Sacyr SA

MAD:SCYR

Earnings Call Transcript 2020-Q3

[Manuel Manrique Cecilia, Co]

Good morning. I'm Manuel Manrique, Chief Executive Officer and Chairman for Sacyr. I'm accompanied in this presentation as usual by Mr. Carlos Mijangos, the company's CFO. Thank you for attending this presentation of results, analysts, investors and media representatives. This is Sacyr's results presentation for the third quarter of 2020. As I did in prior presentations, I would like to express my heartfelt condolences to the families who lost some of their loved ones as a result of COVID-19. We hope that through current health and protection measures, we can soon fight successfully against the virus to protect people's lives. We are doing everything within our reach to protect the life of those people working for us in 30 countries and also the health of all of our employees by taking all the measures within our reach. Our priority in the tough context is to ensure the health and safety of all of our employees, collaborators and customers.First of all, I would like to highlight the very strong resilience shown by our main areas of activity vis-à-vis the economic consequences triggered by COVID-19. Thanks to the effort of our professionals and the business model of Sacyr that is more and more focused on concession activities, Sacyr continues to grow, taking a prudent approach in this tough international context that we are experiencing. We have also set up safe work environment to protect all of our employees working in the field as well as in our offices. And we have devoted ourselves to different programs and social actions in order to address the needs of those places where we were called for or where we identified that our help could be useful.At these current times, Sacyr has a treasury position that is highly positive in order to successfully address any subsequent stages concerning its investment plans. As for the key and financials during this past quarter, I would like to point out the strength of our operations and business areas. After this report, we have been reporting continuous growth in profit for 11 months running, thanks to the strategic focus on our strategic plan.No doubt, one of the most relevant highlights during this quarter was the decision of the International Chamber of Commerce as to the issue concerning the GUPC consortium due to the overrun costs concerning the Panama Canal Project concerning basalt, concrete formula, laboratories and geological faults. I would also like to mention that it was quite a surprise for us to receive this award decision, quite an unpleasant piece of news because actually we counted on the prior decision issued by the Dispute Adjudication Board, or the DAB, that had actually allowed us to take our 50% of our profit of the project. The DAB considered the request made by the Panama Canal Authority, despite the fact that the award has been successfully granted to us in an overwhelming manner. We assume our error by considering that the International Criminal Court was going to keep the initial criteria. In line with our financial and accounting prudent approach, we have decided to allocate provisions in the amount of EUR 85 million in 2020 in order to offset this impact. Once the award becomes firm, Sacyr will be able to meet the consequences with a positive cash position. We are talking about returning money that we have already collected, not because we were penalized due to any of our actions.Looking forward, and in the worst-case scenario, we -- or should we have to return the remaining amount of money that we collected as -- or the payment of legal costs or some details concerning completion of course. All in all, that would account for -- between EUR 40 million to EUR 50 million in total. Out of this amount, we estimate -- and these estimates, as you may imagine, are sometimes difficult to calculate, but less than that 50% would actually have an impact on 2021 and the remaining impact will be distributed in the next 2, 3 or[Audio Gap] so the drop occurred on the stock exchange over the past month did not have any impact on our liquidity position, thanks, as we mentioned before, due to our derivatives agreements formalized. Over the past weeks, we should also mention 2 other milestones in order to provide facts about our future strategy. First of all, divestment in the construction activities performed in Africa. We will be reducing risks from -- the amount of such a transaction totaled EUR 33 million. On the other hand, the attainment of our first concession contract in the United States is another milestone because it will provide us with significant revenue streams coming from that country, showcasing our expertise to keep on growing in the #1 concession market in the world. So Sacyr's operational soundness is unchallengeable. Despite this year's current scenario, EBITDA has increased by 7.2% at EUR 5.2 billion, with profitability growing by 3.0 basis points, up to 16.5%, which is quite a significant figure and EBIT reaching EUR 386 million -- billion, 8.2% up the previous quarter.And before I hand over to Mr. Carlos Mijangos, I would like to give you some color at our approach to sustainability. The Board of Directors approved over this quarter a new framework policy on sustainability, securing that all of our activities and Sacyr's step will promote creating long-term value for all of our stakeholders, favoring the fulfillment of our sustainable development goals approach. So this bet on sustainability will deserve a separate chapter in the 2021-2025 strategy plan of the company. Next, Mr. Carlos Mijangos will provide you for the details and concrete tangible results as to the gross results and each of the holdings divisions.