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

Good morning, I am Manuel Manrique, the Chairman of Sacyr. Joining me at this presentation are Pedro Siguenza, the CEO; and Carlos Mijangos, the company's CFO & Managing Director. Thank you very much to all of you, analysts, investors and media representatives for attending this earnings call of Sacyr for the first half of fiscal year 2025. At Sacyr, we continue to make a steadfast progress in line with our strategic plan 2024-2027, generating value in our concessions assets and increasing our cash flow to invest in new projects, thus confirming that our business model is increasingly solid, growing and profitable. As a result of the work performed in the first year since our last Investor Day, the valuation of our assets has grown by EUR 406 million to EUR 3.957 billion as of December 2025. This significant progress also makes us optimistic about the prospects of market recognition of this growth. The main figures for the first half of the year bolster this trajectory I am describing. Revenue grew by 6% to EUR 2.237 billion. Net income, excluding the effect of divestments increased by 85% to EUR 96 million. 91% of our EBITDA comes from concessions activities. Operating cash flow climbed by 7% to EUR 615 million. And furthermore, we invested EUR 208 million in the first half of the year, bringing our total equity invested to almost EUR 2 billion. I would also like to highlight the successful issuance of a new bond for EUR 500 million, extending terms and significantly reducing interest rates. We shall refer to this transaction in more detail later. We are also securing our future sustainable growth, thanks to new concessions awards, two in the first half of the year, namely the expansion of the high network in Paraguay and the largest water recycling plant in Latin America, in Chile. And this growth is also secured by the commissioning projects that are beginning to generate cash flows, the Atacama Airport, Ruta del Itata and the all important Rutas Este in Paraguay, all these projects being run in Chile. We are also strengthening this future growth with the rotation of mature assets through the transaction formalized in Colombia that you already know, this transaction consists in the divestment of 3 highways for USD 1.6 billion and with the recovery of operational assets with Voreantis. Although it is not necessary for the development of our concessions. The process continues to move forward until the market is in the best possible condition to start off operations. As we have always stated the investment targets for 2024-2027, plan are safe harbored with existing cash. Another way to put this shows that it is some surplus going forward and we are also ensuring sustainable growth by providing the company with the best corporate governance possible to lead. And we have appointed a Chief Executive Officer to add even more management capacity in this period of strong activity and have thus achieved the diversity targets set for the Board of Directors. The distribution of a cash dividend last June at a rate of EUR 0.45 per share is also a way to strengthen the shareholder base and make investing in Sacyr even more attractive. This cash dividend is in addition to the scrip dividend in January in the ratio of 1 new share for every 40 old shares. By carrying out all these actions, we have met the target set out under the 2024-2027 strategic plan. That's given confidence to investors as Sacyr is achieving its objective one by one, which is being valued positively. Regarding our environmental performance, I would like to underscore the important milestones achieved over the first half. Renowned agencies and institutions have acknowledged that we are successfully meeting our objectives in the fight against climate change. As a summary of the highlights of the first half of 2025, I would like to underscore the growth posted by our most representative magnitudes. Operating cash flow rose by 7%; net income, excluding divestitures, went up by 85% and EBITDA to cash flow conversion grew from 87% to 95%. There were also some surpluses from distribution of concessions by 2033, as we are going to explain later. Next, Carlos Mijangos will give you more color as specific details of the company's income statement and balance sheet and Pedro Siguenza will subsequently delve into the evolution of each of the business lines.

