Sacyr, S.A. (SCYR) Earnings Call Transcript

Good afternoon. I'm Manuel Manrique, chairman and CEO of Sacyr. As usual, I'm being joined at this presentation by Carlos Mijangos, the company's CFO. Thank you all, analysts, media representatives and investors for attending Sacyr's webcast presentation for the first half of 2020. First off, and as I already did in May, I would like to express my most heartfelt condolences to the families and loved ones of those who passed away due to coronavirus over the past weeks. This pandemic has already taken a toll on thousands of lives, which is actually the greatest treasure we have and that we must look after and safeguard amongst all of us. At Sacyr, we are doing our best to look after the people we serve in 30 countries and also looking after our workers, taking all the necessary safety measures within our reach. We are gradually going back to normal by taking the highest precautions to safeguard the health of our workers, collaborators and clients. From a corporate perspective, and thanks to the investment in digitalization carried out over the past years, we have been able to overcome the impact of COVID-19, but [ we make ] our activity nonstop to do remote work whenever possible, therefore safeguarding the health of our workers and their families. We have also provided our construction and service workers with all the necessary materials in order to carry out their work safely. From a social perspective, we keep on collaborating as far as we can and we are required by donating health material by -- reinforcing health and service allocation by splitting out the construction across the group which have already progressed by taking out additional services, by [ installing ] disinfection equipment and by implementing contingency plans to guarantee basic supplies and also by providing assistance to users and clients. For this moment, I would like to thank the huge effort made by each and every employee at Sacyr because each and every one of them understands the difficult circumstances, constantly keeping up with the good work, pursuing ambitious goals and showing an exemplary performance. As for the key financial and operational aspects, I would like to mention, for the first half of the year, the strength and promptness of our transactions. With this presentation, we are reporting profit growth for 10 consecutive quarters, thanks mainly to the strategic approach of our business plan. I would like to highlight, first of all, that we are obtained a very strong operating result. Sacyr continues to grow in terms of profitability despite of the pandemic, showcased by our growth in EBITDA that went up by 10%, reaching EUR 348 million with an EBITDA margin that also went up by 100 basis points vis-á-vis the first half of 2019, reaching 16.7%, whereas EBIT stood at EUR 243 million, therefore growing by 7%. At the bottom of the slide, you can see the most representative figures for each business unit. I would also like to highlight our regular dividend payout policy. We have already granted 1 new share for every 46 shares, which accounted EUR 0.056 per share. More than 94% of shareholders agreed to receive the shares showing their confidence in our security. We decided to put off the payment of the final dividend of 2019 [ postponed until ] October. Also, Sacyr is simplifying its organizational chart by integrating 2 EPC areas, Sacyr Engineering and Infrastructure and Sacyr Industrial. So this restructuring would certainly provide us with the synergies we need from all of the group's 3 divisions. The group decided to allocate provisions in March amounting to EUR 30 million, taking a prudent approach given the current uncertain scenario. With regards to Repsol, also taking a prudent approach, the company has adjusted its book value an additional euro coming from EUR 9.66 in the first quarter down to EUR 8.66 per share at the end of the first half of 2020. We also continue to manage our stake in Repsol actively. In March, we already told you that we restructured derivatives of 25.4 million shares. And finally, I would also like to mention finally, just as important, the drop in Repsol price on the stock exchange has no impact whatsoever as we have underscored several times on the group's treasury. In terms of liquidity, in the post-pandemic period, over EUR 300 million lines of credit have been [ helpful ] with the group's ordinary treasury. After the closing of the period in early July, the group decided to [ have a ] derivative of 10 million shares, expiring within 1 to 2 years. That shows full trust on the company's share and its future evolution. I would also like to mention that, at Sacyr today, sustainability is one of our backbone on strategic goals. Sacyr has a commitment, and in line with its commitment, [ Sacyr has ] a Sustainability and Corporate Governance committee that reports to the Board of Directors as well as a sustainability committee whose goal is to reinforce the corporate governance bodies in trying to achieve a more sustainable future. We have also given an important drive to the ethical, transparent and accountable management that may enable us to address the planet sustainability challenges, thanks to our ambitious environmental policies, which are also concerned with corporate, social responsibility, with participation in the carbon disclosure project also the equity and social equality plan, contributing over EUR 600 million in 2019 among other measures. As for policies in July 2020, we approved 7 corporate policies, and we continue to make steady progress in terms of sustainability. And we are, therefore, intensifying collaboration with all stakeholders with a biodiversity policy, a water policy, another policy against climate change, information security, human rights policies, others regarding occupational health and safety and energy quality. As for other financial prudent measures that we also announced and I would like to underscore, let me remind you that the Board of Directors will propose in autumn, in view of the general situation, the payment of a final dividend on 2019 profit by issuing a new scrip dividend. Likewise and in line with shareholders' efforts, Sacyr's steering committee has also put on hold 20% of their annual available compensation until a new assessment is carried out of the situation in autumn. I would also like to announce that the Board of Directors of Sacyr has decided [ under its ] strategy of keep on advancing in its concession approach, profile, [ a solid ] business model to transfer all of Sacyr, [ our ] activity, that Sacyr has set in motion, the desalination projects, water treatment, water [ integrate ] cycle through our work divisions, Sacyr concessions as well as our waste treatment plants, which will not be under administrative concession. Coupled with -- we already create renewable energy storage commercial unit, all these green businesses that foster circular economy and for which Sacyr has top-notch technology worldwide. We will, therefore, have a new driver for long-term sustainable growth in our group. As said, we will have a stronger concession profile. Now Carlos Mijangos will provide you with more details as for the group's result for each individual business units in the holding.

