Sacyr SA

MAD:SCYR

Earnings Call Transcript 2019-Q3

[Manuel Manrique Cecilia, Co]

Good afternoon. I am Manuel Manrique, CEO and Chairman of Sacyr. I am accompanied, as usual, at this presentation, Mr. Carlos Mijangos, who is the company's CFO. Thank you very much for attending, analysts and media representatives investors. Thank you for attending this 2019 9 months results presentation.First of all, I would like to express the consistency of trends and recurrence of our results, results that we are presenting today. Based on this report, we have reported 7 consecutive quarters of growth in terms of profitability and revenue at a 2-digit pace, thanks to the determination in fulfilling our business plan, which is focused on the concession activity and on those markets where we feel more certainty. As you can see, and we shall discuss during the presentation, Sacyr has been able to consolidate its high concession profile, and is supported by the international financial sector. In 2019, we will be closing near EUR 4 billion in terms of financing of concession projects in Chile, Colombia, Paraguay and Uruguay, and some, of course, financial and technical securities.So as part of his financial scheme, there are top level financial institutions from all over the world. For example, multilateral banks, insurance companies and investment funds as well as pension funds and infrastructure funds that trust our human resources, our financial models and our capacity to operate and manage the business. On the Investors Day that was held in June this year, we already informed you about some of these figures to show that our business model, which is based on vertical integration, is reliable, and we are verifying that semi-annually. I believe that our individual and institutional investors are also recognizing that gradually, and we should continue to work in order to keep on earning their trust.Within the framework of this strategy, the highlights of our semi-annual results are as follows. As usual, we have focused on profitability and cash flow generation. As a result, we have been able to earn an EBITDA of nearly EUR 500 million, which accounts for a growth rate of 32% vis-à-vis the previous fiscal period, out of which 77% comes from concessional assets. Our EBITDA has not grown less. Actually, in the 9 months of 2019, we were able to report 16.2% vis-à-vis 13.8% in the previous period, therefore, accounting for a growth rate of 17%. EBIT in turn has grown by 28%, and net profit has reached EUR 122 million, therefore, reporting a 12% increase against 2018. And as usual, our operating cash flow, our main focus, has also reported a growth of 14%, reaching EUR 285 million. So we keep on reporting double-digit results, as previously announced.We are also consolidating our backlog in strategic markets. We have over EUR 42 billion, out of which 72% corresponds to overseas operations. Our Concessions activity, in the case of the international market, accounts for 82%, whereas Engineering and Infrastructure represents 86%. In terms of revenue, we still have services. Therefore, our domestic activity continues to be strong. In the first 9 months of 2019, we were able to earn revenues outside of Spain by 58%. During this period, we have also been awarded some major contracts in such strategic markets for the company, for example, in the United States, in Chile, in the United Kingdom, Portugal, Peru, Spain among others.Another highlight has to do with the shareholder remuneration. We have already implemented a regular dividend payout policy. In February 2019, we had the first part of our scrip dividend, whereby we are distributing 1 new share for 35 old shares or EUR 0.051 per cash -- in cash. More than 95% of our shareholders chose to receive shares. We also completed this scrip dividend scheme in July 2019 with a new dividend for every 39 existing shares accounting for EUR 0.054 in cash per share, therefore, more than 91% of shareholders chose to receive shares. Therefore, in 2019, the dividend payout amounted to EUR 0.105, which was higher than EUR 0.103, which was paid in 2018, which, therefore, translates into returns for shareholders above 5%, and we shall continue along this same path in the forthcoming years, as timely announced during our general shareholders meeting.This year, as for the capital markets, we also issued convertible bonds in the amount of EUR 175 million for the 5-year term, with a 3.75% annual fixed interest rate and a 35% conversion premium. In turn, we also repaid our convertible bond in the amount of EUR 250 million.As for investment and asset rotation. During this period, we sold Sacyr´s stake in Itinere Infraestructuras for a total amount of EUR 202 million. Also a rotation of 49% stake in 7 Chilean assets that were already operational, these in the amount of EUR 440 million, including the debt. After the financial closing in September 2019, we also rotated for Guadalmedina project in the amount of 47.5% in the amount of EUR 220 million, including debt, and we also rotated 9 power plants for approximately EUR 150 million, also including the debt. During this period, until September 2019, the equity invested by the company in Concessions surpassed EUR 160 million.Finally, in Panama, we completed the payment of some amounts or advanced payments were repaid to the Panama Canal Authority in the amount of EUR 125 million. In June, we also completed the 3-year maintenance period of the Panama Canal third set of locks. We have been helping the canal authority in order to render the third set of locks more efficient. During this period, the efficiency rate or availability rate reached nearly 99.97%. And during this period, nearly 6,500 vessels have sailed through this new canal that was completed back in 2016.Next, Mr. Carlos Mijangos will provide you with more data and specific information as to the group's results and information about each of our divisions and the holding as a whole.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Thank you very much, Mr. Chairman. Well, the key financials for the group revenue, we surpassed EUR 3 billion with an increase of 12% compared to 2018. As for EBITDA, it reached EUR 492 million with a significant increase of 32%, and EBITDA margin also with an increase of 12%. As for the operating cash flow, EUR 285 million, which accounts for an increase of 14%. As for the backlog, we surpassed EUR 42 million.If we now take a look at the contribution of each division to the group's financials, we can see that from revenue perspective, the one that has the greatest weight is Engineering & Infrastructures with 44%, followed by Services with 26%, Concessions 21% and Industrial with 9%. As for EBITDA distribution, Concessions has 46%, Engineering & Infrastructures 33%, Services 17% and Industrial 4%. Regarding the backlog, 2/3 corresponds to Concessions, 16% to Engineering & Infrastructures, 13% to Services and 6% to Industrial. So as we mentioned in previous presentation of results, the different concession assets that we find in the different activity areas account for 77% of the group's overall EBITDA. And they also come from concessional assets with a low risk of demand.If we now take a look at our backlog, we had awards in 13 major markets that are strategic to the company; the United States, Mexico, Colombia, Peru, Brazil or Chile, among others; and in the case of Europe, Italy, Portugal, U.K., Spain and Portugal; and also in Australia, we also have a significant presence through the waste department. We will take a look at the contracts afterwards, but here you can see the geographical positioning of the company worldwide. As for that backlog distribution, 37% corresponds to Latin America, 3% to the United States and 3% corresponds