Thank you very much, Mr. Chairman. So we are going to talk about the operating and financial performance of the period. First off, we updated the valuation of our concession assets. As you know this went up by more than EUR 406 million, and the main hypothesis supporting this valuation are as follows. First off, we keep discount rates and the cost of capital in each country where we discount the flows of projects, even though some interest rates have been cut in the case of some countries, we have not included any increase due to rolling forward compared to 2024. We are keeping the same prudent approach. And we have not considered any contribution in the variation of the assets over which a sales agreement has been reached. As for the performance of this variation and the breakdown of impacts are as follows. On the one hand, we have rolling forward, which is implicit to concessions with future life cycles because here, we discount cash flows within a lower term, hence pushing the value up, and this happens on a rolling basis. The second big impact has to do with the increase due to inflation. Inflation rates went beyond our forecast and therefore, this led to an increase of EUR 191 million. We should also mention that this is a cumulative inflation increase that sticks to the contracts and therefore, pushes income on a yearly basis. Next, we have the exchange rate with a negative impact of minus EUR 213 million. However, the increase due to inflation and the exchange rate offset each other. Some countries have more inflation rates than others. So the impact varies. Then we have also applied a prudent approach. And therefore, we have included the equity to be committed to the projects in 2025. And we have included this -- the value factor in for each project. We have not included any multiples here. I would like to mention that this EUR 170 million is part of the EUR 650 million of new equity to be contributed as result of the said contracts that we have been awarded since we hosted the Investors Day last year. Thus, we stand at EUR 3.957 billion, up 11% compared to our valuation as of December 2024. Next, when we get cash inflows, and here, we are talking about the [indiscernible] Colombia as a rotation inflows, and we are going to receive 12% more compared to what we had priced in the valuation of 2024. Thus, you can see that concession asset value is growing in line with the trend -- the growing trend that we described during the Investors Day, reaching nearly EUR 4 billion and we are all the course to be in the north of EUR 5 billion in 2027. Our goal being reaching EUR 9 billion by 2030, we have to take into account capitalization as of June 2025, standing at EUR 2.763 billion. If we now take a look at distributions of concession assets over their life cycle or life period, we should highlight that they're going to contribute more than EUR 17 billion, that is to say 6x the company's capitalization today. So the award of the 6 contracts I mentioned before over the past 12 months, lead to distributions being added to the 2024 portfolio reducing, therefore, the assets sold in Colombia. Thus, we come to EUR 17.410 billion per year on average. So we are talking about more than EUR 360 million for the 2025 -- 2033 period, EUR 421 million for the '34-'43 period and more than EUR 440 million thereafter. If we zoom in the subsequent periods, we can observe how distributions will perform the same as equity and the EUR 2 billion capacity that the company has in order to allocate these 2 different needs. For example, in 2025, we see foreseen distributions, and we had EUR 277 million that we are going to be receiving from Colombia, more than EUR 400 million in cash inflows, then capital contributions from 2025. As we mentioned during the Investor Day, they are the most important ones because they account for EUR 300 million. And then in the 2025-2027 period, we are going to receive nearly EUR 1 billion in distributions, investing more than EUR 700 million. And therefore, we're going to be left with EUR 250 million. If we now zoom this in further by 2028-2033, we're going to receive more than EUR 2.570 billion with the net amount being almost EUR 1.9 billion. We are talking about more than EUR 3.5 billion in distributions, EUR 1.4 billion in equity and more than EUR 2 billion in net value. Here, we