Sacyr SA

MAD:SCYR

Earnings Call Transcript 2021-Q1

[Manuel Manrique Cecilia, Co]

Good morning. I'm Manuel Manrique, Chairman and Chief Executive Officer of Sacyr. Joining me today at this presentation is Carlos Mijangos, the company's CFO. Thank you very much, dear analysts, media representatives and investors for attending this financial results presentation of Sacyr for Q1 2021. We started out this new year and our strategic cycle for 2021 and 2025, which I have the opportunity to timely present to shareholders at the AGM last week. And we started this out in due course and manner with a growing strength of our Concessions operations that are becoming increasingly more mature, but selecting our markets and opportunities very well while minimizing risk and also by increasing gradually the company's value. With this presentation, we have reported 3 consecutive quarters of growing profitability, thanks to an accurate strategic approach to our business plan. With regards to the key financials for this quarter, I would like to underscore first of all, the distribution of 1 scrip dividend, the first one for 2021, charged to the previous fiscal year, and the approval by the AGM of 2 new scrip dividends to be paid out in the next 12 months. Our aim continues to be that the shareholder remuneration stands at around 5% on a yearly basis, of course. Secondly, I would like to underscore our strict and sincere commitment to reducing the recourse net debt to the extent of writing off the current strategic plan. As foreseen in this quarter, there has been a specific increase of such net debt due to the payment of the reimbursement of repayments as a result of the award in 2020 of the Panama contract that you all know and the traditional seasonal effect of our sector in the first quarter of this fiscal year. However, we are working on different formula and transactions, which compounded by the group's cash flow generation to reduce this net debt course, we will be able to, therefore, reduce it significantly. We hope that very shortly, we will be able to announce a significant green financing facility with this goal. This will bring the debt of certain environmental service projects to the revenue generated by the activity, allocating any resources obtained with the result of this to reducing the group's recourse debt. And we're also considering other similar formula in order to render the financial structure of all of our businesses more effective, especially in the case of the Services division. In addition, we shall also allocate surplus dividends flows from concessions to reduce debt once we cover all the concessions that we have included in our growth plan as well as any positive flows earned from our active participation. And Repsol, as we did in the past as well as any operating flows from our Engineering division and that of the Services division. Therefore, our outlook is that we want to reduce the recourse net debt by year-end in over EUR 300 million, vis-a-vis, the figure that we presented in the current quarter. With regards to our position in Repsol, as you very well know, the first derivatives that we have in place to hedge our balance sheet and P&L account against share price [ fluctuations ] will expire. I would like to underscore that these derivatives, as you can see, have fulfilled their purpose effectively. And I underline, as I did last week at the AGM, as these maturities take place, the Board of Directors of Sacyr will take the most convenient decisions that may apply, but always taking into account Sacyr's balance sheet [ softness ]. Also at a global level, I would like to underscore the social bond issued by our concessioner, Montes de María, in Colombia in the amount of USD 209 million, aimed at refinancing this asset through a formula that shows the social nature of this infrastructure. At an operational level, I believe that the key highlight is and will continue to be in the forthcoming quarters. Our progress in cutting out major concessional projects, which are already ongoing and they are commissioning. The increase of concession revenue and dividend coming from these projects stand at the foundation of our future high profitability and growth. And now speaking about the key financials of Q1. Our revenue increased by 7% compared to 2020. We reached EUR 1.057 billion, EBITDA growing by 17% reaching EUR 194 million. Therefore, based on this data, we already obtained -- already 81% of this EBITDA comes from concessional assets. Last year, we stood 77%. But the EBITDA margin continues to grow 18.3%, that is to say 150 basis points more compared to 2020. As for net profit, it came down in absolute terms by 21% because, last year, we had some extraordinary profit due to some corporate transactions. So if we consider these homogeneous figures, profit would have grown between EBITDA growth and operational flow. You know that our operating cash flow is one of our priorities, and it has increased by 31%, reaching EUR 117 million in Q1 2021.Finally, our total backlog amounts to EUR 41.189 billion. And I would like to mention something which I believe is quite illustrative, about 80% of this backlog approximately comes from Concession, our Concession is about EUR 32 billion. So if we consider the average EBITDA of the past 10 years in the concession sector, we are talking about 65%. Therefore, this means that in our concessions, we will have more than EUR 20 billion already in terms of dormant EBITDA. In fact, more than EUR 20 billion in what we call dormant EBITDA. So now Carlos Mijangos will provide you with further details about the current results and the results reported by each of the group's divisions and the holding in general.