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

Good morning. I'm Manuel Manrique, Chairman and Chief Executive Officer of Sacyr. Joining me today in this results presentation as usual by Mr. Carlos Mijangos, the company's CFO. Thank you, dear analysts, media representatives, and investors for attending this 2020 financial results presentation. As in previous presentations, I would like to express my heartfelt condolences to the families of those who lost their loved ones as a result of COVID-19. We hope that the better results that have been reported over the past weeks continue into the future and that thanks to everybody's responsible collaboration we can control the virus and go back to normality, both families and businesses. At Sacyr we are doing our best in order to look after the people we serve in over 20 countries as well as our employees by taking all necessary safety measures within our reach. Our #1 priority in this tough scenario is to secure the health of our employees, collaborators and clients. First off, I would like to walk you through very quickly the targets and the achievements within the scope of our strategic plan 2015-2020. Based on last year's results, we consider the cycle to have been completed. As part of this strategic plan, we were able to fivefold the company's EBITDA from our concession activities by focusing on such activities. Operating profit and productivity was twofold, reaching 16%, which is among the best in our sector in Spain and Europe, thanks to the right selection of our activities. We also eliminated more than 4 billion corporate recourse debt, and we invested in non-recourse debt. We also multiplied by 13x our operating cash flow, which is a good sign of the good health of our business. We also set a remuneration between 4% and 5% for shareholders. We also increased our work in our core markets in Latin America, therefore, becoming an indispensable player in that market, and we also forayed into the U.S. market across all of our business areas. We covered risks associated to our stake in Repsol in order to reinforce our recurrent business. We also transformed our construction division in order to gain flexibility by focusing on our concession contracts and integrating engineering capability. And as you very well know, at the beginning of that cycle, we left the real estate business and the development risk. Therefore, we closed a cycle successfully. We transformed the company. And now we are in good standard in order to face a new growth stage that with a prudent and profitable approach with an excellent position in business areas and in the strategic markets where we want to operate by betting on innovation, talent and long-term sustainability. After this cycle that was closed successfully, we outlined a new clear-cut and straightforward action plan for the next years. We will deepen the concession nature of all of our activities by reinforcing day after day long-term stability of our divisions by focusing on new stable markets, where we believe that we have more and better opportunities to develop the full of our potential. This preferential positional in concessional assets with low demand risk will consolidate our financial softness as it has been the case so far. Based on these strategic plan just like in the prior one, we will seek balance between recourse debt reduction and generation of values through new concessions. Now to provide you with further details as part of this 2021-2025 strategy plan, we will focus on 3 major business areas, concessions with margins that despite of some young projects where we intend to obtain more than 70%. We will be awarded between 2 and 3 projects per year with dividend distribution coming from the concession companies of more than EUR 200 million on average per year. With transport infrastructure with low demand risk, hospitals and transport hubs with greenfield projects with water, waste and renewable energy-related projects, leveraging the Anglo-Saxon markets and reinforcing our positioning in Europe. As for the Engineering and infrastructure division, we shall consolidate our EBITDA margin between 5% and 6%, which is one of the highest in the industry with a preferent portfolio in contracts for Sacyr Concessions, which is necessary to build their greenfield projects and other clients while minimizing construction risk. We shall also get involved in civil works projects, building a renewable energy and oil and gas projects. We also intend to be present in the reference markets that we have chosen in Europe, in the Anglo-Saxon market, and also in Latin America. As for services, we focus on profitability rather than growth because we want to consolidate a stable margin between 8% and 9% by focusing on environmental projects, facilities, conservation of infrastructure, home assistance as well as the operation and maintenance of Sacyr Concessions proprietary assets. We also want to remain present in