Ellaktor S.A. (ELLAKTOR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the Ellaktor Group conference call to present and discuss the bondholders briefing on the 9 months 2020 Ellaktor's Restricted Group results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Anastassios Kallitsantsis, CEO of Ellaktor Group; Mr. George Poulopoulos, Group CFO Ellaktor Group; also attending, Mr. Dimitrios Koutsoukos, Director, Business Planning and Investor Relations. Mr. Kallitsantsis, you may now proceed.

Thank you. Good afternoon, ladies and gentlemen. Thank you all for dialing in to Ellaktor's 9 Months 2020 financial results call. I'm Anastassios Kallitsantsis, I'm group CEO. And today, I'm joined by Ellaktor Group CFO, Mr. George Poulopoulos; and by Business Development and Relations -- Investor Relations Director, Mr. Dimitrios Koutsoukos. Before I give you an overview of our group performance and business segments, I would like to say a few words about the current macro environment. As you all know, the world as well as Greece are confronted by the second wave of COVID-19 pandemics, leading to partial or full lockdowns and further deterioration of the economic outlook. Greece is currently in lockdown, with the intention to reopen retail sector in December in time for the holiday season, but this is still in flux. In this context, the latest estimate on GDP contraction for Greece in 2020 is about 10%. The Greek state cash buffer remains comfortable at EUR 30 billion, which gives market confidence shown by Greek bond yields trading close to 0 and the 2-year bond trading at negative yields. EU funds directed to Greece will amount to more than EUR 70 billion over the next few years, giving further comfort to the states and the markets. During this very challenging period, our focus remains on securing the health of our people as well as of our business, respectively. With regards to the health and safety of our employees, we have introduced and implemented a series of safety protocols within our organization, ranging from personal protective measures to investments in specialized new ventilation system while we have conducted more than 6,200 PCR tests to our employees until now. On the business front. In concessions, performance was significantly affected by the pandemic and lockdown measures imposed by the state, with Q2 being particularly adverse. Following the gradual lifting of the lockdown on May 4, 2020, traffic volumes in Attiki Odos showed clear signs of recovery until August, improved by -- from minus 72% to minus 7% year-on-year. Additional measures followed in September, causing further downward pressure on traffic volumes, minus 12% and minus 13% in September and October while the second lockdown seems to be less impactful with traffic reduction reaching minus 50%. Our Renewables business posted very strong revenue and EBITDA growth and affected by the COVID-19 as a result of increased installed capacity, reaching 491 megawatts. Our Renewables business achieved a major milestone and announced the strategic agreement with EDP Renewables, Europe's second largest renewable player on the joint development of 900 megawatts wind park portfolio. The value of our joint investment upon its full implementation exceeds EUR 1 billion. Environment also showed improvement in revenue and EBITDA versus 9 months '19, despite the pandemic, while Ellaktor has completed the construction of the new biogas facility in Mavrorachi, bringing the total installed capacity of electricity production from landfills to 33 megawatts, making Ellaktor the largest player in this space in Greece. I will now pass the floor to Mr. George Poulopoulos, who will proceed with the presentation for the financial results.