to the rest of the world and the remaining figure is Spain.If we now take a look at the net debt evolution, we started with EUR 4.045 billion, out of which we had to consider EUR 285 million that corresponds to operating cash flow with financial interest amounting to EUR 222 million. And we should also explain that that increase as a result of investment of concession assets, we have invested more than EUR 2 billion in this regard, which reinforces the company's strategic focus. We have also engaged a significant rotation of assets in the amount of EUR 325 million, and we have repaid some of the advanced amounts regarding the Panama Canal. Then we have EUR 144 million out of which EUR 85 million responds to the deconsolidation of some energy plants that are for sale as at September 30. In terms of equity, EUR 160 million have been invested in Sacyr Concesiones and others in the environmental and water activities. If we now take a look at each business area, starting with Concessions revenue, in this case, goes up by 16%, mainly due to the opening of new assets or the operation of new assets. For example, Tepual and Chacalluta as well as a positive evolution of traffic. As for construction income, it also goes up significantly due to the execution of different projects, which are underway in Colombia, Mexico, Uruguay or Chile. As for contract awards, the highlights include La Serena in Chile. This was the first concession project that was awarded to this company back in 1996, and we were awarded this project again after it was completed by the previous operator. Then the Chacalluta Airport in Chile and the Ferrocarril Central in Uruguay with a backlog of EUR 2.2 billion. We have -- as for equity invested, we have invested EUR 992 million.So as for the milestones, we should highlight the commissioning of the first section of the Pedemontana-Veneta highway in Italy as well as the start-up of Routes 21 and Routes 24 in Uruguay, 9 months before the expected date. This happened in October.If we now take a look at financing, they total EUR 3.5 billion, these are some of the projects for which we have obtained financing. We start with the project in Chile, followed by the Colombia project, then Rumichaca-Pasto on the border with Ecuador, then the highway that crosses Paraguay from north to south. Then we have a refinancing through some bonds of the Antofagasta Hospital project, and finally the Ferrocarril Central project in Uruguay.We should highlight that as for the financial institutions that have been involved, we have resorted to the IADBs, different Spanish banks, such as Santander or international institutions, such as Goldman Sachs, JPMorgan, among others, or MetLife or other Chilean insurance companies. Therefore, we confirm that we are fully supported by the financial sector in order to finance our projects.In terms of asset rotation, we should highlight 3 operations. First, the sale of Itinere in the amount of EUR 202 million. We also sold 49% in 7 Chilean assets in Chile, and we also signed a contract for the sale of the Autopista del Guadalmedina project with -- and we believe that this transaction will be completed before year-end. The sale amounted to 47.5%.As for contract awards, again, we have some roads and highways and airports. In the case of Chile, we have the Los Vilos-La Serena highway and the Chacalluta de Arica Airport. In the case of Uruguay, we are talking about the concession of Ferrocarril Central. We are talking about a backlog of nearly EUR 1 billion. And the second project more than EUR 2.2 billion in backlog.Regarding Engineering & Infrastructures, revenue has gone up by 23%, reaching nearly EUR 1.5 billion and EBITDA went up by 76%, reaching EUR 167 million, with an EBITDA margin of 11.4%. The backlog also went up -- all the way up to EUR 6.857 billion. As for where we're focusing our growth, there has been a drive in the domestic market with a 54% increase and 18% in the international market. And we should say that most of this increase comes from large concession projects that have been undertaken by the group. And there are also other construction projects in other countries where we have already become one of the main local companies. Regarding milestones, we should point out the completion of the construction of Routes 21 and Routes 24 in Uruguay, 9 months before the deadline. As for the backlog, we have 44 (sic) [ 42 ] months of activity and 52% of the backlog is developed for our concessionaire.In Chile, we have the highway project as well as 2 airports and a hospital. In the case of Uruguay, the Ferrocarril Central [ rail ]. Then we also have in Qatar, an urbanization project. This is the fourth project we have in that country. In the United States, we had to recover one section of the highway in Texas. In Italy, we have one project for Hospital Policlínico. These are just some examples.From the point of view of Services, revenue went up by 6%, all the way up to EUR 845 million. And we have obtained more profitable contracts by improving the terms and conditions thereof and after a series of negotiation processes. And also thanks to the contribution of several international contracts. For example, the waste collection contract awarded in Bogota or the commissioning of a waste plant in Melbourne and some other projects that were awarded in Melilla or in Madrid for waste collection.As for Multiservices, there was an increase of 2%. And this is also due to an improvement of margins obtained from some of the contracts that were awarded to the company that allowed for such a significant increase. Regarding water, we were able to grow by 3% in terms of revenue, 7% in terms of EBITDA. We also obtained some improvements in our contracts. And the most important milestone here is that Sacyr started operations at the desalination plant in Sohar that supplies around 220,000 people and a production of more than 2.5 million cubic meters of water coming from desalination plants.Regarding the main contract awards, this division continues to be focused on the Spanish market because services have to be delivered recurrently. We could highlight that, for example, the street cleaning, waste recovery and transportation projects in Santa Cruz de Tenerife. Also, the cleaning of terminals 1 and 2 in El Prat Airport, among many other projects. And little by little, you can see that we are -- this division is going international. They are pretty active in Chile, with the cleaning and waste management and landscaping services in several shopping centers and corporate buildings. The same happens in Peru and Portugal, respectively.Finally, the Industrial division this year is going to be a transition year, revenue has gone down by 27% and EBITDA has come down by 25% this year. Large oil and gas projects were completed. And Melbourne and Oman plants were also completed. There are other projects that were awarded, but are taking some time to start. That's why you can see that these figures are a little bit weaker than the previous ones, but we are certain that next year, they will be recovered, thanks to some new contracts that have been awarded.As for industrial process plants, some plants have been sold recently, they will be within the perimeter of the group's accounts until October. And we should highlight that this year's [ pool ] was 10% less than that of last year, which was EUR 50 per megawatt, last year they were EUR 55 per megawatt.In terms of contracts, in Peru, we have 2 projects, the copper mine in Quellaveco and also the hydroelectric power plants, Moquegua 1 and 3. In Chile, we had 2 wind farms; in Bolivia, a pilot geothermal plant; and in Australia, a new purifying groundwater plant. All these projects will become a reality next year.Mr. Chairman?