Spain, Latin America and always hand-in-hand with Sacyr Concessions. This business strategy will be propelled through in a responsible manner with the goal of developing in a sustainable manner those societies where we are present through our projects, pursuing ambitious and specific goals with regards to diversity, the environment, work-life balance, innovation, social impact, FX transparency, governance, among others, by putting in place a plan that is going to be called Sustainable 2025, 5 lines of actions have been put in place already at more than 180 cost-cutting actions. With regards to our financial goals, we believe that they are ambitious, but attainable as proven in the prior strategy plan. Revenue in 2025 will reach EUR 5.5 billion, EBITDA surpassing EUR 1.2 billion. We will also exceed by the end of the cycle, EUR 1 billion in operating cash flow, which means that we will two-fold the current figure. In addition and along the lines of our goal to reduce the recourse net debt, we foresee to reduce 50% of this ratio, which is an indicator that is normally used, the debt divided by EBITDA, but we will have recourse net debt ratio divided, dividing this debt with the dividends coming from concessions. So this ratio that in 2018 was 5.2%, by 2019, was 4.4%, now in these results that we are presenting stands at 3.1%, and we shall close this cycle that we are beginning below 1.5%. So I believe that it's going to be even considerably below that. Just to make it clear, that means that we will have our recourse net debt. With regards to the financial figures, here, you can see a significant reduction from the beginning of the prior cycle, all the way through the current times. As for revenue, in 2014, we stood at EUR 2.7 billion, in 2020, EUR 4.5 billion. We will be reaching EUR 5.5 billion. As for EBITDA, this figure is even more important, we started out at EUR 239 million. During this results presentation, we are reporting more than EUR 700 million, and we will be closing the cycle in excess of EUR 1.2 billion. Net profit going from EUR 33 million to EUR 36 million during the current fiscal year, reaching more than EUR 200 million by 2025. With regards to operating cash flow, we shall two-fold the EUR 550 million to over EUR 1 billion by 2025. As for the Concessions division over the groups EBITDA, we shifted from 20% -- 26% rather in 2014 to 78% in 2020, reaching 85% by 2025. And the recourse debt ratio, as we said, will be cut down to less than 1.5% by 2025. We foresee to carry out new concession-related projects amounting to EUR 5 billion contributing EUR 1 billion in equity investments. That, therefore, means that we will be doubling the size of our concession business. In order to finance this growth plan, we shall obtain more than EUR 1 billion coming from dividends from concessions over the period. Shareholder remuneration will be about 5% per year approximately. Ladies and gentlemen, analysts, investors, media representatives this is the new Sacyr, a global company committed and profitable, sustainable over the long-term with a focus on the concession business. Cash flow management, drive of talent, shareholder remuneration, and sustainability being its pillars. As for the financial highlights, for the 2020 period that we are now presenting, I would like to underscore first of all, the strength of our transactions despite of the tough year that we all went through, and that all companies went through due to the coronavirus pandemic that is affecting us worldwide. So we have reported 12 consecutive quarters of increased profitability, thanks to our strategic focus of our business plan. You know the highlights of prior fiscal periods based on prior presentations, and some of those data are included here. Let me just highlight the divestment that we completed at the beginning of 2021 of our construction activities in Africa in order to reduce our construction risk in nonstrategic markets. On the other hand, I would like to mention the water integration activity into Sacyr Concessions in order to further boost its concessional dimension and scope. As for the valuation adjustment of Repsol's stake to EUR 9 per share at the end of the period and the payment of the second yearly dividend through the dividend scheme, 95% of shareholders agreed to obtain new shares, so that the operating results show significant soundness with EBITDA growing by 6% and margin remaining at 16%. With regards to the nonfinancial figures, I would like to highlight some milestones concerning the company's management. Like, for example, a 30% growth in investments to protect the environment, the recycling of 85% of nonhazardous waste produced by the company, the creation of 5,000 new jobs, the recertification of our ethical management system, among others. Next, Mr. Carlos Mijangos will throw more color at the group's results in each of the holdings divisions. Thank you for your attention. Carlos, you have the floor.