Good afternoon, everybody. Well, as for the group's operational performance and key financials, we were able to report more than EUR 2 billion, EUR 2.079 billion, up 4% reaching EUR 348 million in EBITDA, up 10% with an EBITDA margin which was almost 16% from some of the plants. EBIT in the amount of EUR 243 million, up 7% and net profit of EUR 70 million which, compared to the previous period, went down by nearly 13%. As for the operational cash flow, which shows the business policy, we were able to report EUR 219 million, up 20% compared to the first half of 2019. As for the backlog, there are EUR 39.445 billion, down 8% compared to last year. But we should bear in mind that last year, we did some work with the Guadalmedina road, also some other energy plants. Let's just say we did some asset turnover that we target in this drop in backlog. We are talking, therefore, about an EBITDA of 19% in this case. Regarding the share by activity, you can see that the #1 revenue-generating unit was Engineering and Infrastructure, the same as concessions and services with 22% and 24%, respectively. As for EBITDA, concessions contributed 45%; Engineering and Infrastructure, 41%; and services, 14%. As for the backlog, more than 2/3 corresponds to long-term concessions; 17% to Engineering and Infrastructure; and 13% corresponds to services. As for EBITDA by type of asset, if you take a look at each of the 3 of the group's divisions, concession assets under each unit, EUR 94 million corresponds to the asset in Italy that is registered under Engineering and Infrastructure. EUR 158 million to concessions and then EUR 15 million in the case of services. We are talking about 77% of the group's gross EBITDA or EUR 267 million all in all. This is quite a sound and steady figure. We should bear in mind that the sale of the asset rotation last year means that we have been able to service 80% of its contribution on a like-for-like basis. More than 70% of the backlog corresponds to concessions, 20% to Engineering and Infrastructure and 13% to services. You can see that in Europe, we had some significant awards in Portugal in Azores, the same as several awards in Spain like a high-speed line, a photovoltaic plant, different water and cleaning contracts, several other contracts for the maintenance of green spaces and service contracts in Spain. As for other countries, we've had some awards in the United States, US59 in Texas. And in Latin America, we should mention the expansion of the [ Camino Nogales ] road expansion in Chile or a wind farm in Ckani or several other road conservation contracts in Southern Chile in the province of Talca. Regarding net debt evolution, in December, we started with EUR 4.315 billion with an operating cash flow of EUR 219 million. Here, we shall highlight a positive working capital amount or inflow of [ EUR 105 million ], together with other operating adjustments to financial assets reaching EUR 219 million all in all. We should mention that we were able to [ pay ] EUR 55 million with our concessions with working capital in amount of [ EUR 30 million ] during the quarter. Then for the financial results, or finally, our net investment. In this case, we continue to invest greatly. The group concessions nearly EUR 600 million, out of which EUR 110 million corresponds to equity allocated to concessions, EUR 40 million to construction and equipment mainly in the United States and Colombia, and EUR 20 million corresponds to services. As for divestments, EUR 179 million, which is the divestment of [ Guadalcesa ], we should say that the [ second ] 47.5% was signed in June. We paid EUR 70 million, and we postponed or deferred another payment that is due in the third quarter and that will be recognized in the financial statements for Q3. And then we also have some other foreign exchange adjustments. So we reached EUR 4.528 billion in net debt. If we now focus on the recourse debt, our main goal is to reduce this debt progressively. This quarter, we're able to reduce this debt by 52% from EUR 893 million down to EUR 841 million due to concession of contracts that we are now carrying out and which are now in construction phase. Other highlights, we could mention derivatives on treasury shares. We have a call option in favor, and we sold some put options with a strike price of EUR 1.80 per share that can be adjusted given the coverage period, maturing with a 1-year term. We are talking about EUR 5 million, also maturing 2 terms, and they are both protected with a call option at EUR 1.40. Therefore the company continues to show full trust in the security and the future evolution and performance. As for the company's stake in Repsol from a management perspective, we restructured derivatives by 25.4 million shares that were PUT shares, with a PUT spread in order to benefit in the future from a potential revaluation of the share from EUR 8.5 shares -- per share. And we have also hedged financial risk in the case of significant share price drops through the [ impending reallocated ] structures as we have reported in our financial statements. With regards to performance by business area. In the case of concessions, which is the group's driving engine, revenue went up by 30%; concessional revenue grew by 10%; the construction revenue, 16%. This was mainly due to an operational growth of most assets and the gradual commissioning of different tranches under different projects we will describe shortly. As for construction revenue, we keep a very high rate of activity as a result of the projects that are now being executed in Chile, Mexico, Colombia or Italy. EBITDA grew by 5%. But on a like-for-like basis, growth should have been 9% if we do not consider Guadalcesa's contribution. Backlog reached nearly EUR 28 billion, 45 assets. And we have invested nearly EUR 1 million already in the first half of 2020. We invested EUR 109 million, mainly in June when there was a very high rate of activity, fulfilling projects and also as a result of our return to normality where we have to keep on fulfilling the different works and projects. A3 Naples-Salerno motorway has been provisionally awarded to the company. This motorway runs from Naples to the multi coast. 