Thank you, Sakis. And thank you all for joining us. I would like to present the 9-month results by following some slides from our 9-month 2020 group results presentation. On Page 3, you can see a lot of our restricted group at a glance. EBITDA stood at EUR 140 million in 9 months '20 compared to EUR 159 million in 9 months '19, posting a reduction of 12% or EUR 18 million, mainly due concessions, which was down by EUR 24 million. In Q3 '20, EBITDA was at EUR 54.6 million versus EUR 55.5 million in Q3 '19, down marginally by 2% despite the impact of COVID-19, which significantly impacted the Concession business. Cash and liquid assets increased by EUR 13 million in Q3 '20, reaching EUR 327 million at the end of September '20 versus EUR 340 million at the end of June '20 and EUR 342 million at the end of 2019. Turning to Page 5 of our presentation. You see the evolution of key P&L items. Net revenues stood at EUR 274 million in 9 months '20 compared to EUR 268 million in 9 month '19, an increase of EUR 6 million. Q3 '20 revenues was at EUR 101 million versus EUR 99 million in Q3 '19. EBITDA margin stood at EUR 54 million -- 54%, excuse me, in Q3 '20 versus 62% in Q3 '19. Net profit, excluding the share of loss from the unrestricted group, stood at EUR 29.2 million versus EUR 53.7 million in 9 months '19. On Page 6, you could see that the net debt stood at EUR 697 million at the end of September '20 compared to EUR 625 million at the year-end 2019, with net debt-to-EBITDA -- annualized EBITDA ratio stands at 3.7x. Net debt posted a decrease of EUR 15 million from June 30, mainly due to the increase in cash. On Page 8, you can see the analysis of P&L of each quarter in 2020 as well as 9-month '20 versus 9-month '19. I would like to point out the resilience of restricted group showed in Q3 '20, where the EBITDA decrease of 21% in Concessions due to the first lockdown, was offset by the increase in EBITDA of Renewables and Environment by 39% and 4%, respectively, despite the COVID-19 pandemic. Like many others, our group was significantly impacted by, concessions in particular. On Page 11, total assets were at EUR 1.868 billion at the end of September 2020 versus EUR 1.837 billion at the end of 2019, recording a positive delta of 2%. Restricted group total equity stood at EUR 476 million at the end of September 2020 compared to EUR 533 million at the end of 2019, a decrease of EUR 57 million. Total equity attributable to shareholders was EUR 364 million versus EUR 450 million at the end of December 2019. On Page 13, we present the cash and liquid assets at the end of September 2020, which posted an increase to EUR 327 million versus EUR 340 million from end of June '20 and down from EUR 342 million at the end of 2019. On the right-hand graph, you can see the quarterly evolution. In Q3 '20, operating cash inflows amounted to EUR 34 million, a significant improvement compared to the previous quarter. Investment cash outflows amount to EUR 14 million while cash outflows from finance activities reached EUR 8 million. Now let me go through the segmental analysis of 9-month '20. On Page 16, we have the Concessions highlights. Revenues stood at EUR 131 million in 9-month '20 versus EUR 154 million in 9-month '19. The decrease of revenues in 9-month '20 is due to the decreased traffic in Attiki Odos by 22% as a result of restrictions in movements and eventual full lockdown by the state in response to the COVID-19 epidemic. As you see on the bottom left diagram, there were clear signs of gradual improvement in Attiki Odos traffic between early May and August. Traffic reduction at Attiki Odos reached 72% in April '20, 37% in May and 7% in August compared to the corresponding months last year. Additional measures followed in September, causing further downward pressure on traffic volumes, minus 12% and minus 13% in September and October while the second lockdown in November caused traffic to drop by about 50%. It should be noted that decrease in traffic year-on-year of the second lockdown is having so far a roughly 30% impact lighter compared to the first lockdown. Concessions EBITDA amounted to EUR 88 million in 9-month '20 versus EUR 112 million in 9-month '19, making a decrease of 21%. This EBITDA benefits from the following items with one-off positive impact: EUR 3.5 million reversal of provision due to beneficial court decision; and $2 million as income compensation due to total free days for the 2019 national elections. On Page 17, we present the rest highlights. Revenues stood at EUR 68 million in 9-month '20 versus EUR 49 million in 9-month '19 or up by 38% year-on-year due to increased installed capacity of 491 megawatts installed capacity as of end of March '20. As we have indicated, the growth plan for our Renewables business is underpinned by the recently announced strategic agreement with EDPR for an additional 900 megawatts expansion project. EBITDA stood at EUR 54 million in 9-month '20 versus $39 million in 9-month '19 or up by 39% year-on-year due to the increased installed capacity. On Page 18, we have the Environment segment highlights. Revenues stood at EUR 75 million in 9-month '20, up from EUR 65 million in 9-month '19 or 16% up year-on-year due to the increased completion rate of construction projects. EBITDA stood at EUR 9.5 million in 9-month '20 versus EUR 9.1 million in 9-month '19 or 4% up year-on-year. This concludes my presentation of group and segment performance, and I would like now to open the floor up for questions.

[Operator Instructions] The first question comes from the line of Kogge Maxime with ODDO.

So 3 questions for me. First question, the construction unit had a decent quarter in Q3, notably in terms of cash generation. It had, if I understand it well, a good cash generation in Q2 -- Q3, sorry. And yet you made a EUR 15 million inflection from the restricted to the unrestricted perimeter. So can you explain the rationale for that? And should we expect more outflows of this kind in the fourth quarter? Second question is about the renewable unit. Actually, if I look at Q3 only, there was virtually no CapEx for the restricted group and I'm -- so I'm a bit surprised because I thought there would be at least some CapEx for rolling out the wind portfolio. So was there any delay or any hurdle you met in the quarter? And finally, can you give a bit more background about the partnership with EDP, are you going to inject some cash in the JV? Or are you going to bring some -- to offload some assets to the JV?

Regarding the construction, as you correct mentioning, there were an improvement quarter-by-quarter. In the third quarter, the improvement was mainly on the Greek operations. For international, we had to also -- we had some cash burden. That's why the amount that you mentioning has been contributed by the group in order to cover this mainly item. Now regarding RES, Dimitrios?

Yes. So I mean, regarding RES CapEx, as we had indicated, the portfolio as at 31st of March 2020 was 491 megawatts. Now beyond that, we have indicated that there was a further 88 megawatts to be built out. However, there have been delays on this due to the impact of COVID-19. So we had indicated that originally that was planned to be connected to the grid by the end of 2020. This has now been pushed back to end of 2021. So we expect that the substantial part of the CapEx for the 88 megawatts is going to be spent in 2021. So this is why you're seeing small CapEx in Q3 2020. Now regarding the EDPR, the partnership relates to building out 900 megawatts of new capacity. So yes, there will be CapEx on our end. We're not doing the offloading, as you say, any operating assets. We indicated that upon full implementation it's going to be about EUR 1 billion worth of CapEx. Our partnership is equal, it's 50-50. So depending on the level of leverage that we achieve on financing these assets, you can get a ballpark figure of, let's say, our CapEx demand.

