Sacyr SA

MAD:SCYR

Earnings Call Analysis

Sacyr Q1 2024 Financial Highlights

In Q1 2024, Sacyr improved its operating cash flows by 28% to EUR 228 million and saw its EBITDA margin increase to 34.1%. The company focused on new asset acquisitions including a contract for Italy’s A21 highway and the financial closure of the Velindre Hospital in the UK. Significant projects such as Uruguay’s Central Railway were commissioned. Despite a slight revenue decline, profitability rose, with net profit growing steadily. Sacyr's water business reported independently for the first time, shows a 3% revenue increase. A scrip dividend was issued in January, aiming for a 5% full-year yield. Net debt increased to EUR 6.737 billion due to investments and seasonal impacts.

A Promising Start to 2024

Sacyr began the first quarter of 2024 on a positive note, achieving a remarkable 28% improvement in operating cash flows, totaling EUR 228 million. This success was underscored by a significant increase in the EBITDA margin, which rose by 590 basis points to reach an impressive 34.1%. These figures highlight Sacyr's robust operational efficiency and its ability to generate substantial cash flows, primarily driven by its focus on profitable infrastructure concessions in transport, health, and water sectors.

Strategic Wins and Operational Updates

During the quarter, Sacyr secured notable contracts reflecting its strategic direction. The company finalized contracts for the A21 highway system in Italy, achieved financial closure for the Velindre Hospital in the UK, and was awarded the Lima Peripheral Road Ring project in Peru. The successful commissioning of the Central Railway in Uruguay, alongside the upcoming opening of the Pamplona-Cúcuta highway in Colombia, illustrates Sacyr's commitment to a predictable growth trajectory.

Dividends and Shareholder Returns

Sacyr has maintained its focus on providing returns to its shareholders, evidenced by the first scrip dividend in January, which offered shareholders EUR 0.062 per right for every 50 shares held. Furthermore, the company anticipates a full-year dividend yield of approximately 5%, affirming its commitment to shareholder value amid ongoing investments.

Revenue Fluctuations and Strategic Focus

While Sacyr reported a slight decline in revenue due to a strategic shift to reduce risk in construction, its underlying financial metrics showcased strength. Despite the downturn, net profit remained stable. The CEO pointed out that moving forward, construction activities will be nuanced to prioritize profitability over extensive growth. This strategic pivot aims to enhance the company's long-term financial health.

Debt Management and Financial Results

The net debt experienced a manageable increase of EUR 329 million, resulting in a total of EUR 6.737 billion. Notably, this aligns with Sacyr's investment strategy where EUR 290 million was allocated to assets, showing a commitment to growth opportunities. Operating revenue from concessions also jumped by 14%, showcasing the real assets becoming operational. However, the construction segment saw a reduction of 47% in revenues due to the completion of three major contracts.

Planning for the Future

Looking ahead, Sacyr aims to improve working capital management throughout 2024, particularly in the second and third quarters, reflecting a historical trend of cash inflows. The company is also preparing for its Investor Day on May 9, where it will outline its business plan through 2027 and provide updated valuations of concession assets. This event is expected to further solidify investor confidence and clarify future financial targets.

Category Performance Insights

For the first time, Sacyr reported revenue from its water division separately, indicating strong growth potential within this area. The water division's revenue increased by 3%, with an EBITDA margin of over 20%. Overall, Sacyr's strategic focus remains firmly on enhancing the performance of its concessions portfolio and managing its resources wisely across all divisions.

Summary and Investor Outlook

In summary, Sacyr's Q1 2024 results reveal a company well-positioned for growth, with a robust pipeline of operational projects and a commitment to optimizing shareholder returns through strategically aligned investments. As construction activities and revenue may fluctuate, the management's focus on enhancing profitability and cash flows signals a disciplined approach towards future growth. The upcoming Investor Day will be crucial for communicating long-term strategies and financial projections, setting the stage for informed investment decisions.

Earnings Call Transcript 2024-Q1

[Manuel Manrique Cecilia, executive]

Good morning, I'm Manuel Manrique, Chairman and CEO of Sacyr. Joining me today, as usual, is Carlos Mijangos, the company's Chief Financial Officer. Thank you very much to all of you, analysts, media representatives and investors for attending this presentation of Sacyr's financial results for the first quarter of 2024.