56 kilometers all in all, with an average daily traffic of around 170,000 vehicles. EUR 800 million is the overall investment, and we hope to be able to formalize this agreement at the end of summer. We have also been given a Uruguay railway funding award. This is a project with a total investment in excess of EUR 1.07 million (sic) [ $1.07 million ]. Concessions was very active during this quarter. We completed the Pirámides-Tulancingo-Pachuca road in Mexico. This was the first infrastructure project finished in the country with an investment of EUR 200 million all in all. We also started the second tranche of the Pedemontana Veneta highway in Italy, with 12 kilometers of the main axles having been completed and the degree of progress of the project being at 78%. After the closing of this period, we also completed the concession of the Hospital de Tláhuac in Mexico [Audio Gap] euros over a 25-year concession term. In Colombia, 3 different projects were initiated. 84 kilometers for the Puerta de Hierro-Cruz del Viso highway in Colombia, that accounts for 76% of the overall projects. We foresee to complete this project by year-end. As for the Autopista al Mar 1 in Colombia, we have already completed 44% of the total length with a high degree of execution having been reached at 73%. And in the forthcoming weeks, we hope we can start with the Occidente tunnel that will run along 5 kilometers. Well, as for concession this quarter was very active. We completed the Piramides road, Pachuca Road in Mexico. This was the first infrastructure and concessions project in the country with over EUR 200 million backlog. We also opened the second tranche of the Pedemontana Veneta road after the one that was opened last year, 112 kilometers all in all and the execution is already at [ 80% ] of completion. We also completed Tláhuac hospital work which is about to be commissioned, which accounts for more than EUR 1.1 billion in backlog over the 25 concession period. In Colombia, we opened 3 tranches and 3 different projects. First of all, 84 kilometers that accounts for 42% of the length of del Viso road, which accounts for 78% of the project, and this is expected to be completed by the end of this year. As for Medellin through the Antioquia road, we opened 77 tranche already that accounts for 44% of the total length, but which has already reached 73% completion. We expect that in the forthcoming weeks, we will start with the Occidente tunnel, work will be started. In July, we also commissioned 17 kilometers of the Rumichaca Pasto highway in Colombia that accounts for 27% of the total length of the highway. The execution of this project is currently about 61% of completion. Therefore, the truth is that concessions are delivering tangible results. Okay. The breakdown by country, here you can see the EUR 500 million, you can see revenue and EBITDA broken down by unit. And finally the holding, which includes expenses together with bids. I should also mention that for distributions and dividends, we distributed EUR 51 million for the first half, surpassing the amount in 2019. As for financing, we closed the last financing agreement in Colombia, the Pamplona-Cúcuta road for more than EUR 474 million with companies such as Scotiabank, JPMorgan and Societe Generale and [ BDM ] participating in this financing closure for [ back half ] along all the projects that we have been performing around the globe. And as for asset turnover, 95% of the Guadalmedina road, with EUR 455 million including debt. This is the backlog broken down by 10 countries: Italy, Spain, Portugal and [indiscernible] are the main countries. [indiscernible] Latin America [indiscernible] Chile, Uruguay, Paraguay, Peru, Colombia and Mexico. With regards to Engineering and Infrastructure, revenue went up by 4% reaching more than EUR 1.2 billion, with EBITDA being EUR 145 million growing by 21%. EBITDA went from 10.2% up to 11.9%. As we mentioned before, here, we have included the impact of the Pedemontana financing contract. We are talking about an EBITDA of EUR 94 million with revenue in the amount of 2019. This shows that the division reported nearly EUR 1 billion with a very strong margin of 5.1%. As I've mentioned before, we got it out of strategic restructuring but merging or integrating both divisions in the group in order to be future synergies. And as usual, we have been focusing on profitability rather than on volume despite the pandemic, which is now striking the world all around. Our geographical diversity and our capacity to implement projects have remained reasonably normal despite the COVID impact. We had to stop activity for 2 or 3 weeks, but now we see that things are going back to normal in reasonable terms. And in case of the backlog, we are talking about 15 new projects for 34 months of activity. Nearly 50% of this corresponds to the division of some big concessions with the main international awards being the US59 in Texas, reporting EUR 128 million; the extension of the Camino Nogales-Puchuncavi in Chile with nearly EUR 94 million, or the wind farm project in Chile. In Spain, we also had several awards, for example, in the amount of EUR 154 million. These are real estate developments in Spain, among other projects. Regarding services, revenue went up to EUR 557 million, that is to say, up 1% compared to the previous period. EBITDA in nominal terms went down by 8%. But if we take into account the effect of the contracts, the water contracts in Portugal, we had -- EBITDA would have grown up slightly. In the case of the environment, it went up very markedly. Multiservices went down by EUR 5 million, approximately, mainly due to the shutdown of some of the [ Casaforte ] restoration plants and some other office projects that we had to stop due to the pandemic. But as you can see, all the same, the margin was quite steady with a very small impact all in all. Main awards. We have more than 159 new projects in 7 countries. In Spain, for example, the cleaning, containment contracts, other contracts in the amount of EUR 20 million, several cleaning contracts all in all. We also have several buildings in Fuenlabrada. We have been awarded contracts for cleaning services. Yesterday, 4 Chilean companies provided us awards for water treatment for more than EUR 500 million and this contract that will be handled by the water division will afterwards be integrated into Sacyr concessions, as the Chairman pointed out before.