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Thank you very much, Mr. Chairman. Okay. So as for the group's performance, we can see the operational strength of all of our activities at the company. In terms of Concessions, EBITDA was EUR 104 million with an EBITDA margin of 55%. If we consider Engineering and Infrastructure, EBITDA stood at EUR 75 million with a 12% EBITDA margin, and Services reached 21% -- sorry, EUR 21 million in EBITDA with an EBITDA margin of 8.5%. Therefore, we are talking about an EBITDA margin of 18.3% or an EBITDA of EUR 194 million. We have, therefore, been able to report a 2-digit growth compared to last year. With regards to the contribution by activity, Engineering and Infrastructure contributed 54%; Concessions, 25%; and Services, 21%. As for EBITDA, Concessions is the one making the main contribution with 52%; Engineering and Infrastructure, 38%; and Services, 10%. With regards to the backlog, dare to say 80% comes from Concessions, Engineering and Infrastructure provide 50% and Services 6%. But if we consider the EBITDA of all 3 divisions in connection to Concession assets, we obtained EUR 157 million in terms of concessional assets, suffice to say 81%. We have Concessions, Services and Engineering and Infrastructure and also what all this shows, therefore, the EBITDA by type of asset. As for the backlog in the amount of EUR 40 billion, here we see 3 main areas in Southern Europe, for example, Italy, Spain and Portugal, respectively, Latin America. During this period, there were some awards in Peru and Chile. And in the case of the United States and Canada, we were also able to fulfill one of our key milestones on our strategic plan. As for net debt evolution, we started out of EUR 5.212 billion and we closed at EUR 5.606 billion. This net debt was therefore reduced due to some positive operating flows in the amount of EUR 170 million, that should be included in financial expenses with a very active net investment of the company in concessional projects, also due to the payment of the award in Panama and also due to some variations in the amount of EUR 85 million coming from financing flows. If we now speak about the recourse net debt evolution, we started out with EUR 836 million. But as a result of the seasonal effects, we were at EUR 1 million after paying all the taxes. Therefore, we invested EUR 16 million in concessions. We should mention that the main projects that we're about to complete have -- are already done, and they are being complemented with other new awards that are already in the pipeline. And this has also increased due to the Panama award. And therefore, we reach this amount that you can see at the end of the quarter. But we are working in this quarter in order to close our financing facility in order to reduce this net debt to similar amounts compared to the beginning of the year in order to move into the next half of the year and work with other alternatives that we have on the table in order to reduce or to focus on our recourse net debt reduction this year and next year. As for the performance by business area. As for Concessions, revenue went up by 23% as we continue to complete some construction projects in the concessions sector and as new sections or tranches are commissioned. We keep on working on this in order to increase the operational activity of this division. You can see this very well here, both infrastructure concessions and water concessions have gone up by 23% and 24%, respectively. It is true that construction revenue came down by 16% due to the completion of several projects. For example, the Tláhuac Hospital in Colombia and the Puerta de Hierro highway also in Colombia. But some new projects will be put into operation shortly. As for EBITDA, there we saw a significant increase of 24%. Infrastructure concessions went up by 21% and water concessions were two-folded. We should be reminded, however, that in July, we closed the acquisition of a water concession portfolio in Chile that is already making a contribution in this quarter's results. So the margins are quite stable, 63% in the case of infrastructure concessions and 18% in the case of water concessions.The backlog is about EUR 32 billion, growing by 2%, vis-a-vis last year. As for invested equity, we are already standing at EUR 1.177 billion, including the amounts this quarter: EUR 1.083 billion corresponds to infrastructure concessions and EUR 94 million corresponds to water. As for awards, we have already signed an agreement in Chile. This is an investment in the amount of EUR 100 million for the Buin-Paine Hospital. And this is a 15-year concession