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

Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the Ellaktor Group conference call to present and discuss the company's Board of Directors proposed share capital increase. At this time, I would like to turn the conference over to Mr. Anastassios Kallitsantsis, CEO of Ellaktor Group. Mr. Kallitsantsis, you may now proceed.

Thank you. Good afternoon, ladies and gentlemen. I'm Anastassios Kallitsantsis. I'm group CEO, and I'm joined today by Ellaktor Group CFO, Mr. George Poulopoulos; and Mr. Dimitrios Koutsoukos, Head of Business Planning and [indiscernible].

Poulopoulos.

Poulopoulos, sorry. Again, oh sorry, George. All right, well, anyway, thank you all for dialing into Ellaktor investors update following today's Board of Director decision for a share capital increase with preemptive rights to our shareholders. During our recent communication at the 9-month results, I have said that quarter-by-quarter, Ellaktor is moving closer to its ultimate target for return to growth. Today's announcement for a share capital increase is the latest step towards this direction, and we are here to present you with the key drivers and prerequisites of the group's growth plan and demonstrate how our tiresome efforts over the last 2.5 years brought this target finally within Ellaktor's reach. First of all, though, I'd like us to visit Page 4 of our presentation, which describes where our Group currently stands as the unique positioning and positive prospects of Ellaktor tend to be overlooked from time to time, especially when noise in the market over shadows substance. So let's take a quick look on who Ellaktor truly is and what it really represents in Greece. It's the largest concessioner in Greece, holding 5 out of 7 key toll roads and the one who has secured the concession of Alimos Marina, the largest in Southeastern Europe for the next 40 plus 10 years. It's the second largest renewables producer in Greece, with circa 500 megawatts installed capacity and the strategic agreement with EDPR for the joint development of 900 megawatts wind power portfolio. Ellaktor is a market-leader in environment and waste management business, holding over 45% of the market with over 30 reference facilities and projects and is the largest producer of energy from landfill biogas. Ellaktor has also -- is also the largest construction player in Greece, with 70 years of unique expertise and EUR 1.6 billion backlog as of September 2020. And last, but not least, one of the largest developers in Greece, operator of the largest retail park in the country. Without any doubt, Ellaktor's portfolio is one of the most valuable, diversified and resilient in the country as indicated also by the group's response to the pandemic. Despite the further deterioration of the economic outlook due to COVID-19, the adjusted EBITDA for all of the Group's segments have been improved in Q3 2020 year-over-year. Ladies and gentlemen, this commanding position and resilience to COVID-19 pandemic is the result of the transformation journey that the group started 2.5 years ago following the July, 2018 AGM when the management of the group changed through the first proxy fight of the Greek Stock Exchange. At that time, as you can see on Page 8, Ellaktor's transformation was based on solid 3-phase plan with clear objective. Phase A, exit legacy loss-making activities, Phase B, improved the business, and Phase C position for growth. Key implementation enablers of the transformation journey have been the enhancement of corporate governance, the transformation of operating model and the alignment of stakeholders' interest, and the new strategic plan. These were the key commitments of change for Ellaktor, and this management has stayed true to the mandate provided by the shareholders in 2018 AGM. And management, the prioritized group and shareholders' interest before business units and personal agendas and led Ellaktor for the first time in its history. We brought down the silos between the business units, we opened the path for synergies, we aligned business units and group strategy, but more importantly, we laid foundations for sound governance as a cornerstone for any healthy and transparent financial entity. We ensured that Ellaktor will never risk compliance issues, such as the ones that damage the group's reputation in the past and jeopardize its future prospects. In a nutshell, we managed to transform Ellaktor from a group holding one of the lowest scores in corporate governance to a group ranking among the top 3 companies in Greece, as assessed by the reputable and independent organization of IFS. At the organizational and operational level, we achieved modernization of group's corporate structure in accordance with the best international practices and redesign of critical processes at group and business unit level with special focus on construction. The transformation of operating model continued through the centralization of support functions at group level, the setup of group procurement and enhancement of cash flow management procedures, while we started the digital transformation of the group, introducing modern IT governance and security protocols and applications. Despite the enormous housekeeping challenge that constitutes a structural, a cultural change of this magnitude in such a large entity, we did not lose our focus on the strategic front. We increased our stake in Attiki Odos by 6.5%, thus reaching 65.8% in total and signed the first concession agreement in Greece for the operation of the largest marina in the Southeastern Europe, the Alimos Marina, for the next 40 plus 10 years. Our renewables capacity grew by 35% to almost 500 megawatts while we have signed an agreement with EDPR for the development of another 900 megawatts, representing an investment of EUR 1 billion. We acquired 75% of ASA, a recycling company, and strengthened our presence in the environmental sector. We increased total in commercial tenancy area of Smart Park by 40% to 53,000 square meters. More importantly, we also revised our rating construction. AKTOR withdrew from long-term loss-making activities, especially international prototypes and countries where there was no competitive advantage and has now limited its activity in Greece and Romania and small-scale, one-time project in Qatar, prioritizing profitability or the mere replenishment of the backlog. There is no doubt that construction was a key challenge. We knew that from the start, and we were determined to turn this around even when we realized that the situation was far worse than originally presented. Apart from dealing with the bad projects across the bolt-ons, millions of losses and supervised contracts and forgotten claims, the actual restructure of construction from the ground up was a massive exercise, both in terms of discipline as well as in terms of time. In a company present at that moment in 30 countries and with a turnover of EUR 1.8 billion, there were no central policies and oversight on how construction negotiates and manages its relations with its suppliers and clients. We established from 0 cash flow management, planning and control, as well as contract management, while we completely reorganized the tendering bidding department placing safeguards and processes to ensure that new products will be profitable. Most importantly, AKTOR is currently implementing a transformation program. As you can see on Page 12, which is expected to generate benefits of $100 million by 2023. The program is on track and is currently focusing on the centralization of procurement at group level, the rationalization of payroll cost through alignment of compensation and benefit