have not taken into account the dividends from the assets that have been sold in Colombia and this is going to be finalized by the end of the year. As for the Colombia agreement, these are the key features of this transaction. The enterprise value of all 3 assets stood at USD 1.6 billion, that is to say 12% above the valuation informed during the Investor Day. After this divestment, we confirm -- we even increased the value of these assets as part of our valuation. As you can see, this is quite realistic and conservative. We have obtained at 2.7x the invested equity multiple. We have been able to surpass the median values. We have been able to strengthen our balance sheet to speed up our growth plan, and we reduced exposure in the Latin American market to better balance the current portfolio of our assets, which is one of the key messages under our strategic plan to have 1/3 in Europe, 1/3 in Latin America and 1/3 in English-speaking countries. The IRR, therefore, stands at 18%. We have reached 2.7x the invested equity, we're going to collect USD 318 million, and then we have some earn outs in the north of USD 70 million. As for financial transactions per se, we have renewed our investment-grade rating with the EthiFinance credit agency. We continue exchanging information with other rating agencies, and we are paying attention to their outlook. And as for the bond issuance that the Chairman mentioned, these are the key features. We refinanced EUR 370 million of maturities for 2026-2027, and we incorporated EUR 139 million of new money for a total amount of EUR 500 million, the maturity term being 5 years and we reduced the coupon of 2026 maturities down to 4.75%. This leads to a EUR 26 million positive impact on our income statement, and this is the difference between the present value of cash flows at the initial rate now compared to this lower percentage. This is a one-off impact that is going to be recorded in our 2025 income statement. As for net debt evolution. I would like to highlight that the company is making huge investing efforts, particularly in the first half, we have invested more than EUR 208 million. That's twofold in our investments in 2024 and threefold in our investments in 2023. Therefore, equity amounted to almost EUR 2 billion as of June 2025, and we have deducted the Garvanza project, and we are going to do the same after the sale of the assets in Colombia. As for consolidated net debt evolution of the group, we stood at EUR 6.891 billion in December 2024. We have been able to reduce this amount. The most important impact is the flow of impact, EUR 650 million. In our essence with financial results stand at EUR 289 million. This company has a big financial burden due to the use of project finance to finance its projects. Net investment stood at EUR 357 million over the past half of the year. And as for financing flows and other variations, we reported minus EUR 478 million. I would like to underscore that the rationale behind this value is connected to impact. We consolidated under the balance sheet of the company, 7 assets that were held for sale in Chile. We have to wait and see what happens in the short term. We had to materialize that investment, and we have consolidated 3 assets from Colombia with their related debt after the sale agreement that has been signed. Therefore, that had an impact of EUR 176 million, minus EUR 176 million and more than EUR 300 million that was the other effect. Now talking about net debt we recourse, it went up by EUR 21 million over the quarter, mainly due to a significant investment effort in our concession assets. I would like to highlight that transactions stood at EUR 98 million. And over the past quarter, working capital was positive, standing at EUR 2 million. It was quite steady. We received distributions of EUR 66 million. Financial expenses were EUR 13 million, investments stood at EUR 79 million, EUR 6 million corresponds to machinery and other assets, EUR 27 million corresponds to financing inflows and exchange rate and other variations. And this also corresponds to the exchange rate applies to recourse cash at hand in different countries. Thus, we count to EUR 297 million, but this is going to be reduced significantly after the sale of the assets in Colombia, and that's all. Mr. Chairman, Pedro, you have the floor.

