Sacyr SA

MAD:SCYR

Earnings Call Transcript 2020-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, dear analysts, media representatives and investors. Thank you for attending the Sacyr Q1 2020 results presentation. First of all, I would like to convey my condolences to the families that lost some of their beloved ones due to coronavirus in the past weeks. This pandemic has had a toll on thousands of live and life is the most important treasure we have, something that we should take care of and preserve. I would also like to encourage those who are still hospitalized and convalescent. And I would like to express my best wishes for the prompt recovery. At Sacyr, we are doing our best in order to look after those that we service in 30 countries as well as taking care of our employees by taking all the necessary safety measures within our reach. The gradual return to normality would also be done through all the precautions required to safeguard the safety of our employees, clients and collaborators. I'm certain that such normality that we are talking about will be different from the past. We will now focus more on people that will be placed at the core of our strategy and we will make progress towards a more diverse, responsible and sustainable society. At Sacyr, we accept the challenge that we have to undertake. COVID-19 impact on the measures that we have taken in order to mitigate coronavirus can be summarized in 4 action lines. First, the corporate aspect. Thanks to investment in digitalization carried out over the past years, we have been maintaining the pace of our activity, which has not been affected. So we have been promoting teleworking as far as possible, thus taking care of our employees and their families' health. We have also provided works and service staff with all the necessary equipment and material in order to work safely. Second, with regards to operations, our concession model with a low traffic risk has enabled us to maintain normal activity. As for infrastructure, there have been some temporary halts. But today, activity is running quite normally. However, as for services, there are several areas where work had to be intensified. Thirdly, as for the financial side, the recourse debt reduction process carried out over the past years, and thanks to taking good care of our treasury, make it possible to have sufficient liquidity in order to honor our short-term maturities. In addition, available liquidity has increased considerably through new lines that have been established in order to anticipate options for the future in the past weeks. We have increased liquidity by more than EUR 300 million, therefore covering all of this year's maturities. Fourth and last, with regards to social commitment, we have collaborated as far as we could or whenever we were needed. We donated health material. We've reinforced staff allocation and services. We also provided assistance to hospitals, and we also provided additional spaces. We also put in place contingency plans in order to guarantee the suppliers basic services. We provided help to clients and users among many other measures. Now I would like to thank the huge efforts made by all of Sacyr's employees so that each person from his or her position and under his or her single township could keep on working and fulfilling their targets with an exemplary effort. Despite the impact that these circumstances had on our activity that I will address shortly, I would like to highlight the strength of our operations in Q1 2020. Based on this report, we can say that for 9 quarters running, we have been reporting increased profitability at double digits, thanks to the strategic focus of our strategic plan, our business plan. Specifically, EBITDA in the first quarter amounted to EUR 166 million, therefore, 16% higher than the first quarter of last year. EBIT also rose to EUR 133 million, up to 28% higher. The EBITDA margin which is at 16.8%, 210 basis points more than the figure recorded in 2019. Across business areas, we also reported many increases as our CFO will described later. Throughout the first quarter, we have also focused on shareholder remuneration by paying scrip dividend in February with a new share for every 46 of shares. More than 94% chose shares rather than cashing them in, once again showing their confidence in the company. The group, based on prudent criteria, also allocated provisions in the amount of EUR 30 million in the face of the current uncertain scenario. Sacyr has also restructured its organizational chart by integrating 2 EPC areas, namely Sacyr Engineering and Infrastructures and Sacyr Industrial. This restructuring will no doubt make it possible to build synergies among the group's 3 divisions. And finally, along the same prudent criteria, the company has adjusted the book value of its stake in Repsol up to EUR 9.66 per share. Let me remind you that in our financial results at year-end