Today, profitability and cash flows are the 2 key financials to Sacyr's business today with more than 90% of our EBITDA and our backlog dedicated to transport, health and water infrastructure concessions. In the first quarter, we improved operating cash flows by 28% to EUR 228 million. In turn, the EBITDA to revenue margin increased by 590 basis points, posting 34.1% in profit. Both data reflect the focus of our business model and management approach.

In terms of lines of business at Sacyr, we're focused on the acquisition and development of new assets in our portfolio that would increase our future cash flows and the value of the company. As a result, during the quarter, we should highlight the sign-in of the contract for the A21 highway system near Turín in Italy, the financial closing of the Velindre Hospital in the United Kingdom and the awarding of the Lima Peripheral Road Ring in Peru as part of our consortium.

In terms of commissioning at the end of the quarter, the Central Railway of Uruguay was commissioned. And in the coming days, the Pamplona-Cúcuta highway in Colombia will be fully opened to traffic. All such milestones set us on a predictable growth path, which is the one that we want for our company.

In terms of relevant corporate milestones, we continue to make steady progress in the divestment processes of some stakes in assets in both Chile and Colombia. Last January, we paid the first scrip dividend in the proportion of 1 new share for every 50 old shares. That is EUR 0.062 per right for shareholders, who preferred to receive cash.

Our commitment for the full year is for the dividend yield to be in the order of 5%. As we've already announced to the market on May 9, we'll be holding our Investor Day 2024, where we'll present the 2024, 2027 business plan and the updated valuation of our concessional assets.

In terms of sustainability matters during the quarter, I'd like to highlight the AA seal from CDP and Standard & Poor's Industry Mover top 5 rating.

Here, you can see the main figures of the income statement for Q1 2024.

Revenue fell slightly due to our tendency to reduce risk in construction, while as I said before, cash flows, profitability and EBITDA rose strongly, reporting a stable net profit that keeps growing.

Next, Carlos Mijangos, will give you more color and specific details of Sacyr's results and each of the business lines.

[Carlos Gorozarri, executive]

Thank you, Mr. Chairman. First half, Sacyr will start reporting the waterline business separately, as concessions and construction, so Sacyr Agua will show its growth potential because it's a leading company in that area in Spain. As for transactions carried out over the quarter, in January, there was a forward contract over 10 million shares with a price of EUR 3, whereas in March 2024, we acquired 5 million shares of treasury stocks, which had a price of EUR 2.1. So the company continues to focus on the value of its shares.

As for the evolution of net debt during this quarter, there was an increase of EUR 329 million, EUR 276 million and EUR 56 million in the case of nonrecourse debt. So this evolution shows that we were able to obtain some EUR 166 million in financial results, EUR 290 million were invested in assets and then there was financing flow, ForEx and adjustments of the scope of EUR 184 million. So we reached EUR 6,737 million.

As for the evolution of recourse net debt, it went up due to some seasonal impacts, resulting from this kind of activities. There was an increase that was, however, below the average over the past years. As for this increase in the FFO amounted to EUR 18 million. We've to highlight EUR 31 million coming from concessions. Financial expenses, spending at EUR 13 million, EUR 38 million were invested, EUR 34 million accounting for equity in our concessions. Scrip dividend in January accounted for outflows of EUR 4 million, then the forward contracts accounting for EUR 11 million and then financing flow and ForEx variations amounting to EUR 5 million. So all in all, EUR 322 million at the end of this quarter.

As for performance by business lines. Concessions as you can see here remained more or less in the same level as in previous years. However, there was a strong increase in operating revenue of 14% as different assets become operational. And as for construction revenue and completion of works. They came down by 47% over the quarter because 3 major contracts have been concluded, like the Rutas del Este in Paraguay that was completed in summary last -- in summer last year. And then the Pamplona-Cúcuta project in Colombia.

There was an increase of EBITDA by 16%, EBITDA margin going up by 66.4%.

I should highlight that there were 2 assets that were commissioned. As I said before, the Ferrocarril Central and the Pamplona-Cúcuta that will become fully operational in the coming days.