[Manuel Manrique Cecilia, Co]

Thank you very much, Carlos. As you have been able to verify, during 2019, Sacyr continues to grow in a profitable and sound manner, just as in the previous quarters, creating positive cash flow and being awarded new contracts in our reference markets. Our business model, which is integrated and is based on a concessional approach stands out from competitors, and it makes it possible to grow by enhancing profitability, reducing our corporate debt with recourse. We shall now be at your disposal to answer any questions from the analysts.

[Operator]

[Operator Instructions] The first question comes from Guillermo Fernández-Gao from Kepler Cheuvreux.

[Guillermo Fernández-Gao Sánchez de Nieva]

I have 2 questions. One question regarding the cash flow we report. I also see that working capital had improved slightly during the quarter. I would like to know -- well, actually has improved during the year. So how much corresponds to the debt with recourse? And I would also like to know about the dividend that you announced during the Capital Markets Day? You said that it was going to go up to EUR 65 million. How much has already been taken all the way up to 9 months?

[Unknown Executive]

Okay. As for working capital, about 20% comes from activities with recourse. This quarter was nearly flat. We -- as you know, the fourth quarter is normally the best, seasonally speaking. As a result, from an operational cash flow perspective, EUR 75 million corresponds to activities with recourse so far. And as for Concessions dividends as at December 30, we received EUR 31 million. Usually, the second part is paid out in the second half, and that is in line with the guidance provided several months ago.