last year, our book value was EUR 13.93 per share. Finally, and among some of our highlights, we should point out one relevant aspect that I already anticipated when we presented 2019 results. I'm talking about our promotion of sustainability policies. We created a special committee that reports to the Board of Directors as well as a first level executive committee within the company that is chaired by myself. So this new management body and this new sustainability and governance committees are already operational, and they will play a key role in guiding the company's new strategic cycle. So in 2019, we achieved several targets as reported in our nonfinancial disclosure reports. I would like to mention the positive social impact provided by tax contribution in all the countries where we perform operations. And that amounted to EUR 660 million. As for other measures we're also taking based on prudence and given the current health crisis, I would like to announce that the company's Board of Directors will request at the next Annual General Meeting, the approval of the scrip dividend policy even though its distribution will not be done as usual in June. With regards to the supplementary portion, further distribution will be subjected to the evolution of the current health crisis and the evolution of the company's performance. In autumn, we shall assess the situation, and we shall take decisions accordingly. Also and along the lines of the efforts made by the shareholders, the Chairman and the Board of Directors also said we also put on hold 20% of their annual variable remuneration until such new assessment takes place in the autumn. Next, Mr. Carlos Mijangos will provide you with further information on specific data as to the group's results and the results delivered by each division and the holding as a whole.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Thank you very much, Mr. Chairman. We shall now analyze the group's operational development. Here, we can see some key financials. Revenue amounted to EUR 985 million, 1% more compared to Q1 2019. EBITDA rose to EUR 166 million. That is 16% more. EBITDA margin, therefore, went up by 210 basis points. And in the backlog, there was a decrease due to some divestments in Autovía del Guadalmedina. As for cash flow, we reached EUR 89 million, showing the soundness of the company's business model. As for the contribution of each business line, we can say that in terms of revenue, 52% is contributed by engineering and infrastructure, 22% by concessions and 26% by services. As for EBITDA, concessions account for 47%; engineering and infrastructure, 38%; services, 15%. With regards to the backlog, we can say that concessions has the greatest weight with 70%; engineering and infrastructure, 18%; and 13% contributed by services. As for types of assets, the group continues to hold its firm commitment to be in a concession-focused company. Assets in this case account for EUR 127 million, that is 77%. It varies slightly due to the rotation of assets in the last quarter of last year, including energy plans. Here, we're talking about the Autovía del Guadalmedina and some operations in Portugal. All in all, we reached this figure of 77%. As for the backlog, we can see geographically where our concentration lies, mainly in Southern Europe Spain, Italy, Portugal and the U.K. as well as in Latin America. We are present in the most important Andean countries and in the United States. Yes, we can see some new works that have been awarded to us. We have some port companies in Azores, also many awards in Spain, some photovoltaic plant operations that we will analyze specifically for each division. In Latin America, in Chile and in other countries, also in the United States, we are delivering right now a contract on the construction of a road in Texas. As for net debt evolution, you can see all the figures here. As at 2019, EUR 4.315 billion. The EBITDA right now is positive, amounted to EUR 41 million, an adjustment here on 2 financial assets of EUR 118 million. EUR 81 million is the financial result.The group continues to make strong investment with [ EUR 237 million ] in assets and divestments, which is mainly due to Guadalcesa with some adjustments. All in all, we are talking about EUR 4.438 billion. So this impact, as I mentioned before, due to the current investment focus in concessions. As for recourse debt, it also -- dipped from EUR 848 million to EUR 893 million due to a seasonal component. The first quarter is usually worse, and the last one is always much better. Well, as for our stake in Repsol, we continue managing our stake in Repsol actively in the first quarter. We restructured the derivative corresponding to 72.7 million in Repsol shares by canceling the PUT option and by formalizing a forward at that same amount, EUR 13.75. And we also carried out a call spread in order to benefit from the revaluation of the share price. So