levels to market-based benchmark while remaining competitive and linking pay to performance. The optimization of organizational structure and size through the launch of a voluntary exit scheme and the retirement scheme, and finally, the disposal of nonoperating assets and participations, which have so far generated collections of approximately EUR 27 million as of the end of September 2020. Nevertheless, management should be judged based on facts and results, as these are the ultimate measure of success of any initiatives implemented. To this end, I would like us to turn now to Page 13, where you can see that AKTOR's restructuring efforts have now started to pay off. More specifically, Financing needs of construction from the group are declining as its operating cash flow position is improving from minus EUR 83 million in the beginning of 2019 to minus EUR 2 million in Q3 2020. This is particularly evident in the case of Greek operations on the top right-hand graph, when you can see the operating cash flow is constantly improving every quarter in 2020 compared to the respective quarter in 2019. Performance of operational activities is also recovering. As you can see on the bottom right-hand graph, particularly following the financing [indiscernible] of to tax recognized losses in the end of 2019. Turning on Page 14, key priority now is to secure AKTOR's funding needs which will ensure a resolution of AKTOR's liquidity issues. Based on AKTOR's restructuring plan, full year 2023 -- full year 2033, there is a funding need of EUR 41 million to mainly implement the strategic decision to exit the nonprofitable businesses so that Greek and Romanian projects are self-funded and profitable. These funding needs Includes recognized losses of about EUR 35 million that need to be gradually financed by the end of the first half of 2021 and are related to international [indiscernible] activities. Thereafter, AKTOR is projected to be cash flow positive during the business plan period. Hence, our key priority for Q1 '21 is to secure the required funds over and above AKTOR's funding needs, which will ensure full resolution of AKTOR's liquidity issues once and for all. This will be achieved through further support of AKTOR by the group, EUR 35 million in total by the end of 2020. Additional funds of EUR 40 million to become available to AKTOR through Ellaktor's proposed share capital increase and the new loan facility that is currently being discussed with the banks. The above measures will allow AKTOR to build a significant funding surplus and return to profitability. Moreover, the share capital increase, combined with the transformation journey of the construction, leaves behind the issues that plague the sector and will enable the group to secure flexibility and the funding to proceed with its growth strategy and investment plan in concessions, environment, renewables and real estate. More specifically, Ellaktor will generate a significant funding surplus through the share capital increase, roughly EUR 10 million on top of the EUR 40 million provided to AKTOR. The optimization of Attiki Odos' cash position EUR 52 million. And the releveraging of existing renewables portfolio at the range of EUR 100 million, in which discussions with the banks are already underway. With over 100 million funding surplus and the expectation that the Greek economy is projected to grow by 5% in 2021, Ellaktor Group is ready to accelerate its growth as evidenced also by our Q3 2020 performance, where the group's adjusted EBITDA improved by 38% compared to Q3 2019. From the first half of 2021 onwards, Ellaktor will be optimizing its portfolio for sustainability and profitability, achieving an improved risk-reward ratio. With the additional funding, Ellaktor is pursuing a set of critical growth targets in the future, such as in concessions, completion of Alimos Marina development, enhancement of portfolio by at least 1 more motorway and preparation for the Attiki Odos bid. In the renewables, timely completion of current investment plan, faster scale up through the development of an attractive portfolio with EDPR as a strategic partner and technology diversification. With this agreement, Ellaktor acquires the ability to more than double its installed capacity currently 500 megawatts further strengthens its leading position in the domestic market and expands its investment plan in Greece. In environment, capitalization of leading position to grow in line with the market as investments to be launched in the next 5-year period in Greece are expected to reach the EUR 2 billion and enhancement in research and development. Regarding construction, strengthening position in core markets through improving productivity and efficiency while taking advantage of the positive outlook of the sector due to the EU next-generation fund deployment. In real estate, the development of the Compass Park and the ex Pegasus building and further selective investments in new real estate assets, are in view. Consequently, the announced share capital increase is necessarily as part of the broad transformation journey in order to adequately address the funding issues of construction and all the issues which have plagued it in the past, while it positions the group for growth in concessions, renewables and the environment sector. Finally, the proposed share capital increase has the support of the major shareholder. [indiscernible], the largest shareholder of Ellaktor with sica 26% is considering the possibility to participate and we will make the necessary announcements in due course. We are very confident that the recent interest in the stock gives us strong indication for successful share capital increase. Ladies and gentlemen, before I open the floor for questions, I would like to add that based on all the aforementioned, the Board of Directors has served Ellaktor, its employees and its shareholders well. Ellaktor has changed for better, and in this sense, change for Ellaktor, the management and myself, who helped fulfilled our mission, creating a world governed efficiently structured, professionally managed group with improved financials, streamlined operations and a clear, realistic and prosperous business strategy. As the market landscape is changing, investment interest for the group is being restored and with the successful as we predict capital increase, the next chapter growth for Ellaktor begins. On a personal level, I am here to offer my services to Ellaktor as long as the company wants and needs them, paving the way for a completely professional and unassociated within major shareholders' management as the initial target of change for Ellaktor has been. I have stayed true to these commitments and all my efforts, decisions and actions over the last 2.5 years demonstrate that I stopped acting as a major shareholder and behaved solely as a CEO, putting Ellaktor, its people and its shareholders first, and placing their interest and their needs above my own. This is why I invested all my sales and change for Ellaktor in order to prevent the group for further value distraction. I strongly supported the absorption of ELTECH ANEMOS by Ellaktor in order to financially strengthen the group despite the inevitable dilution of my share in the company. I liquidated the remaining share I directly controlled in last week, practically eliminating any direct shareholding over the company. I am, and will remain in favor of all who have Ellaktor's best interest in heart and against anyone who acts other ways. This and the shareholders' desire, as expressed through their vote at the general assembly are the only factors that matter to me. Thank you all. I give the floor to question and answers.