Thank you, Mr. Chairman. Okay. We'll now analyze the group's operational development. Here you can see the main figures on the screen. Revenue went up to EUR 4.548 billion growing by 9%. EBITDA stood at EUR 724 million growing by nearly 7%. EBITDA margin was 15.9%. As for the net profit, it reached EUR 36 million, we can mention the operating cash flow that went from EUR 545 million to EUR 510 million (sic) [ EUR 510 million to EUR 545 million ] and a backlog of over EUR 39 billion. Here we should take into account that on a like-for-like basis, to say, not taking into account the divested assets, revenue and EBITDA would have grown respectively by 13%. And as for the backlog, this was a tough year for many public administrations due to lack of projects. The most important relevant was the sale of the Guadalmedina Motorway as well as some -- the awards of some other contracts that we hope will be formalized in the next quarter. With regards to the contribution by activity, revenue in 2020 is as follows: Engineering and infrastructure contributed 52%; concessions 28%; and services 20%. With regards to EBITDA, in 2020, concessions reported 49%; Engineering and Infrastructure 39%; and Services 12%. And regarding the backlog, nearly 80% corresponds to Concessions; Engineering and Infrastructure 14%; and 7% of Services. If we take into account all the concession assets under each division, EBITDA amounts to EUR 568 million, 78% [ of ] the total. Engineering and Infrastructure is -- includes Pedemontana Veneta with regards to trade effects and also the waste treatment operation. Here, we should take into account the impact of the rotating assets in 2019, such as the Guadalmedina Highway, 9 power plants and water assets in Portugal. With regards to the backlog, you can see quite easily where we are operating. These are the reference markets where we operate, Southern Europe, Latin America, and the United States. With regards to awards, there are different awards in Spain and Portugal, we will be signing an agreement for a motorway in Italy, and in the United -- in Brazil and in Chile, we are planning to be awarded a hospital and a motorway contract, respectively. Also, there is a provisional -- we have been awarded a project in the University of Idaho, then an airport project also in Lima, Peru. Well, as for net debt evolution, we stood at EUR 4.315 billion at the closing of December 2019. Operating flow was EUR 545 million, out of which we should mention EUR 724 million on account of EBITDA with working capital being positive with EUR 376 million in outflows, together with concession asset adjustments. In order to obtain this EUR 545 million as you can see here, financial results EUR 275 million and the strong investments across all of our concession activities in the amount of EUR 1.3 billion. We also divested in the Guadalcesa motorway. This is also part of this asset together with exchange rate translation differences amounting to 7 -- EUR 57 million. So we should highlight that increased debt is mainly due to the project-related debt and the net -- the recourse net debt was actually reduced by EUR 12 million. If we now take into account recourse net debt evolution, we stood at EUR 848 million. Operating flow was EUR 125 million for recourse operating flow this includes EUR 13 million coming from the adjustment of Sacyr Industrial and the unification of the construction activity into Sacyr Engineering. With this adjustment, we would have reached nearly EUR 140 million, EUR 35 million corresponding to tax. And we should also mention project dividends, EUR 110 million coming from Concessions and EUR 105 million coming from service water treatment projects. We should also highlight investments. Out of EUR 315 million EUR 225 million corresponds to capital contributions and water services, then we also have some of the projects in Colombia and the United States. So this is a nonrecourse investment. Actually, the works in Colombia are almost completed. They will not be recurrent next year. And finally, we should also highlight the Guadalcesa divestment. With regards to other financing flows, here, we are making reference to some leasing contracts. As the -- as the Chairman already mentioned, the recourse net debt ratios. Here, you can see how we calculate the ratios in 2019 and 2020 with recourse net debt being EUR 848 million, recourse EBITDA EUR 142 million, distributions and dividend going from EUR 52 million to up EUR 115 million year-on-year. If we now take into account performance by business area, we can see that Concessions grew by 23%, posting EUR 1.381 billion. Concessional revenue went up by 8%, reaching nearly EUR 700 million. Infra concessions also grow. Construction revenue was almost EUR 706 million with an increase of 42%. Infra concessions reported an increase of 4%, Water 22%. Here you see the EBITDA water margin standing at 16% and concessions margin standing at 63%. This was mainly due to an operational improvement of those assets that are commissioned, especially hospitals and some motorways in Mexico and some motorway sections in Colombia and Italy, respectively. They also contribute to this growth. And also the water assets make their own contribution. We have some major infrastructure work that we performed in 2020. And as a result of that, this figure also went up in December. On the other hand, we also accounted for EUR 