I would like to emphasize that we have covered all of our financial risk in the event of a potential drop in the price of Repsol share and in a quarter like this where the sole share price went down considerably. That had no impact whatsoever on the group's cash. No impact whatsoever. As for performance by business area, let us start with Concessions, that is to say, the driving engine of the company. You can see revenue that amounted to EUR 246 million. Here, you can also see all the different substantial projects. As for concession, we're talking about 8%. EBITDA, EUR 81 million, which accounts for an increase of 8%. And EBITDA margin is 64%. As for construction, there has been an increase due to the projects of Tláhuac Hospital, Paraguay's Rutas del Este, the Chacalluta project, all of the projects carried out in Chile, de la Fruta road, among many other projects. As for the backlog, we're talking about EUR 28.124 billion, the A3 highway in bringing together or connecting Naples and Salerno in Italy is another project that has been awarded to the company. We're talking about 56 kilometers with traffic of 170,000 vehicles, but that has not yet been included in the backlog. We have also implemented the Pirámides-Pachuca highway in Mexico that runs along 92 kilometers. So the whole investment phase has already been completed. So this is the first infrastructure project awarded to Concessions in Mexico that is now operational. If we now see the breakdown by country, we can that the countries that made the greatest contribution are Spain, Chile and Colombia. We should highlight that this does not include the activity of Italy of the Pedemontana company because those figures are included under the figures of Engineering and Infrastructure. Almost EUR 23 million out of EUR 180 million corresponds to Spain, EUR 23 million correspond to Colombia. All other countries are Peru, Mexico, Uruguay or Paraguay. As for asset rotation, we formalized the first 47.5% of the Medina project, and we are waiting for the pending permits to be formalized. In March, we were also able to reach an agreement of about EUR 474 million for the Cúcuta -- Pamplona-Cúcuta project. And we, once again, were supported by JPMorgan, Deutsche Bank AG, Générale, of the FDN and ICO among others that provided us with financing to carry out these projects. So this means that the financial system is supporting us in developing our projects. As for the backlog, we're talking about more than EUR 28 billion. It is mainly concentrated in the U.K., Spain and Italy and Portugal in Europe. As for the Andean region, Mexico, Peru, Colombia and Chile, coupled with Uruguay and Paraguay. Those are the most important countries where we operate. We have 45 assets, 13 in construction, and 32 are in operation. As for Engineering and Infrastructure, as the Chairman already mentioned, the Industrial division has been integrated into this business area. Revenue being EUR 563 million, virtually the same as the one reported last year, but EBITDA increased markedly from EUR 48 million to EUR 66 million. Margin also went from 8.6% to 11.6%. Therefore, as I have just mentioned, we should highlight the impact of the financial asset of the Pedemontana project, revenue being EUR 88 million, and EBITDA, EUR 40 million. Therefore, the EPC activity of that division corresponds to EUR 475 million and EUR 26 million in EBITDA, reporting a 5.4% margin that is quite solid. As for the backlog, that goes up to EUR 7.358 billion. We have 39 months of activity, 11 new projects have been awarded, and more than 51% corresponds to concessions with greater margins and lower risk. As for the main awards, we should mention that US59 tax has amounted to EUR 128 million; the extension of the Nogales-Puchuncavi road project in Chile; some port works in Portugal; or a new wind farm in Chile amounted to EUR 24 million; the repair of refinery tanks in Spain, among many other projects. As for the Service division, performance has been quite significant as well, reaching EUR 284 million with a growth rate of 7%. All areas have increased their revenue and EBITDA, except for the water activity. But here, we should be reminded at the end of last year, there was a rotation of some [ aramiente ] assets. So on a like-for-like basis and at a constant perimeter, the variation would be the same. EBITDA, EUR 25 million and 8.8% margin. As for the backlog of more than EUR 5 billion, more than 140 new contracts have been awarded in 10 countries and in key strategic markets. In this regard, I would also like underscore the international expansion of the Service division has become true. We're not working in many other areas where other business areas are. As for the main contracts, we have the maintenance and waste collection awards or the extension of some working contracts in Madrid, among many other projects. And now I would like to give the floor back to the Chairman.