project, and there are 2 others pending award in Chile also. In Brazil, the RSC-287 motorway and the A3 Naples-Salerno motorway in Italy, we are about to finalize all the legal details. So we believe that these agreements will be signed this quarter. As for the performance of concessions, in Italy, we have already completed 94% of the Pedemontana-Veneta project, which has [ had to serve ] the final official opening. Then we are talking about the next opening in May of the Bassano Ovest toll section to the 32-kilometer Montebelluna toll. And so again, we hope that this will be already operational by December 2021. In Chile, we have the Américo Vespucio Oriente project that is completed by 72%. In March, we completed 44 beams of the El Salto viaduct. And this viaduct goes all the way to La Pirámide, and we have already completed the construction of the La Pirámide tunnel, which is one of the areas causing the greatest amount of traffic jams in Chile. With regards to concessions in Colombia, the Puerta de Hierro - Cruz del Viso motorway has been fully completed. It has -- the last functional units have already been made operational. And we also did some refinancing through the social bond. Then we have the [ Baron ] project going to [ El Cauca ], this has already been completed by 85%. We're talking about the motorway. As for Rumichaca-Pasto, this is the connection with the Ecuador border. This was a bit of rainy season, so we were able to make some progress and we're able to commission to other functional units, representing 23 kilometers in this quarter. And as for the Pamplona-Cúcuta, which is another project that was awarded afterwards, its making progress as expected, and it has been completed by 39% already. And we also expect to include the 2 fronts of the Pamplona tunnel during this quarter. In the case of Uruguay, we had the Ferrocarril Central. This is a contract that we are now carrying out. It's making progress as expected, and it has been completed by 37% already. In Paraguay, Rutas del Este, 45% of this project has already been completed and another 20-kilometer fourth section has already been opened, running from east to west crossing the country through Asunción. With regards to the weight of each country in the Concessions division, it's mainly concentrated in Spain, Chile and Colombia, but there are many other countries that are also making an increase in contributions such as Paraguay or the United States with the Idaho University contract that we signed at the end of December 2020. With regards to the backlog, we have all 46 assets in operation, 13 assets under construction. You can see where they are located, mainly in Southern Spain, Southern Europe, Spain, Italy, Portugal and the U.K. mainly. In this case, we're talking about Ireland. We also have some desalination plants in Oman and Algeria. And in Latin America, the key countries are Chile, Uruguay, Paraguay, Peru and Colombia. Then we have Mexico and the United States, respectively. With regards to the Engineering and Infrastructure division, again, this division also performed very strongly over the period. We shall highlight that there was an increase of 12% EBITDA, however, went up by 15%. We continue to handpick our projects, all the tenders that we want to be in, and we want to make sure that half the backlog should be aimed at our concession assets, lower the risks and obtaining more profit. Construction, therefore, as you can see here, obtained a 4.9% growth, which is very important. In Canada, we have been awarded 2 projects, which have been very significant in Toronto specifically. And then we also have other significant awards like, for example, the maintenance and energy enhancements at the University of Idaho. And also, we have a project in the amount of EUR 91 million in the case of Girona for the logistics storage ship. If we now consider Construction and Concessions, therefore, the Pedemontana financial asset from a concessional viewpoint has contributed EUR 104 million in revenue and EUR 49 million in terms of EBITDA. EUR 524 million was the total, and we obtained a 4.9% margin, as we mentioned before. 83%, therefore, of this backlog is of an international nature and we have been 28 months running. As for Services, it has shrunk in terms of revenue and EBITDA, respectively. This happened in the multiservice division. This division has been affected by COVID-19, mainly. Some of its contracts are not reporting as much profit as expected. However, we can see how this has been offset by the increase in business operations in the environmental division, where we have seen an increase of both revenue and EBITDA contributing to international activity. And the full operation also of a waste treatment plant as well as the repair of some damages caused by the storm Filomena in Madrid and also the cleaning and collection of urban solid waste in Collado Villalba, San Roque and Mollet del Vallés. This [ Santurce ] awards, mainly in the [ Biscay ] country for the urban waste collection services as well as home assistant services in Catalonia as well as in Burgos. These are some of the main contracts awards that we have been given. And that's all.