[Operator]

Next question [indiscernible] from CaixaBank BPI.

[Filipe Martins Leite, Research Analyst]

I have 3 questions for you. The first question, with regards to the Pedemontana Highway, could you explain its contribution in terms of sales and EBITDA? And second, in terms of working capital, we can see that during these [ 9 ] months the figures are quite similar to those of last year. And in the last quarter of last year, you were able to recover EUR 70 million. My question is, can we expect a similar evolution of those EUR 70 million in the fourth quarter for this year as well? And the second question in terms of Industrial division. Based on your presentation, you inferred that during the third quarter, the sale of Industrial plants amounted to nearly 0. So if you reported 0 sales during the quarter, what I would like to know whether that is so -- or what your forecast for the next quarter regarding that division is and also for next year?

[Unknown Executive]

Okay. Filipe, let me answer your question. As for the Pedemontana-Veneta highway question, the revenue for concessions that you can see in the [ construction ] activity amounts EUR 275 million in the third quarter. EBITDA is EUR 103 million. Therefore, EBITDA or what corresponds only to construction amounts to EUR 64 million. For working capital for Q4, this is typical of these sectors. So we expect the fourth quarter to be the best as usual. I don't know whether we will reach EUR 70 million, but I believe that we will [indiscernible] reach quite a relevant figure, I can assure that.And as for Sacyr Industrial, it's true that there has been a drop from EUR 58 million to EUR 19 million but it's not 0. Actually, they reported less activity because I have just [indiscernible] for a photovoltaic plant in Picón and that had an impact on the financing of certain projects, slowing down the overall activity. As for the guidance for the closing of this year, we said that this is going to be a transition period for the Industrial division. Next year, we have already talked about the Moquegua plant -- project in Peru and the copper mine project will also be starting. So next year, this division is expected to resume growth.

[Operator]

[Operator Instructions] The next question comes from Guillermo Fernández-Gao.

[Guillermo Fernández-Gao Sánchez de Nieva]

I have one more question that I would like to ask. I would like to know whether you have observed a standstill in the activity due to the current situation in Chile, I'm talking about works related to your concession projects in that country?

[Unknown Executive]

Well, in Chile, we are keeping a close eye on every development that is taking place in the country. We are making sure that we warrant our workers' safety and security, of course. But I would also like to say that we are working normally throughout our assets. It is true that we -- certain -- some specific incidents have been reported, but they have not been very relevant. And we keep on working with workers, collaborating with them and with institutions in order to overcome the situation with the lowest impact possible.

[Operator]

The next question comes from Daniel Gandoy from JB Capital Markets.

[Daniel Gandoy López, Managing Director]

My question is as following. Could you please repeat the figure in terms of equity invested in highway concessions as well as in the water division because I was not able to get that figure quite right?

[Unknown Executive]

Yes, Daniel, let me answer your question. As at September 30, [ EUR 160 million ] as for Sacyr Concesiones and [ EUR 50 million ] as for water concessions and waste plants, EUR 165 million all in all, in terms of equity invested in concession projects.

[Operator]

Next question, Fernando Lafuente from Alantra Equities.

[Fernando Lafuente Seseña, Research Analyst]

I have 2 questions for you. First, after such a good asset track record, I would like to know whether you are considering to sell any other asset in the forthcoming quarters for next year. And as for the debt with recourse and your expectation at year-end, where could that stand at the end of the year? And as for the Panama situation, do you have any news or update as to the arbitration procedure? Is there any relevant information that you could share with us?

[Unknown Executive]

Well, we always state that our assets are really good. They are very good. Therefore, our rotation policy is always present. But with -- there's no relevant information that we can report at this moment in that regard. However, whenever we are planning to carry out any transaction, we inform about that well in advance. As for the debt with recourse, I said, and now I'm saying that we are going to go -- that we will be below [ 1,000 ]. And we believe that it will be quite a significant drop. And as regarding Panama, situation, the hearing in the arbitration procedure has already been finished. All the conclusions of both parties have already been submitted. Our -- the feeling of our lawyers is quite positive as for the final outcome. But we can't say for sure what will happen because we will have to wait for the arbitration award, which is expected to be issued in June, July 2020.

[Operator]

Thank you very much. There are no further questions in today's conference.

[Manuel Manrique Cecilia, Co]

Thank you for attending this presentation on results, and we look forward to talking to you again at the next session when we will be presenting 2019 full results. Thank you very much, and have a good afternoon.[Statements in English on this transcript were spoken by an interpreter present on the live call.]