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Thank you very much, Mr. Chairman. Okay. So we will walk you through the main -- the key financials. Revenue went up to EUR 3.2 million, which accounts for 6% increase vis-à-vis 2019. EBITDA was EUR 527 million, which accounts for a 7% increase. 78% of our EBITDA is already related to concessional assets with a margin of 6.7%. EBIT went up to EUR 386 million, with net profit of EUR 47 million. So we should also highlight operational cash flow, EUR 360 million. And we see little by little how the new concession projects are coming into operational phase. As for the backlog, we are talking about EUR 39 billion with a slight decrease vis-à-vis last year due to the result of lower increase of contracts last year and also due to the asset rotation.As for the -- on a like-for-like basis and without taking into account the rotated assets from 2019, revenue went up by 10% and EBITDA by 15%, respectively. We should highlight that we rotated different assets like, for example, in Portugal, Guadalmedina, and also in Portugal, the wind farms. As for the contribution by activity, taking into account revenue, all in all, the division that contributed the most was Engineering and Infrastructure with 55%; followed by Concessions, 24%; and Services with 21%, respectively. As for the EBITDA, Concessions contributed 49%; Engineering and Infrastructure, 39%; and Services, 12%. As for the backlog, we're talking about nearly 80% coming from Concessions; 16% in Engineering and Infrastructure; and 7% coming from Services. As we mentioned before, EBITDA, in the case of Concession assets accounts for 78%, reaching EUR 411 million distributed into 3 units or divisions. Taking into account the Pedemontana Highway, EUR 263 million corresponds to Concessions and EUR 11 million corresponds to the Services division. This EBITDA was also adjusted due to the rotated assets that we mentioned before that were not considered within the perimeter. As for the backlog of EUR 39 billion in the United States, we had 2 major awards. One, the Texas U.S. 59 highway. And also the first concession at University of Idaho. In the case of Latin America, we completed the acquisition of the water supply plants in Chile, and we were also awarded a second track of the Jorge Chavez International Airport in Lima and also different wind farms in Chile and other projects in Brazil. In Europe, we have been provisionally awarded the A3 highway project in Italy and different offices and other developments in Spain, together with many other significant service-related contracts, service areas such as Cafestore or home assistance services and conservation projects concerning green areas. Regarding debt evolution, the group increased debt from EUR 4.3 billion to EUR 4.7 billion. This is a net figure, mainly due to a strong investment approach in Concessions. As for operational flow, out of EUR 360 million, we should highlight the increase or the improvement of EUR 200 million in working capital. As for investment, we've invested nearly EUR 900 million in assets over the past 9 months, and we divested EUR 220 million, mainly due or coming from the closing of the Guadalcesa project. We were able to collect that amount in the past quarter. As for recourse net debt, it went from EUR 840 million to EUR 870 million. But we should consider that with our investment base, we invested over EUR 160 million in Concessions equity, EUR 50 million in the case Services equity, taking into account the water agreements in Chile and the acquisition of equipment. As for Concessions, EUR 50 million coming from equipment and machinery. We work with our property equipment in other countries such as Colombia and the United States. I would also like to highlight that as for financial debt, and you can see this on the balance sheet, we're able to improve figures because we were able to reduce short-term debt by EUR 200 million, and we have extended that debt in the long run. Now talking about business areas, starting now with Concessions, which is Sacyr's driving engine. The revenue went up to EUR 850 million, accounting for 21% more. Concessions profit amount to EUR 494 million, even though, and as we anticipated in the prior -- in the presentation result of the first half, the Water segment will now be integrated into the Sacyr Concessions division. Therefore, we're talking about an effect of EUR 96 million on the P&L account. EBITDA experienced a 12% increase, 14% comes from Water. EBITDA margin came down slightly due to the consolidation of this quarter related assets. As for Concession assets, they went up by 34%. We're talking about Concession assets only. And you can see how the opening of different sections, especially in Colombia, Italy and also the completion of 2 projects in Mexico are contributing into the activities results. We also continue to invest in the concession [indiscernible] [ highway ] Pamplona-Cúcuta project, [ Tláhuac ] in Mexico, et cetera. So all in all, EBITDA went up by 12%. On a like-for-like basis, also, we would have been able to obtain the same effect of this growth.Talking about the backlog now with EUR 30 billion all in all. Here, we should take into account the integration of Water accounted for more than EUR 1.5 billion. EUR 1.124 billion was invested, taking into account Infrastructure and Concessions; EUR 1.030 billion for that corresponds to Infrastructure; EUR 94 million corresponds to equity in Water.As of the relevant awards on a provisional basis, we should mention the A3 highway in Southern Italy. We are waiting to finalize the contract formalization and also the concession of the Idaho University as well as the acquisition of other water concessions coming from Chile.And finally, we were awarded also a funding award in Uruguay. We are talking about a difficult funding that we're able to obtain in the amount of EUR 1 billion. While there are many contracts in the pipeline right now, we were able to complete the Pirámides-Pachuca project in Mexico, running along 96 kilometers. It's the first project that we completed in the country with a portfolio of more than EUR 200 million. We also commissioned the Pedemontana-Veneta highway in Italy with an execution or degree of completeness of about 98%. And we have managed to complete other subsequent concessions. We also completed the Tláhuac Hospital project. This hospital will be commissioned quickly. And we have also executed more than 85% of this project with 42% of completion of the relevant tracks. As for the Mar 1 highway, which goes from Medellín to the Caribbean region, 44% of the length of that project was already completed, and we are now working -- or we have completed over 76% of the project all in all. As for Rumichaca-Pasto, we also opened a 17-kilometer trench. This is the road connecting the area between Southern Colombia and the border with Ecuador, and this accounts for 27% of completion.If we now talk about the breakdown by country, you can see revenues mainly concentrated in Spain, Colombia and Chile. And you can also see the contribution made by the Water division within Sacyr Concessions. We should also highlight, in terms of dividend, we said in 2019, we collected EUR 50 million. All in all, we have been able to collect EUR 62 million up to now. And as for financing, there was one particular financing of EUR 500 million, which was the last project carried out in Colombia. And then there were 2 other financial closures, one in the Arica project in Chile, and the refinancing A5 motorway in Chile. And there, we were able to improve the financing terms and conditions. And finally, as for asset rotation, we're able to sell 95% of the motorway you see on screen. As for the rest of the backlog, we should mention that there was some disconsolidation of EUR 1.5 billion with regards to Guadalcesa. And the main countries where we have been awarded projects include the United States, Mexico or Peru or Chile. And in the case of Southern Europe, Spain, Italy, Portugal and the U.K., respectively. Also, we have other water-related projects in Australia. As for the breakdown of Engineering and Infrastructure, revenue in this case went up to EUR 1.905 billion, accounting for a growth of 9%. EBITDA of EUR 209 million, up 11%, with a margin of 11%. Here, we have to consider the financial impact of the Pedemontana project that accounted for EUR 328 million in profit. Excluding this effect, the turnover would be EUR 1.577 billion, and EBITDA of [ high EUR 72 million ], with a margin of 4.6%. We should also highlight that this EBITDA margin that comes from the construction division, there was an EUR 8 million impact due to the restructuring carried out at Sacyr Industrial over the summer period.As for the main awards, as we mentioned before, the second landing track of the Jorge Chavez Airport was completed. Also another project in Chile, [indiscernible] in Spain accounting for EUR 300 million in buildings and offices and developments for the main developers of this country as well as many other sections or projects.As for Services, revenue reached EUR 745 million, with down 12%. However, if we do not take into account the transfer of Water to Sacyr Concessions, we can say that the figures remained stable compared to previous quarters with the [ Services ] EBITDA went up to EUR 65 million against [ EUR 484 million ] last year. Also, by integrating the Water into the Sacyr Concessions, figures remain the same with a 9% robust margin.As for revenue, it makes a positive contribution. Here we are talking about the water treatment plant that was completed last year and several waste collection projects in Tenerife as well as in the Community of Madrid. As for Multiservices, we continue to go in terms of conservation projects in different countries, in Chile and Peru and also some facility management projects are well in progress. The main awards of this unit have to do with waste collection in Collado Villalba. Also, containization (sic) [ containing ] projects in the Community of Madrid and different conservation agreements reached in Chile as well as in Spain. 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 open to any questions that the analysts may have at this point.