[Manuel Manrique Cecilia, Co]

Thank you very much, Carlos, for this overview. And now we shall be at your disposal in order to address any questions that the analysts may have.

[Operator]

[Operator Instructions] The first question comes from Luis Prieto from Kepler.

[Luis Prieto, Head of Construction and Building Materials]

I have two very short questions. The first question is about these new green financing facility that you are negotiating. Could you provide us with some information as to the cost? This would imply to the company. And the second question also along these lines is a following [indiscernible] where Chairman said we might expect the same trend in the case of the Services division. So what about the net debt and the target EBITDA and net debt of this division in order to understand how far you are planning to go with your leveraging? And do you think that there's any other division that may have to also bear this debt?

[Unknown Executive]

Well, we are talking about a similar cost level. We are analyzing other transactions that will be less relevant compared to the ones we described. But it would be too early to make any announcement at this point in this regard. In the forthcoming presentations, I'm sure that we will be able to be more specific.

[Operator]

The next question is by Fernando Lafuente from Alantra.

[Fernando Lafuente Seseña, Equity Research Analyst]

With regards to what the Chairman said, as for the new net debt structure, I would like further clarifications if this will be recourse net debt. I believe that you will be using certain flows that will now be not recourse flows. Therefore, I would like to know what -- which will be the amount of such flows to hedge this debt flows in the face of the forthcoming quarters? And then I also have a question about the corporate debt. If I understood you right, you said that it was going to be reduced by EUR 300 million. I think you said around 190 -- from EUR 990 million down to EUR 700 million. So is that what you said? Could you please confirm that? And then one final question. As for the construction margin, it's holding out very well, standing at 5%, which is your target or your goal for the overall fiscal year. Do you think that, that 5% is sustainable over time? Do you think that it could go up, down? Could you please provide more details in that respect?

[Unknown Executive]

Well, With regards to the first question, a portion of the Valoriza environmental services flows will be used in order to pay this green financing facility. The second question, I said EUR 300 million and I always said that it's going to be around [ 6 ] or we will start at [ 6 ]. It's, however, too early to tell. We want to, however, set ourselves with the goal of [ 6 ]. And of course, the lower the number, eventually the better. And thirdly, we understand that right now data at the closing of the year will be about 5%, as shown in the first quarter.

[Operator]

The next question is by Alejandro Vigil from Bestinver Securities.

[Alejandro Vigil, Analyst]

The first question is about the company's strategy. Taking into account what the Chairman said about the long-term 0 net debt target you have. How are you planning to reach that target of reducing the debt to 0? You spoke about cash flows come from Concessions, but we should also consider other corporate transactions like, for example, the entry of minority shareholders into the company in order to reduce the company's debt down to 0. And the second question is concerned with the 2021 guidance. You reported a great quarter growing by 17%. This kind of growth, I believe, is according to the consensus, a 10% growth in terms of EBITDA. Do you think this can be sustained in the forthcoming quarters? Or do you think that this is just a good [indiscernible] but should not be extrapolated to the rest of the year?