As for the breakdown by country in terms of EBITDA. In Italy, as you know, because of accounting reasons, this is accounted for in the Construction division reports. However, the concessional EBITDA as to the group's portfolio, it's -- so the Italy EBITDA amounts to 94 Chile -- Spain 28, Uruguay 27, Italy 78 rather, Chile 85, and these are the most important countries. All in all, we're talking about EUR 295 million.

As for the Engineering & Infrastructure. Revenue came down by 13%. We continue to make efforts so that the percentage of activity in the construction line becomes increasingly more important. We're already spending at 62% in terms of activity here with a backlog of EUR 9 billion. So these are some of the contracts for future concessions.

As for the completion of some of our projects. We should highlight, there are 2 that we've already described. Then A6 was commissioned in Northern Ireland.

EBITDA went up by 10%, posting EUR 101 million. And if -- and there was also an increase of 4.9% in EBITDA margin.

Regarding the water business line. This is the first time that this is reported independently. Revenue went up by 3%. EBITDA went down by 7%, but there was an adjustment of scope because this line of business has been separated. EBITDA margin is above 20%. This is a backlog of nearly EUR 5 billion with significant awards over this quarter, such as the Alicante desalination plant or the Carboneras desalination plant or the Cuevas de Almanzora water system. The 3 of them account for EUR 45 million in awards.

Sacyr Agua is the leading company in desalination plants also in 2023. And this is all that I wanted to report, Mr. Chairman.

[Manuel Manrique Cecilia, executive]

Thank you very much, Carlos. We now open the floor for questions for all the analysts that may wish to pose a question.

[Operator]

[Operator Instructions] Miguel González Toquero from.....

[Miguel González Toquero, analyst]

I have 3 questions. First, the question about the working capital for the quarter. Could you please confirm that the outflow of EUR 45 million over the quarter in the case of net debt was recoursed includes the payments that had been delayed in the prior quarter of EUR 75 million? And are there any outstanding collections?

As for the construction activity, as you mentioned, there was a significant drop in revenue due to the completion of some projects. So when do you think that the activity will be picked up or will rally or when do you think the new projects will offset this negative impact?

Finally, I'd like to know whether the decision to report the figures of the Water division has to do with the possibility of divesting in this business or whether this is something that you're not considering for the time being?

[Manuel Manrique Cecilia, executive]

Okay. We'll get back to you in a minute, Miguel. Thank you.

Miguel, I'll answer the first question. As a matter of fact, the working capital for this quarter accounted for an outflow of EUR 45 million. But as I said before, during this period, the average over the past 3 years stood at EUR 125 million. So we received those EUR 75 million, and this is part of the seasonality of this industry.

As for the other questions and concerning the construction activity, a similar situation took place last year. In the second half of the year, we expect to recover. Here, we're talking about construction within the concessions division. As for infrastructure, this is a strategic business line. And therefore, we do not want to really grow there. We want profitability rather than growth.

As for reporting the Water division separately, there's no actually any consideration that we're making at this point about divesting in that business line.

[Operator]

The next question is by Luis Prieto from Kepler Cheuvreux.

[Luis Prieto, analyst]

Since you're about to hold Investor Day. I believe that you'll perhaps address some of these questions on that occasion. However, I'd like to take this opportunity to ask the following that is contribution of Sacyr concessions through the construction backlog that has gone up from 51% to 62%, quite a considerable increase, which is the ideal proportion of this contribution, should we expect a higher value?

Does this mean that -- I'm not asking about the dynamics, I'm asking about the implications that this actually has.

[Manuel Manrique Cecilia, executive]

1 minute, Luis, and we'll get back to you in a minute.

Luis, as we've mentioned, on other occasions, our strategy is to focus on the concessional business line, whereas infrastructure and construction are not within our priorities. Actually, we want to be it less. And we'll address, in fact, these issues on our Investors Day on May 9. I'd like to surpass 70% as for the share of construction in our concessional assets.

You're talking about first -- expenses. Sorry, can you repeat that?

[Luis Prieto, analyst]

The Chairman's speaks of 70%, but actually, you can never reach 100% because you really need to take into account first expenses for the transaction to be profitable.