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

Can you tell me how much funds have been moved from restricted group to unrestricted group since the end of Q3?

The amount that has been roughly just over EUR 10 million, and we expect to be at the level of EUR 15 million altogether since that plan.

So if we go back in Q3, you moved $15 million, right?

Yes. We have -- as you see in our presentation, we have EUR 35 million expected to be during Q3 and Q4 expected, EUR 20 million has been in September and October and EUR 15 million are expected to be in November and December, more or less.

Got it. So the total of EUR 35 million is for the second half of 2020?

Correct, cross summer, yes.

The next question is from the line of Gkonis Argyrios with Axia Ventures.

A question on formalities, regarding the AGM that you have announced for January 7, can you please remind us the necessary quorum and participation thresholds in order for your proposal for the share capital increase to be approved.

We need 2/3 of the quorum in the AGM.

Okay So this does not have to be necessarily a super majority, meaning more than 67% participation in the AGM?

Sorry, can you repeat? Please, can you repeat it.

What is the necessary participation in the AGM in order to be able to validate this approval?

You need to have the 2/3 in the first 1 as participation. Out of the participation, we need to have the 2/3 in order to approve the proposed capital increase.

The next question is from the line of [ Louis Jared ] with Boundary Creek Advisors.

Can you just quantify whether the loan that you're waiting to complete with banks for actor. Is that contingent on the rights issue taking place? And once these measures are done, is then actor fully restructuring then invested? Or you expect there to be some more transfers in the restricted group? to construction in 2021.