[Unknown Executive]

Well, talking about how we're going to write half the debt in the next 5 years is not an easy task. This is our ultimate goal, of course, and we will focus on 2021 and 2022 in order to pave the pathway. And this pathway has to do with how we are planning to reduce the debt, that is through the current green financing facility. Also the flows coming from engineering and services, the surplus dividend flows coming from the concession division, the active management of our stake in Repsol and some other transactions concerning green financing that we are now exploring, mainly in the service sector. So we are speaking about 5 different drivers that we would use to this end. So between 2021 and 2022, we expect to cut half debt very significantly. I believe that speaking about -- giving other details at this point would make no sense. Of course, we are always exploring new transactions or opportunities that could be beneficial to Sacyr. And as for the debt reduction, we have to wait and see. Going back to the second question. In 2021, growth reached 17%. Well, according to our budget, It's actually slightly above that figure, but we could speak of about that EBITDA growth approximately.

[Operator]

The next question is by Joao Safara from Banco Santander.

[Joao Safara Silva, Equity Analyst]

I have three questions. The first question and going back to the net debt, you spoke about surplus dividends coming from Concessions. Actually, I thought that this year contributions would be similar to dividends coming from Concessions in prior years. Could you please clarify that further? And could you please specify the surplus you are expecting? The second question is concerned with the timing of the Pedemontana concession launching. I thought that actually the time line was April, March 2022. But according to your presentation, you're speaking about the closing of 2021. So could you please confirm this time line, which is the timing that you are planning to have? And another question. I would like to actually better understand what you expect from your shadow tolls in Spain. I've read some news stating that the national administration is expecting to finance concessions on the toll system. So how could that affect your shadow toll systems? Are you planning to obtain some kind of compensation should that be the case? Or should tolls be open on the motorways that you already have operational?

[Unknown Executive]

Okay. In answering the first question, it is true that at the beginning of the year, the Concessions contributions were supposed to be enough in order to undertake all of our equity obligations. We are talking about EUR 20 million to EUR 30 million in positive cash flows. As for the Pedemontana project, it's -- 98% will be opened by year-end for sure because the Malo tunnel is the only section pending. Usually, the tunnels pose geotechnical difficulties, depending on the material you work in. So perhaps the Malo tunnel will condition about 2% only of the Pedemontana project. So we expect this to be ready by the second quarter of 2022 at 100%. And as for what the national administration has just announced, we will have to explore that thoroughly. We'll try to see which corridors will be charged with tariffs. But in our case, users do not pay in our shadow toll systems, so from a usage perspective, this could eventually even benefit us.

[Joao Safara Silva, Equity Analyst]

Well, actually, the point I'm trying to make is what happens if users begin to pay in those new concession systems and how that could impact your overall volumes?

[Unknown Executive]

Well, that would be like doing some guesswork. It's actually totally unknown.

[Joao Safara Silva, Equity Analyst]

Well, perhaps if you could tell us how much they will be paying, we could actually carry out some calculations.

[Unknown Executive]

But there's a lot of uncertainty at this point. Actually, when this actually happens, we will, of course, do the math. And of course, we will be delighted to provide you with an answer.

[Operator]

The next question is by Victor Acitores from Societe General.

[Victor Acitores Peñafiel, Equity Analyst]

I had two questions. The first question is concerned with Slide 12. In your presentation when you speak about your recourse net debt performance, you spoke about operations flows. I believe that there you have included your working capital. Carlos, could you please specify the working capital for the first quarter? And as for your net debt targets, if I understood you well, starting with Slide 6, I don't know whether you have set yourselves a target that can be quantified also for 2022 in order to reduce the net debt by EUR 300 million for this year and even further next year.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Okay. With regards to the first question, working capital in Q1 was EUR 35 million, and that's why the flow was -- or stood at net levels. So the EBITDA margin was netted out by the working capital figures. And of course, this is normally the case. With regards to net debt in 2022, we also intend to carry out a significant net debt reduction, but please allow us some time in order to actually provide you with the specific numbers. But it's going to be quite significant, I would like to underscore that.