[Manuel Manrique Cecilia, executive]

Actually, we want to keep on operating in Spain with some contracts that are risk free. In order to keep up with our competitiveness, we need to remain active in some concessions. And we're going to give more details about this during our Investors Day.

[Operator]

The next question is by Joao Safara from Banco Santander.

[Joao Safara Silva, analyst]

I have 2 questions. The first question, what should we expect going forward in terms of revenue from concessions in Italy? You've spoken about the A21 highway, the Pedemontana highway is already operational, especially concerning Pedemontana, over the past quarter, there have been some ups and downs. Therefore, we could use the first quarter as a benchmark for the coming quarters. There has been quite a leap in terms of margins. I'd like to know that this is due to the official opening of the Pedemontana highway?

And the follow-up question is about the concession that you were awarded in Peru. I believe that you'll also address this issue during the Investors Day. Could you give us a line of order in terms of the equity that will be allocated to this project?

[Manuel Manrique Cecilia, executive]

Okay. Joao, we'll come back to you in a minute. Thank you.

Okay. Let me answer, Joao. As for the first question, Pedemontana is a financial asset. As you know, it has an accounting specificity concerning EBITDA during the construction period. So the adjustment that we carry out once it becomes fully operational is the cause for this difference between revenue and EBITDA during 2024 vis-a-vis 2023. But in answering your question, the answer is yes. Every quarter, actually, the figures will be more stable because the investment period has been completed. Therefore, there will be no impact of EBITDA on the investment.

Then, we'll provide you with more color next week as to how this project is about here. We're talking about some acquired commitments, and we're talking about EUR 3 billion.

[Operator]

The next question is by Fernando Lafuente from Alantra.

[Fernando Lafuente, analyst]

A very good question about the evolution of corporate debt was recoursed. You spoke about an outflow of EUR 45 million in working capital due to the seasonality of Q1. How should we expect working capital to finish fiscal year 2024?

And Carlos could you please give us some color as to how that should close at the end of the year without the sale of any assets?

[Manuel Manrique Cecilia, executive]

Okay. Just 1 minute Fernando. Thank you.

[Carlos Gorozarri, executive]

As for working capital throughout the year, we tend to post an improvement in the second quarter, even third quarter. Sometimes we've also reported some inflows. Our expectation is that this will be neutralized by year-end.

Regarding the key movements on the corporate side. Well, here, we're talking about investments and distribution of assets. And again, we'll give you more detail about this in a week's time, Fernando.

So as for net debt was recoursed, this is directly related to what we've invested and what we'll be collecting. But in a week's time, you'll get a full answer on this question.

[Operator]

There are no further questions over the phones. So we now -- we'll read the questions by webcast from Bestinver, Álvaro Navarro. Álvaro you're asking about the EBITDA guidance, cash flows, investments and dividends?

[Carlos Gorozarri, executive]

Well, all that information will also be provided to all investors on May 9. So for the time being, if you could allow us, we'll not answer this question.

[Operator]

Then you asked more questions about tariffs in Colombia and Chile's toll systems. And whether any adjustments have been made as a result of inflation in this, and whether there has been any impact in this figure?

And finally, whether we're worried about any drop in traffic that has been reported in Colombia and Chile. So we will answer in just a minute, Álvaro.

[Carlos Gorozarri, executive]

Okay. As for toll tariffs in February this year, all pending payments of 2023 were collected. And regarding traffic, it is true that there were some drops regarding some assets by both in Chile and Colombia. These projects are tied to some mitigations assistance in Colombia, a certain adjustment is carried out every 5 years. And in Chile, an extension is granted. Therefore, this is all part of the mitigation mechanisms that somehow offset a drop in traffic.

[Operator]

Filipe Leite from CaixaBank. You've a question, the first one about Engineering & Infrastructure excluding Pedemontana and the A3 highway, I believe that, that question has already been answered by the Chairman.

You asked about the reasons behind the drop. And then you also asked about working capital that has been adjusted by EUR 75 million, and you asked about the guidance for the full year 2024. That question was answered when answering the question to Fernando, Alantra.

Okay. So now let me turn back to the Chairman.

[Manuel Manrique Cecilia, executive]

If there are no further questions. Once again, we'd like to thank you all for attending this results presentation and interest. We look forward to the next results presentation for the semiannual results of the company. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]