200 million in investment in the University of Idaho project. As for the main awards. We have invested over EUR 161 million in Water infrastructure, EUR 94 million in water. And then there are some major awards, again, like the first concession in the U.S. market with the University of Idaho transaction. Water supply and integral water cycle services for a 50-year term. Then we also -- well in Antofagasta, in Santiago, Chile. This is a purchase that took place in summer. And then we also have 3 other projects. All in all, they amount to EUR 5 billion in backlog. We are pending some contracts, however, then there is a Buin Paine Hospital in Chile, 2 were already developed 10 years ago, then we have the RSC-285 (sic) RSC-287 motorway concession in Brazil and the A3 Naples-Salerno motorway in Southern Italy. This is the motorway that links Naples with Pompeii and Salerno. We hope we will be completing this contract in the next half of the year. So if we now take into account the concessions division, its operation was also very important. We operated there Tulancingo Pachuca Pyramids Road in Mexico. Then we also had the Tlahuac Hospital in Mexico, the Pedemontana Veneta motorway that has been completed by 86% already, including 3 sections, then the Mar 1 Motorway that has been completed by 83% with 77 kilometers section having been completed as well as for Rumichaca Pasto, which connects Southern Colombia with the border in Ecuador, has been completed by 88% with the first section of 17-kilometers having been completed. Then we also have the Puerta de Hierro-Cruz del Viso that has already been completed. And Rutas del Este, this is a motorway going from west to east of the country. That has been completed by 42%. In Mexico. We have 1 of our iconic projects in Américo Vespucio Oriente. This is a very complex technical project that covers 9-kilometers from the main ring road of Santiago. It has been completed by 61%. Central Railway in Uruguay, covering 273 kilometers inland to the capital city has been completed by 33%. And then the Pamplona Cúcuta in Colombia has been completed by 35%. Therefore, we come to the revenue and EBITDA, we mentioned before, there was a significant increase in the execution rate of our projects, all of which are about to be completed. With regards to financing, we closed the 1 from -- with a stake -- the financing closing of the Pamplona-Cúcuta Motorway in Colombia with the participation of 7 insurance companies for EUR 474 million and 2 others, 1 in Chile, and another 1 in Vallenar Caldera in the north of Chile. There was an asset rotation that was also closed for the Guadalmedina Highway just before summer. And this has enabled us to obtain an award due to the financing of the central railway project. Another milestone was the concession projects accounting EUR 110 million in distribution of dividends over the period. As for the Concessions backlog, it's mainly concentrated in Southern Europe and in Ireland. As for Latin America, it's in Chile, Colombia, and Peru are the main countries as well as Uruguay and Mexico, respectively, and finally the United States. So we have 45 assets in operation and 13 under construction. With regards to Engineering and Infrastructure, we can highlight our constant growth rates in this activity with a variation of 12%, EBITDA also going up by 12% with a margin of 11% in EBITDA. If we do not take into account the Pedemontana effect, here, we will be talking about EUR 2.165 billion with a 4.8% in EBITDA margin. However, if we eliminate the specific costs of the integration of Sacyr Industrial, that is EUR 13 million. This EBITDA margin would be 5.4%, which is quite a significant margin in the industry. Another milestone, we can mention the strategic reorganization of Sacyr Industrial with a full focus on the execution of our projects despite of the COVID pandemic. We are about to sign the A3 Naples Salerno Motorway project. In the case of construction, we're talking about EUR 390 million. And then there is another contract to be awarded in Italy for nearly EUR 400 million in Lago di Como. Then we also have many other projects in Spain, the Jorge Chavez project for EUR 190 million, among others. With regards to Services, revenue was nearly EUR 1 billion with a small reduction of nearly 3%. In the case of Environment, Multiservice, there was continuous growth, the same as Multiservice. With regards to facility management, we were awarded some office cleaning projects, but this has however slowed down due to the current situation with a slightly small impact there. And of course, the sale of [ Itinere] had an impact between 2019 and 2020. EBITDA reached EUR 89 million with a stable and sound margin of nearly 9%. With regards to revenue, in the case of environment, we can mention the Melbourne water treatment plant and new contracts that were awarded for waste collection in Collado Villalba. As for Multiservice, some contracts came to a hold but not that many. And all in all, we can say that the activity was performed quite normally. As for the main awards, we can mention the waste collection and road cleaning and maintenance project in Collado Villalba for 10 years. Then another project for the extension of home assistance in Madrid amounting to EUR 31 million. The operation of several Cafestore AP7 Service areas, among others. Okay. And now let me hand the floor back to the Chairman.