Good morning, and thank you very much, Mr. Chairman. Thank you very much, Carlos. It is an honor for me to be present for the first time at Sacyr results presentation. I will now explain the most relevant facts of the first half of 2025 for the 3 business areas of the company. The concession division, which is a unique platform for value creation, reported revenues of EUR 818 million, similar to the same period of the prior year. Operating income and EBITDA have been affected by the negative accounting impact of the evolution of financial assets. An effect that will undoubtedly be offset at the end of the year by the new assets that have been recently put into operation Ruta 68 and Ruta del Itata. In turn, construction revenue grew by 34%, thanks to the contribution of relevant greenfield projects such as the Velindre Hospital in Cardiff and the Buga Buenaventura Highway in Colombia. There has also been a period of intense investing activity as the Chairman pointed out, with investments totaling EUR 208 million with the contributions made during the first half of the year, the total equity invested in our concession assets in this division reached EUR 1.872 billion. Distributions from concessions amounted to EUR 101 million during the first half of 2025. During this period, we have commissioned 3 assets, namely the Atacama Airport in January, Ruta del Itata on April 1, and Ruta 68 on July 1. All these assets are located in Chile. Regarding the U.S. market, our consortium is already shortlisted on 2 mega projects. The I-285 in Atlanta and the I-24 in Tennessee. We have also -- both are managed lines. And we have also signed the addendum to Route 2 in Paraguay, which includes 4 kilometers of urban highway in Asunción, the [indiscernible] and new access branch to Luque - San Bernardino. This concession will result in revenue of EUR 487 million with an investment of EUR 163 million. We have just been advised of the final award in Italy of the Novara Hospital in the Piemonte region. This it accommodates more than 700 beds under a 25-year concession with an investment of EUR 525 million. Its construction will bring about many synergies with the recently awarded Turin Hospital. I would especially like to highlight the start-up of the Ruta 68 highway on July 1. This is the largest public private partnership project ever tendered in Chile. Since that date, we have already begun to post revenues from the concession in which we plan to invest EUR 1.5 billion in new lanes, pavement improvements, connectivity for adjacent communities and traffic technology. This highway connects Santiago with Valparaíso. The two most important political social and economic poles of the country running along 141 kilometers and will have a lifetime revenue of EUR 3.3 billion. With respect to the engineering and infrastructure division, it is worth highlighting the growth obtained in both sales and EBITDA, accounting for 18% and 34%, respectively. This was due to the incorporation of the A21 highway in Italy and the progress of works in Spain, Chile and the United Kingdom, respectively. If we analyze the purely construction activities, as you know, the concessions in Italy are included in this division, we can see that the EBITDA margin with respect to revenue remains stable at 4.8%. The backlog continues to grow, setting a new all-time record at EUR 10.8 billion, 70% of which corresponds to activity for our own concessions. This portfolio ensures 59 months of activity in this division. In May, we signed the contract for Empresa de Ferrocarriles del Estado for EUR 271 million Alameda Melipilla section in Chile. And in early July, we started operating the SR417 for CFX on the Central Florida expressway in Orlando. This is already the tenth project delivered in the United States, which shows our ability to successfully execute projects in this country. Among the main contracts awarded during the period, we can highlight the Turin Health Park in Italy for EUR 332 million. The Alameda Melipilla section in Chile for EUR 271 million, several real estate projects for first year developers, mainly in Málaga and Madrid for EUR 245 million, the North airport network also in Chile for EUR 199 million and underpass for vehicles at Dublin Airport for EUR 160 million, the Juan XXIII hospital in Tarragona for EUR 76 million, the extension of Line 5 of the metro for EUR 63 million, the construction of the [indiscernible] Catalonia in the Port of Barcelona for EUR 54 million, the Móstoles University Hospital in Madrid for EUR 37 million and engineering contract for the renovation of an LNG terminal by our engineering company, Sacyr Proyecta for EUR 31 million, among other projects. The water division significantly increased both its revenue by 20% and its EBITDA by 36%, reflecting the major contracts that we won in recent months. This means that EBITDA margin on revenue increased significantly to 23.2%. That is 280 basis points more than in the same period of the previous year. The portfolio grew by 54% to EUR 7.408 billion. Equity invested in this division amounted to EUR 121 million. The most relevant milestone of the first half of the year in this business area was undoubtedly the award of the water recycling or reuse plant in Antofagasta, Chile, the largest of its kind in Latin America. The revenue portfolio of this concession project amounts to more EUR 2.5 billion over the 35-year concession period secured by contracts with mining companies that are well established in the area and that need water, which is scarce in the region, and they need water for their operations. This contract signed in June with the Chilean state-owned utility, Econssa, calls for an investment of EUR 300 million in 900 liters per second capacity treatment plan and recycled water supply facility. This project represents a very important leap in scale for Sacyr Agua with the Water division, allowing it to make solid progress in meeting its growth objectives within 2024-2027 strategic plan. And now let me hand over to the Chairman once again.

