUR 58 million increase on the other hand. Then, there was also strong increase as for the investment in concession assets. Divestment in turn amounted to EUR 212 million. This includes some divestment in machinery. And the repayment of advanced payment for the Panama Canal. All in all, we're talking about a consolidated net debt of EUR 4.177 billion. Net debt with recourse was EUR 1.124 billion -- is now EUR 1.124 billion. We should expect that the cash flow capacity of the group as well as the formalization of the Chilean transactions will help us to continue accelerating the reduction of our net debt with recourse. If we now take a look at each division. As for Concessions, there was an increase of 51% in revenue mainly due to increased concession income and increased construction income. Right now major highways and roads are being built, these construction projects. Due to activity, there has been an increase of 24%. EBITDA is now therefore EUR 75 million with an increase of 27%. On the other hand, with the 2 awards of Chile, we were able to increase our portfolio or backlog by EUR 1 billion. As for the main highlights, in addition to the sale of the Itinere and some assets in Chile, it was a very active quarter from a financial perspective. We're able to close the financing of the Vespucio Oriente Road. Several banks were involved, the same as some local insurance companies. In the case of Mar 1, this is -- here we are talking about in Colombia, we are talking about EUR 630 million, which is quite a significant amount. This was a transaction that got involved several multilateral banks such as BID or some large institutional -- institutions. We also issued some new bonds for the Antofagasta Hospital with very significant low interest rates. This shows the capacity the company has in order to finance some projects when using the most adequate tools according to markets and according to the projects and the different currencies in which we get paid. As for contracting or contract awards, we could mention the concession of Road 5, a section in Los Vilos-La Serena in Chile. We're talking about 245 kilometers with a small urban section. Here, we're talking about a 30-year term concession project amounting to EUR 447 million investment. Then, we have the concession of the Chacalluta de Arica Airport with a planned investment of EUR 74 million and a 20-year term. This is -- this location is at the other end of the country. Here, we have to streamline the terminal in addition to performing other activities. Regarding the Engineering and Infrastructure division, revenue went up by 14% year-on-year reaching EUR 456 million. We should highlight an increase in the volume of transactions. At a national level, we were awarded several projects last year, and now this is beginning to deliver results. EBITDA went up by 9%, and the backlog now totals EUR 6.554 billion with an increase of 6% year-on-year. We are also planning to build 2 stadiums in Peru for the Pan American Games that will take place in the near future. We were able to fulfill all the relevant schedules. Regarding the backlog features of associated engineering, over 50% corresponds to the Concession division as such. Main contract awards. Well, we should highlight the Cordillera Hospital in Chile and the Sótero del Rio Hospital. Or the construction of the Los Vilos-LaSerena highway, we are talking about a EUR 331 million contract. Or the enlargement and improvement of the Chacalluta de Arica Airport in the amount of EUR 61 million. Then the construction of the Évora high-speed railway worth EUR 130.5 million. Then, we have the construction of a 205-kilometer road in Áncash in the north of Lima in the amount of EUR 34 million. We have also been awarded a project to build a new metro in São Paulo, the same as new sections for the high-speed railway system in Spain. Now talking about the Services division. There was an increase of 5% year-on-year with an EBITDA increase of 24%. After the incorporation of new contracts awarded last year, they've now delivered better results and, therefore, make us -- or make this division more robust. Therefore, we have reached EBITDA equivalent to 9% with a significant growth rate across the area. As for the backlog, it remains steady and reaching nearly EUR 6 billion, with 30% of such backlog being at international level. Regarding main contract awards. We could highlight different contracts awarded by city councils like the City Council of Madrid, also the extension of the cleaning services operation in El Prat Airport and other minor activities. As for Valoriza, 2 main awards were obtained. For example, for the construction of a new section of a road in Peru. Each section is 300 kilometers all in all. Then the Valles del Desierto project, which was also extended, and another contract that was awarded in Portugal for the collection and transport of waste. In Portugal, we are talking about a project in a matter of several million euros. They roll at roughly about EUR 2 billion. Last year, we're able to complete several products that were commissioned in 2018, and while we wait for the next projects to be implemented, this quarter, you can see that the result [ runs ] a little bit lower. As for generation for the first quarter proved to be quite robust and strong, and therefore, the results are good proof of that. As you can see in the case of electricity, good result. As for contract awards, we signed 2 contracts for the construction of 2 wind farms in Chile: 4 -- 84 megawatts in Biobío and another one for 150 megawatts in Antofagasta. This could eventually be extended reaching well to 100 megawatts all in all.

[Manuel Manrique Cecilia, Co]

Thank you very much, Carlos. As you have been able to verify, throughout 2019, Sacyr continues to grow as steadily and profitably as in prior quarters, therefore, fulfilling our strategic plan that enables us to have a concession profile that is increasingly stronger as our projects get more mature as we incorporate new projects while reducing our corporate debt, thanks to the generation of cash flow coming from the different divisions and the dynamic management of our assets. We shall now be at your disposal in order to address any questions that you may have.