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

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

I have 3 quick questions. The first question is about the acquisitions in Chile, the water cycle plant. I would like to know the cost of the acquisition, how much that could contribute to your EBITDA and when do you think that, that contribution will take place. The second question is concerned with your outlook for the construction division, taking into account that we have experienced a difficult quarter. And you were able to keep up the revenue, especially in the case of Pedemontana. So I would like to know how do you expect the second half of the year to be [ both ] in terms of revenue and also in terms of EBITDA margins which, of course, have been impacted slightly during this quarter. Do you think that, that can be reversed in the second half? And another question concerning the corporate debt that continues to go down. So which is your best estimate up to date, the [ full year ] and taking into account that you still have to include the recurring cash flow from the businesses, and you have to complete the Guadalcesa project.

Well, as for the first question, Fernando, well, this was a transaction amount of EUR 32 million [ based on several integrate ] cycles. One of these contracts will be for life, generating an EBITDA in the amount of EUR 20 million. As for the second question, it's difficult to tell because of the -- well, the new [ updates ] of COVID we are witnessing. If the circumstances remain unaltered, we should expect to keep on performing as in the first half. As for the corporate debt, that's our obsession, and it will continue to go down. Now providing a number or a figure, well, it depends, of course, on the evolution of the company's treasury. I don't know whether we would be able to do that in the next half, but we will continue to cut off the corporate debt. Thank you. And for the question concerning Chile, EUR 25 million corresponds to sales. And EBITDA corresponds to EUR 5 million.

[Operator Instructions] The next question is by Victor Acitores from Societe Generale.