So in closing, we can say that we continue to make steady progress in the fulfillment of the 2024-2027 strategic plan driven by the continued creation of value in our concession assets portfolio. As we said, we were able to increase its valuation by more than 11% in 2024, the strength of operating cash flow up 7% and a 95% conversion of EBITDA into cash. The divestment of the Colombian assets in the north of 12%, our valuation strict fulfillment of our commitment to net recourse debt, as we mentioned before, the solid growth reported by the Water division, and I would like to underscore the EUR 1.230 billion after paying everything in order to invest in equity before now and 2033, EUR 2.130 billion in equity. So we are now at your disposal to answer the analysts' questions.

Thank you very much, Mr. Chairman. Next, we are going to open the floor for questions. As usual, we're going to start with the questions coming via telephone, and then we are going to allow for questions posted through the chat function in the webcast. Luis Prieto has one question from Kepler Chevre.

I have 3 questions. 3 quick questions. The first question, which is the current negotiation situation for the Pedemontana project to balance things out? Second, can you be more specific with regards to market conditions that should be more positive in the case of Voreantis? Do you think that there is little demand. Could you give us more color here? As for Slide 31 on your presentation, I believe that we are all aware of high competition in the United States. But how competitive are your key projects in Australia, Canada, Italy or Chile, respectively?

Thank you very much, Luis, for your question. We will get back to you in a minute.

This is Pedro Siguenza. Let me answer your question about the rebalancing of the Pedemontana-Veneta project. We are making progress in negotiations with Veneto region authorities and the agents they have appointed in order to rebalance things. Taking into account that additional investments were made during the project execution. The second question, as for the most favorable conditions regarding Voreantis, I would say that over the past weeks or months, three big investments were halted in our sector -- three major operations in Spain because the conditions are not suitable enough. There is this feeling of uncertainty, I would say, with regards to macroeconomic climate. So we are going to do things when the time comes. We do not need to rush. We have said this already oftentimes. We said this during the Investor Day, we have EUR 2.130 billion available. So we are going to carry out those investments when the best timing comes according to the best interest for Sacyr. And as for the market context, I would say that competition always exists and there is an upside to competition. But we should analyze the past decade of Sacyr's history. We can analyze 10 concession projects in the health, water and infrastructure areas. We tended or projects, we rejected the rest due to the risks inherent in all the bidding terms and conditions that did not fit into our approach. Out of 5 or 6 projects, we won 3, I believe, that is to say around 33% out of a total of 10 potential projects. In the past, we used to win 3 projects. Now we have already been awarded 4 projects. So at the end of the day, we believe that this will continue to be the trend because this can really set the real trend over time.

The next question is by Joao Safara from Santander.

The first question, just to clarify, the value stated in euros regarding the transaction in Colombia, I believe that you have hedged this exposure. Could you please Confirm that you have done so and at which value? The second question is a follow in. It's concerned with the slide of the expected valuation of assets. You mentioned EUR 5.1 billion by 2027. So by taking a look at your current backlog and the projects and your under rollover effect and the projects in the pipeline, I believe you do not need to win many more projects in order to reach that target. Am I wrong? Or do you think that this target is something that you do not need to deliver right away and here, the economic results are clear. Next, as for the business lines, I would like to get some more color on the expected time line or schedule, not only in the case of the projects for which you have issued -- listed. Do you have any estimated time line that we could use by way of reference.

Thank you, Joao. We are going to answer those questions shortly.

Joao, let me answer your question. We are going to receive that amount, not to hedge ourselves against any foreign exchange fluctuations, we wait for the relevant permits to get through. Joao as for the valuation that we estimate by 2027, standing at EUR 5.1 billion, these are targets that we set for ourselves, taking into account a full year scenario. But we believe that we are going to go beyond that. But this reference is not the last word. We are going to try to attain as much as possible, providing that the conditions are suitable enough as we normally do. But I'm sure that we are going to go beyond the forecast, and we have no ceiling.

Joao, regarding your questions in the United States, we -- there are 4 consortiums that have been shortlisted for the projects. There is a change to the financing requirements increasing financing from 33% to 49%. That is a decision that we have -- that has been made. And therefore, this will have an impact on the I-77 in North Carolina, S-495 in Virginia, among other projects.

The next question is by Alvaro Lenze from Alantra.