[Operator]

[Operator Instructions] So the first question is by [ Philip Blake ] from BPI CaixaBank.

[Unknown Analyst]

I have 3 questions for you. First, I would like know about the contribution of Pedemontana in terms of sales and EBITDA. Second, in terms of equity, how much are you willing to invest until the year-end in concessions and whether you already have a new target for the net debt with record? And another question concerning Chile and Colombia. Based on recent news and some issues concerning OHL and another company in Vespucio Oriente, my question is whether you are encountering any issues in this respect or whether you have experienced any delays in your current projects?

[Manuel Manrique Cecilia, Co]

[ Philip ], I'm going to answer your question. First off, concerning the Pedemontana contribution. As for income itself, we are talking about EUR 82 million and EUR 23.5 million on account of EBITDA. That is the contribution of Pedemontana for concessions. Regarding equity, we hope to invest nearly EUR 200 million. This quarter was quite investment-intensive, but in the future 3 quarters, we are talking about EUR 120 million approximately that will be invested in a more even manner. As for the reduction of net debt, we recorded -- this is one of the main targets we have as a company and, of course, we want to be below EUR 1 billion before the year-end. We will take all the necessary measures to make sure that this can happen. And finally, regarding the OHL issue, we are working with them in Vespucio Oriente project. The works are taking place normally and within schedule.

[Operator]

[Operator Instructions] The next question comes from Guillermo Fernández from Kepler Cheuvreux.

[Guillermo Fernández-Gao Sánchez de Nieva]

I would like to know whether you consider a little bit more color about working capital. You know that most companies in this segment go through some negative seasons during this part of the year. Do you -- can you tell us what you expect in terms of working capital with recourse. By year-end? Regarding divestment in Chile, would you please tell us how much that entail in terms of cash flow for proceeds after the sale of that 49%?

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Okay. We talk about our net concessions, EUR 13 million working capital amount, which shows good cash flow management. There's nothing else about it. Understand that we're focused on contracts for public administrations to honor their debt in due time and for us. Regarding divestment in Chile, right now, we signed a purchase agreement but we have not closed yet. The relevant authorizations and permits, we believe, that is going to happen before June or July. So about 25% of the overall divestment will be coming into our cash flow as a result of divestment in some of the assets in the country.

[Operator]

Next question is from Fernando Lafuente from Alantra Equity (sic) [ Alantra Equities ].

[Fernando Lafuente Seseña, Research Analyst]

I have a question or a follow-up question regarding the net debt with recourse. I believe that you want to bring it down below EUR 1 billion. What about the moving parts that we should expect before year-end? I understand that Chile will help you in this respect. Now what about other variables? How should other variables evolve in that regard?

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Well, as a matter of fact, divestment in Chile will help us in the first year, the same as our cash flow generating capacity with a significant increase in margins. So we are reporting across projects. So even though we still need to contribute EUR 100 million in equity, cash flow coming from these activities, apart from the contribution from the divestment in Chile, that should enable us to reduce our net debt with recourse below EUR 1 billion before year-end.

[Operator]

[Operator Instructions] Next question is from Guillermo [ Fernándo Gaote ] from [ Treasure ].

[Unknown Analyst]

I have one pending question. This question is about the Industrial division. All the cyclical activities that you mentioned, apart from generation and transmission grids, we saw that results came down a little bit in the first quarter. Should we expect a rebound in the forthcoming months or do you think the results will actually be below those reported in the prior fiscal period?

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Well, Sacyr Industrial right now is about to finalize some major contracts. Most of such contracts will be formalized with private equities. But as soon as those agreements are formalized, we expect this division to recover its growth pace in the upcoming months. So we believe that the division would be able to rally ordinary activity as reported in previous years.

[Operator]

The next question comes from [ Philip Blake ] from CaixaBank BPI.

[Unknown Analyst]

I have 2 more questions for you. The first question is concerned with concessions. Could you please give us an overview as to the dividends that you expect to receive from concessions during this year? And the second question is about overall cost in the concession projects of highways. You know that one of your competitors announced this week a significant contribution thanks to -- or due to an increase of overall cost and the cost of raw materials. Are you also going through cost pressure in Latin America or in Florida or in other countries where you operate?

[Manuel Manrique Cecilia, Co]

As for the first question, the distribution of all concessions amount to EUR 60 million or EUR 70 million according to the exchange rate. And this is increasing year-on-year. And as for overall cost risk, we haven't observed any significant increase in the work currently underway that could entail a significant difference between the contract price or the closing prices. Therefore, this is not supposed to affect us, not at least in a relevant fashion.

[Operator]

There are no further questions.

[Manuel Manrique Cecilia, Co]

There being no further questions, we would like to extend our gratitude to all of you for your interest in this presentation of results, and we [ shall ] you all for the next session that we'll [ go through ] in the presentation of results for the second[Audio Gap][Statements in English on this transcript were spoken by an interpreter present on the live call.]