[Operator]

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

[Fernando Lafuente Seseña, Research Analyst]

I have a question about your Concessions business. I would like to know your opinion about potential awards or the potential pipeline of awards apart from the projects awarded in the United States. I'm talking about other projects in the pipeline concerning Pedemontana, for example. So what's your opinion with regards to this top line? Do you think that any tangible announcements can be made as to potential awards in the medium and short term?

[Manuel Manrique Cecilia, Co]

Well, we have participated in significant tenders throughout this year. We are waiting for the award of 2 motorways in Italy as well as 1 project in [indiscernible] in Chile. So we have high expectations about being awarded all 3 projects or tenders.

[Unknown Executive]

Well, apparently, there are no further questions via telephone. So we now continue with the questions coming in through webcast.The first question is addressed by Filipe Leite from CaixaBank. He has 5 questions. The first question is about working capital. He would like further details as to recourse and nonrecourse working capital. The second question is concerned with construction and the EBITDA margin of construction for Pedemontana, standing 4.6% in the first 9 months of the year, but it reached 3.5% in the past quarter. So he's asking -- would we expect this margin to be below 4.6% by year-end? The second question is concerned with the strategy plan. When you are expecting to submit such a plan for dividends coming from the Concession division. And he would like to know with the evolution of foreign exchange rates or the impact of COVID-19 may have had an impact on the equity invested this year or that is going to be invested next year. The fifth question is concerned with Repsol. Sand derivatives might be concluded next year. So what strategy do you have in mind? Are you going to terminate those derivatives? Or are you going to keep the maturity terms for such agreements? And question #6 is concerned with the Panama issue. He would like to know whether the EUR 50 million or EUR 60 million in risk are -- that one could foresee for the future are directly concerned with Sacyr or with GUPC consortium?

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Okay. Regarding the question on working capital. Out of those positive EUR 200 million, we were able to report an improvement of EUR 45 million in the first quarter. We're able to recover EUR 35 million in the second and third quarter, respectively, with a very small impact of EUR 10 million. So for operational cash flow coming from Concessions accounts for EUR 85 million now. As for the rest of the business areas, they are delivering cash very soundly. It's true that Sacyr Concessions came down by 4.6%. But as I mentioned during my presentation, during this quarter, there was expenditure of EUR 8 million due to the restructuring of staff at Sacyr Industrial. With that effect, we would be talking about a margin slightly above 5%.As for the question on the strategic plan, the Chairman says that in the first quarter of 2021, we will provide you with the guidelines about this plan and the impact it will have on the growth. The next question is concerned with Concessions dividend policy and equity. Our outlook for the year has not varied substantially. We're talking about EUR 170 million, EUR 180 million equity and dividends accounting for EUR 90 million or EUR 100 million. Going back to the question concerning Repsol. As maturities occur, we, the Board of Directors, will take the decisions. And as for Panama, the amount that we reported are directly concerned with Sacyr only.

[Unknown Executive]

The next question comes from [ Pierre Rosenberg ], an investor. He would like to know about the reasons underlying the drop in EBITDA in the Concessions division.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Well, this was due to the integration of the Water division into Sacyr Concessions. They have lower EBITDA margin because of this combination of Infrastructure and Water that caused that drop. Actually, Engineering and Infrastructure remain at 63%, as before, with no significant impact.

[Unknown Executive]

We also have some other questions coming from other investors concerning -- well, we have 3 main questions. The first question is a follow in. As you mentioned, the highest impact on cash due to the Panama project would be between EUR 40 million to EUR 50 million. The second question is, are you planning to have another Investors Day on Concessions in order to give more visibility of this division to the market? And the third question is a follow in. Due to the provisions allocated to the Panama Canal, are you considering a capital increase for the group?

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Well, thank you for your questions. In answering the first question, yes. In the worst-case scenario, that would be the maximum amount, between EUR 40 million and EUR 50 million, out of which we believe that less than 50% would be posted in 2021 and the remaining amount in the next 3 or 4 years. So we'd know of the impact on the growth would be quite limited. As for organizing another Investors Day, yes, we hope to hold such an event next year. Over the past months, many Concession assets are being commissioned, and we have also been affected by the A3 award in Italy and the Idaho University project in the United States. As for Sacyr's requirements to go for a capital increase, the answer is no, we don't need such a capital increase.

[Unknown Executive]

And one final question from [ Victoria Care ], who is asking about the recourse debt increase. And second question is related to the following, why are we buying construction equipment rather than working such equipment for construction purposes?

[Manuel Manrique Cecilia, Co]

We true -- well, with regards to the first question, the Construction division and Concessions division require investments in order to carry out their activities. We purchase equipment or machinery, as I mentioned before, mainly in Colombia and the United States. Because in those countries, subcontractors do not have capacity in order to render the service that we need in large works as the ones we perform, which are also quite complex. Other competitors who subcontracted equipment found themselves in trouble in those markets at some point down the road. We invested nearly EUR 90 million, that's concerning your second question, even though we collected dividends on the [indiscernible] project. In the case of Concessions, dividends led to that small increase in the recourse net debt figure.

[Unknown Executive]

Next question is by [indiscernible]. One question is more technically -- more technical. So we will get back you after this conference call.One question is about the award of the concession agreement in the United States, and he wants to know the investments that Sacyr would have to make in terms of equity.

[Carlos Mijangos Gorozarri, Chief Financial Officer]

Well, in terms of equity, we are talking about between EUR 12 million to EUR 14 million in investment. This is a small amount because this project is highly leveraged because it's a certain payment and the energy services that we have to provide are relatively easy to deliver.

[Unknown Executive]

There are no further questions coming in via webcast.

[Manuel Manrique Cecilia, Co]

If there are no further questions, I would like to reiterate my best wishes to all of you to keep healthy and safe. And we shall meet again at the next annual presentation of results. 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.]