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

[Operator Instructions]. The first question is by Alejandro Vigil from Bestinver.

First of all, congratulations for such good results and for the outlook of the company. I have a couple of questions. The first question is as to your outlook on 2021 with regards to business performance. And then with regards to the recourse debt because I believe that you have the Panama payment pending, so which plans do you have in order to offset that? And then I have another question that is more a long-term question. During your presentation, you talked about your long-term outlook. Given the outlook, considering the current business perimeter, do you believe that you will be cutting out some divestments in some core businesses.

Well, with regards to the first question concerning recourse debt, we have set ourselves the goal to reduce the recourse debt. If you recall, or if you go back to 2015 results, we were at EUR 5.1 billion. We closed at EUR 830 million approximately, and we continue to reduce our debt, and we shall continue to do so. By the end of 2021, our debt position will be lower compared to 2020. As we did in 2020 year-on-year despite 2020 being affected by COVID. As for the second question, I didn't quite get it. Yes, we will keep our 3 main core businesses, and they will be focused on concessions with construction and services being part of our structure in order to meet all of our projects successfully as we have been doing so far. 2021, with regards to debt, we will be reducing that reported in 2020 and operating flow for our business lines will grow. We will grow, as we have been growing over the past 3 years that we will be keeping the same tone as in the past 3 years.

[Operator Instructions]. We have another question by Alejandro.

Well, I have some other questions about the current situation in Italy, with regards to concessions. I believe that there are some legal issues as a result of some awards last year. Could you provide us with an update on that. And then going back to the strategy plan, those EUR 1 billion in equity that you will be investing in the forthcoming years, what visibility do you have into potential investment opportunities. Could you tell us how optimistic you are? How confident you are about the fulfillment of those opportunities. With regards to the tail-end concessions, it's quite normal as it has been the case in the last projects.

Well, to go through some legal complexities, [indiscernible] that will be a tender between 2 main bidders and an economic proposal will be submitted. As for the other litigations that are going through the normal proceedings we believe that will become more visible throughout 2021. As for our strategy plan and that EUR 1 billion we mentioned, out of 10 concessions that we pick up 4 are disregarded for several reasons because of the risk they entail or because of the geographical situation or the bidding terms and conditions. Out of the 6 that we analyzed over the past 10 years or 8 to 10 years, we were able to reach an accuracy of 33%. So we are optimistic. So we -- last year, for example, in our strategy plan, we were awarded 4. So we have a pipeline that is sufficient and always taking a prudent approach to say that we are going to be awarded 2, but I'm sure that is going to be much more.

The next question is by Ignacio Romero from Banco Sabadell.

I would like to ask about your stake in Repsol. I believe that on the balance sheet, you reclassified that short-term debt. And I believe that, that is due to the fact that there will be some call options will be maturing shortly. So have you decided what you're going to do with your stake in Repsol?

Well, yes, we have some maturities this year. Our stake will be maturing partially, but no decision has been made yet. When we near the maturity terms, the company's Board of Directors will decide what to do. Based on, of course, on the share price at that time as well as volatility today, thanks, God. The company's share price is twice as much as 3 months ago. So no decision has been made in this regard, and we will do so as we near the time.