[Manuel Manrique Cecilia, Co]

Thank you very much, Carlos. We shall now be at your disposal in order to answer any questions that the analysts may have.

[Operator]

[Operator Instructions] The first question is by Fernando Lafuente from Alantra.

[Fernando Lafuente Seseña, Research Analyst]

I have 2 questions.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Fernando, sorry, we can't hear you, [ says Mr. Mijangos. ] Could you please repeat your question?

[Fernando Lafuente Seseña, Research Analyst]

Can you hear me now?

[Unknown Executive]

Yes, we can hear you now.

[Fernando Lafuente Seseña, Research Analyst]

Sorry, it's because of my wireless device. Stockholders' shares are all safe. I have 2 questions. I have a question as for the outlook on construction and service. The first quarter was quite good in terms of performance vis-à-vis your peers. So I would like to know what your expectations are for the rest of the year. What do you think -- your performance was so good. And what do you think about will happen in the rest of the year after the impact of COVID-19? Now as for your debt, given the current circumstances, what you expect before year-end in terms of your corporate debt?

[Manuel Manrique Cecilia, Co]

Well, as for the first quarter, as we have said, we have been reporting a 2-digit growth for 9 months running. Therefore, we are in a very strong position, and this has been reflected on the figures of a quarter where we experienced coronavirus. So concessions, for example, has low traffic risk, therefore, it has continued to operate almost normally. In new countries, virtually, all of our engineering projects went back to normal, except for some cases, in the case of services. So -- but we have been able to enhance services, for example, in hospitals. Going back to your question on debt, we continue to pursue the same target. We said that we pursue a strategic target. We want to reduce our recourse debt significantly. We announced that at our Annual General Meeting, and we also announced this when we presented 2019 financial results. I believe that the EUR 45 million increase is a relatively positive piece of news because the first quarter, as the CFO, pointed out, the first quarter of all construction companies since I have been in the industry is always the worst in terms of performance of cash flows. And usually, the fourth quarter is the best one. So this has also been reflected in the operational cash flow that was higher than that reported in 2019. We can say that the reduction of our debt at year-end will be another positive piece of news that we expect to announce in a context of uncertainty as the current one.

[Unknown Executive]

Now we will start with the questions coming in through the webcast line. Well, we have several incoming questions. The first question is concerned with Panama, whether we have any update on the litigation procedures; and second, whether we can provide a breakdown of the working capital concerning recourse and nonrecourse. Another question is concerned with our economic exposure to Repsol, whether we can throw more light at our current exposure. And then there is another question concerning the bidding processes for hospitals in Chile. The question is whether we should expect any delay in the execution schedule or whether everything is going as planned.

[Unknown Executive]

With regards to your question about Panama, well, given the current situation caused by coronavirus, we expect some delay in the resolution of the first group of claims that is related to basalto. Apparently, in August, September, we expect a resolution will be passed. All other procedures continue to evolve as expected. As for working capital, as we explained before, we are talking about a seasonal working capital. So we will recover that amount throughout the year with no doubt whatsoever. As for our exposure to Repsol, we have recorded that using the [ scale-out ] method. We, therefore, conducted an analysis based on our current value of the share impairment, and that's why we have that value of EUR 9.66. However, this share or stake is totally hedged by derivatives. And last but not least, it does not have any impact whatsoever on our cash. As for the bidding processes for hospitals in Chile or bidding processes across countries are now being delayed due to -- small delays, let's -- to say, but we expect this to change -- sorry, are you talking about a figure of EUR 1.7 billion? And all in all, this is a bidding process that is expected to be completed throughout 2020.

[Unknown Executive]

We have 2 other questions. One question is concerned with new divestments, whether we have anything in mind in this current -- and the second question is whether you could provide us some information as to the credit lines have been obtained for financing purposes.

[Unknown Executive]

As for divestments, we do not expect to carry out any more divestments, except for the one concerning Guadalcesa. We expect to have or to meet all the necessary requirements to complete that in a few days' time. As for the credit lines, we have more than EUR 300 million that have already been committed. This is new liquidity that will enable us to honor all of our maturities for the year.

[Unknown Executive]

There are no further questions.

[Manuel Manrique Cecilia, Co]

Ladies and gentlemen, the results presentation has finished. If there are no additional questions, once again, I would like to wish you the best of health. Thank you very much for attending, and thank you very much for your interest in this presentation. So we shall talk to you again when presenting the results for the first half of 2020. Thank you very much, and have a nice day.[Statements in English on this transcript were spoken by an interpreter present on the live call.]