Okay. And do you have some visibility about the time frame for injections to the JV for CapEx made by the JV in the going future?

Yes. So this is going to be a 4- to 5-year-long project.

[Operator Instructions] Next question is from the line of Khoury Philip with Impera Capital.

My questions relate to construction. I listened to your previous call and our understanding is that it's taking longer to turn that around than originally expected when there was a change in management 2.5 years ago. When do you see that segment reaching a steady state? And what would be a measure of success? What level of returns do you expect in terms of EBITDA margin? And by when should we expect to see that?

Yes. On the construction, we are on the restructuring mode. Transformation journey has been implemented during the mid of this year. It is progressing. It's on track. We're expecting next year to be the first year of stabilization on breakeven and start to be at profitable the year after. In terms of margin, we're focusing on all new projects in the last 12 months plus, is with at least minimum mid-level of profitability for all projects going forward, and this is a target to focus on only profitable businesses and projects.

And in terms of the JV, the RES JV that you're entering into, in your previous call, you hinted that you already had some projects that were [ cemented ] that you would inject into this JV. Would it be fair to assume that your capital contribution will be less than that of your partner?

You are correct because we are contribute also assets, either license or other businesses. Yes, so that will help and reduce our own contribution.

But to be very clear, we're not selling or contributing, let's say, operating assets into this new partnership. This relates only to licenses at various stages in their life cycle and codevelopment thereafter.

Plus the 88 that we have in place, when completed, will be half, could be part of the transaction.

The next question is from the line of Memisoglu Osman with Ambrosia Capital.

Just wanted to ask you about the basket utilization for the quarter, if you could give us some color on, I guess, how that EUR 15 million, EUR 16 million moved in the quarter?

Yes, okay. So just to give you the full figures here. Give me a second. Okay. So in the 9 months, the restricted group has, in total, contributed EUR 56 million to the unrestricted group. All of it, of course, has been contributed in line with the description of the notes and all the baskets. And we've indicated -- on top of this, we indicated in the previous results, EUR 13 million was contributed as intragroup loan facility, for a facility that was signed already before the issuance of the notes. And then we also have an additional amount of -- an additional -- the remaining amount rather, relates to normal course of business between restricted and unrestricted group. In terms of the remaining cash buffer, so the remaining, let's say, headroom that there is for the restricted group to support the unrestricted group, that is EUR 33 million in total across baskets versus EUR 42 million at the end of June 2020.

Okay. Okay. This, of course, does not include the NI basket, I'm assuming. Am I thinking that correctly?

Excuse me, which basket?

This EUR 33 million will go up, I guess, with the NI -- with the profitability basket as the restricted group performance?

So part of the increased outflow from the restricted group involves utilizing the buildup basket for Q3 2020. There was an additional circa EUR 20 million of net profit of the restricted group, of which EUR 9.7 million has been provided as a support to the Construction business.

Okay. So that -- out of the EUR 15 million in Q3, EUR 9.6 million was used with the buildup basket?

That's correct.

Okay. Perfect. And do you expect -- in Q4, do you expect need to move more from RG to unrestricted?

Yes. We expect that there might be a requirement, possibly short term, for maybe about EUR 10 million to EUR 15 million.

Okay. And if you don't mind, just to confirm from the previous call, I'll link it to your answer here, the cash burn for construction was around EUR 30 million in Q3. And I'm guessing the money that you just mentioned, EUR 10 million to EUR 15 million, is likely to be the cash burn estimated for Q4. And again, this is all international sounds like, right? [indiscernible]

Correct. Correct. This is related to International.

Okay. So potentially another EUR 15 million on top of the EUR 30 million that we saw. And for next year, you're looking at no need for -- no cash burn, i.e., no need to move any money from restricted to unrestricted. Would that be a fair estimate? Okay.

Yes. For the full year, as we have also communicated potential in the first 2 quarters could be some. But because of the improvement, we are expecting reversals according to the baskets, and we expect to be neutral more or less for the full year.

Okay. Do you have any color on how much the first half burn will be? I'm sure people will be interested.

As we see, we see a steady improvement quarter-by-quarter. If you see, we see steady improvement. So that will be material less than what we see those -- the last 2 quarters. But again, difficult to say a figure, but it will be less than what you see in the last 2 quarters, as we speak.

And when we say -- just one last thing on my side. When we say international, any specific geography? Like it used to be Australia in the past. Is it still that region or...

It's mainly PVs, which is related to Australia to Brazilian and the U.K., but it's mainly PVs related.

The next question is from the line of [ Papaharalambous Marva ] with Bluebay Asset Management.

I have 2 questions. Sorry, if I missed it. On this new JV with EDPR, what is the cash contribution you expect to contribute? Is it like ballpark EUR 100 million? Or am I being way off?