[Operator]

We have one more question from Fernando Lafuente from Alantra.

[Fernando Lafuente Seseña, Equity Research Analyst]

Carlos, could you please provide us with some information as to how -- EUR 150 million corresponds to great financing out of this EUR 300 million with regards to the net debt. Do you have any other further estimates before year-end? And could you provide us with some estimated equity invested in concessions and dividends? If you could actually clarify that, it would be most useful.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Well, again, I repeat this. We have not quantified that debt. EUR 150 million, however, will come from the green bond or from the green financing facility we have just explained. Also, the surplus dividend flows coming from the Concession division, about EUR 30 million. Carlos already mentioned that in the previous question. As for operating flows in the Infrastructure and Services sector, that's another driver. It will also come from our active management of our stake in Repsol. We will continue to do this as we have done systematically up until now. So we will continue to manage our stake in Repsol actively through our derivatives. I think it will also come from other lower amount transactions in the Service areas. So if we include or if we consider all these 4, we are going to add another EUR 150 million at least. Sorry, Fernando. And going back to your question, we are planning to have -- we are planning to invest EUR 120 million in equity coming from those EUR 150 million we mentioned before.

[Operator]

Thank you very much. There are no further questions on the conference call. Now we are going to present the questions coming via webcast.

[Unknown Executive]

Okay via webcast, we have some questions that have already been answered. And therefore, we are going to skip them. [ Philip Latey ] from Caixa Bank. You asked about the different transactions that we are planning to carry out in order to reduce recourse net debt. But the Chairman has already addressed that question. You also asked about the green financing structure or facility and how this will impact our recourse net debt. I believe that has already been answered. And then there are some other questions that have not been answered, but I believe that the Chairman made it clear already. We know that -- we know exactly what we are planning to do with derivatives when the time comes. So that question has already been taken care of. And finally, access points to Madrid. Right now, there's a question whether we have any estimated date as to the court rulings.

[Unknown Executive]

Thank you very much. Well, we don't have the precise timings because you know it's very difficult to estimate core procedures. But we know that we have actually been awarded a positive ruling twice. So based on previous background on 2 occasions, we actually won the case. Right now, actually, estimating the timings is rather impossible. If you consider the current COVID-19 circumstances and the fact that we don't know whether the degree of the state of alarm will continue or not, it's very difficult to actually provide a specific timing.

[Operator]

And finally, [ Vittorio Carelli ] from [ Alvento ] also asked us to the recourse flows that will become nonrecourse in order to finance those EUR 150 million with regards to this green financing facility.

[Unknown Executive]

Well, in that case, we are talking about EUR 45 million remaining in Valoriza, but with certain hedging ratio with some surpluses in order to make a contribution to the dividend payout.

[Operator]

Okay. We are going to allow one additional question coming in through the conference call from Joao from Santander.

[Joao Safara Silva, Equity Analyst]

I have one final question for you. Two weeks ago, we heard about the A21 concession project in Italy. We heard some news -- what do you expect -- or what do you think will be the next steps? Do you have any visibility as to the timings that we could expect along this process?

[Unknown Executive]

Well, as you have very well said, the other bidder, the Supreme Court in Italy decided to disregard that bidder. And therefore, only Sacyr has remained as a bidder. So eventually, we will be the awardee. Now with regards to the timing, it's very difficult to predict, so we cannot provide you with any specific timing at this point. But actually, this award should take place shortly. That's what we could expect.

[Operator]

There are no further questions through the webcast. So let me hand it over to the Chairman once again.

[Manuel Manrique Cecilia, Co]

If there are no further questions, again, I would like to wish you all the best. Keep safe and healthy. And we look forward to meeting you again at the next results presentation for the first half of 2021. 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.]