Yes, so if you see on Page 14, we estimate that we will transfer from restricted to unrestricted during this year, EUR 35 million. And VAS is sufficient together with the EUR 40 million that we have planned for the -- through this capital increase to fully cover the needs of AKTOR. And on top, we are under discussion with the banks in order to have also a significant surplus in place in order to resolve once and for all this liquidity issue of AKTOR. As You have seen from the presentation from Mr. Kal sad that the liquidation of after is improving quarter-by-quarter. So this is very encouraging, and we feel that, that will be the end of this journey of liquidity issue of AKTOR.

Okay. Sorry, the new loan that you're negotiating with the banks, is that contingent on the rate issue?

No. But this is a positive, but it's not contingent.

The next question is a follow-up question from the line of Memisoglu Osman with Ambrosia Capital.

Just wanted to get your feedback on what is the status of the Reggeborgh EGM request and the changes to Board request?

As you could see from the agenda of the AGM that will take place on January We have incorporated the proposed change of board. And so it is part of the agenda that we have announced.

So it's part of the agenda. Okay. And I guess somewhat related, is the proposed share increase underwritten?

No. It's not underwritten. We have seen -- you have seen that the movement in the last few months in the market is very positive to the company. So this is a very favorite environment. And as we're mentioning, the Manauro is considering its possibility for participating in this proposed capital increase, which is also very positive.

The next question is a follow-up question from the line of Gkonis Argyrios with Axia Ventures. .

Yes, from my side as well. Going through the presentation on Slide 15, you mentioned an optimization of Attiki Odos cash position by EUR 52 million. Can you please elaborate on what exactly this means?

Yes, according to the contracts, we could convert up to 50% of the shareholders' equity into a sub debt. The rest amount will be distributed to the shareholders in 2026 and 2027 as described in the relevant documentation. Attiki Odos shareholders have already agreed to do so. This debt has a close for an early repayment. So it could be available any time if needed in the near future.

So the EUR 52 million that you mentioned there is the 100% or your stake, the 66%?

This is related to our stake.

Okay. So essentially, you are taking upfront, a part of the equity contribution that was scheduled to take place at the end of the concession.

A significant portion of that, not fully.

Yes. Okay. Okay. And 1 follow-up, again, overall, this is a process that if all goes well, will be completed sometime in March as you described during your timeline. My question is, until then, what is the available liquidity to keep running the Construction division and any needs that may arise in terms of participating in new tenders that might be expiring? And do you feel that you have the available liquidity to cover working capital needs and keep the motor running essentially? How would you address any concerns like that?

Yes, as you can see from the presentation on Slide 14, there is -- these amounts that is needed will cover mainly the amount that is needed for the international photovoltaic, which is in this period of time. And as you can see from the previous slide on Page 13, there's a constantly improvement on the cash flow development of AKTOR. So the -- as we have described in the 9-month results, we're expecting for the full year 2021, the company AKTOR construction to be at a breakeven more or less and also to be breakeven in terms also of the cash flow include but in the next -- in the first few -- the first half to be slightly negative. But the support that we have provided already in Q4 this year is very supportive in order to have the funding needed in the first quarters, including the developments that we're expecting by March through this capital increase. So we have the amounts needed for this time period in order to cover the minimum requirements for this time.

The next question is a follow-up question from the line of Memisoglu Osman with Ambrosia Capital. .

Just going back to the previous conference call on the results, we had talked about construction cash outflow. And I remember a figure of 30 million for Q3. I'm just trying to understand how that reconciles with the chart on Slide 13. Maybe I'm missing something. Did I see EUR 2 million?

This is for -- this is -- you see Q3 in which you have seen also the funding that has been provided by the group, which is roughly EUR 15 million. So you see that the cash amount in Q3 has been increased due to that. So the development was positive in Greece, as you can see on the top right-hand graphs. But also we have seen a significant improvement also from the -- on the bottom right that it was definitely improvement on the international. We have to say that we had also revenues collections -- not revenues, excuse me, collections from nonoperating assets that has been in place in Q3, as we have described also during the call. So that has been additional improvement that has taken place by placing nonoperating assets.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Kallitsantsis for any closing comments. Thank you.

Ladies and gentlemen, I would like to thank you all for your attendance. Our IR team will be available for any further questions. So I wish you a good evening to all of you. Thank you.