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

Ladies and gentlemen, thank you for standing by. I am Jay, your Chorus Call operator. Welcome, and thank you for joining the ELLAKTOR Conference Call and Live Webcast to present and discuss the decision of the company's BoD on the proposed share capital increase. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Aris Xenofos, CEO and Vice Chairman of BoD ELLAKTOR Group; Mr. George Poulopoulos, CFO ELLAKTOR Group; and Mr. Dimitrios Koutsoukos, Director, Business Planning and Investor Relations. Mr. Xenofos, you may now proceed.

Thank you. Good afternoon, ladies and gentlemen, and good morning to our colleagues joining us from the U.S. I'm as Aris Xenofos, Group CEO. And as you heard, I'm joined today by ELLAKTOR's Group, CFO, George Poulopoulos; and Dimitrios Koutsoukos, Head of Business Planning and IR. I truly thank you all for dialing into ELLAKTOR's investor update. As this is our first meeting since the assumption of management duties at the end of last January. And before passing the floor to George to get us through the presentation, let me share with you some of my thoughts and remarks in regards to the group and the upcoming capital risk. ELLAKTOR Group is -- I think we can all agree -- or guess, it's a leading diversified infrastructure player with a highly experienced and knowledgeable personnel. Its unique experience in construction, both in domestic and international markets, its strong technological background and expertise in waste management, its pioneer engagements in concessions, its sizable in-store capacity in the renewable energy sources, and its growing real estate activities, I believe constitute a firm stepping stone for a new strong move forward. Furthermore, the expected strong demand of the Greek economy, backed by EUR 70 billion of fresh EU funds over the next few years, out of which more than EUR 40 billion is estimated to be directed until 2026 to infrastructure and energy sectors, where ELLAKTOR Group has undeniably a dominant position and a unique experience. I believe constitute the appropriate framework for ELLAKTOR to reaffirm its position as a leading diversified infrastructure player. Inevitably, the question is that feasible, especially if we consider how negatively group's performance has been affected by construction losses during the course of past 3 years. I think we need first to distinguish between construction and the rest of our activities. It's true that revenues in the construction activity have been contracted by 2/3 during 2018, 2020 period from approximately EUR 1.5 billion to just EUR 0.5 billion, and EBITDA figures have been negatively impacted primarily by international portable type activities. On the other hand, it is equally true that Concessions, Renewables and Environment have consistently generated over EUR 200 million of EBITDA for every year during the advancing period. So stabilizing our performance, implementing a rigorous cost-cutting plan and restoring AKTOR's liquidity issues have been our priorities from the first day in the office. That said, let me paint the perimeter of our initiatives, mainly in the construction sector and not only as follows: elaborate an interim bridge financing structure to strengthen AKTOR's liquidity buffer until the completion of the proposed short EBITDA increase; restore AKTOR's relationship with supplier and settle its overdue payments; renegotiate AKTOR's existing agreements with suppliers and subcontractors; further rationalize fringe benefits and over time in pursuit of a front-loaded transformation program; enhance the organizational structure to promote effectiveness, synergies and accountability; and finally, accelerate and closely monitor project progress in AKTOR. Ladies and gentlemen, on last Friday, we have announced the ELLAKTOR BoD's proposal for a short capital increase in the order of EUR 120.5 million through payment in cash with PMT rights in favor of existing shareholders at an offer price of EUR 0.90 per share. Of the total, EUR 120.5 million, EUR 100 million is earmarked for AKTOR and is specific. EUR 45 million to cover liabilities arising from existing internal assurance and other loss-making projects and EUR 55 million to settle critical payments to the Greek market in order to restart and accelerate the pace of construction projects. The balance of EUR 20.5 million will be directed to our renewable business to accelerate the business units investment formula to hand the next year. As aforementioned, ELLAKTOR is perfectly positioned to capitalize all the upcoming very attractive macroeconomic backdrop and for all business units to pursue strong growth opportunities. In order for our group to be able to do so, this short capital increase is a necessary step. And this is why we strongly urge all shareholders to vote in favor of this proposal during the upcoming AGM, which were calling for April 2 and participate further to the relative share capital increase. The aforementioned actions with the close monitoring of AKTOR's projects will resolve AKTOR's liquidity position and will allow the group to proceed with its growth strategy. And with that note, I would like to pass the floor to George to get us through the presentation that we have shared with you earlier on. Thank you.

Thank you, Aris. Let me turn to Page 11. We can see an overview of historical contributions to performance by segment, focusing on revenue and EBITDA. Construction has been historically the largest contributor to group revenue accounting for 56% of total revenue based on last 12 months performance, down from 79% in 2018. On the contrary, as we can see on the right-hand side, group EBITDA is driven by Concessions, RES and Environment, which have a proven, robust and resilient EBITDA generation profile. These 3 businesses have generated a 3-year average of EUR 220 million per annum. Even in 2020, in which concession has been impacted from COVID-19 due to restrictions on movement, EBITDA is going to be around to EUR 200 million. Looking at our portfolio of businesses, it is evident that concessions, rest and environment are highly cash-generative and self-funded. On Page 12, we see in greater detail our concessions business, the group's flagship cash generator. Our portfolio of mature motorway concessions the cornerstone of which is Attiki Odos, has recently been strengthened by adding the 40-plus 10-year concession for Alimos Marina, Greece's largest Marina. Historically, we have seen a very resilient financial performance through the business cycle, though this segment has been significantly impacted by the COVID-19 pandemic. Nonetheless, concession segment generates a significant amount of operating cash flow every year. The total cash and liquid assets of concessions were at circa EUR 260 million at the end of December 2020. Similarly, on Page 13, we see that RES has stable cash generation which is significant and expected to grow alongside the growth of our total installed capacity. ELLAKTOR has recently announced the signing of a strategic operation framework with EDPR, Europe's second largest renewable business for the joint development of 900 megawatts of wind power assets. The estimated value of this joint investment upon its full implementation exceeds EUR 1 billion. Given our strong focus on renewables and a significant investment program, EUR 20 million of proceeds from this proposed capital increase will be to finance part of our regular contribution. On Page 14, we see our Environment business, a segment with a very significant macro tailwinds in Greece. ELLAKTOR, the largest player in waste management in Greece is unique positioned to capitalize on attractive industry dynamics. The business is also consistently contributing positive operating cash flow. Prospects appear strong as Greece needs to certainly proceed with new infrastructure in order to comply with national and EU waste management legislation as well as utilize the available EU funding within a very tight time frame. Total cash and liquid assets of Environment segment were at circa EUR 30 million at the end of December 2020. Therefore, we see that our main businesses, excluding Construction, are cash flow generated and contributing significant positive EBITDA to the group. Moving on to Page 15. We see that group's performance has been negatively affected in the past by Construction's losses. On the top left chart, you can see the evolution of EBITDA in the construction sector. EBITDA on the core markets, i.e., Greece and Romania are presenting with direct color. As we realize, the main losses on construction are arising from noncore markets, mostly international PV projects as well as nonrecurring costs most of which are associated with the restructuring exercise in construction. This is why management will be focusing on Greece and Romania, where performance has been markedly better, and we have the needed infrastructure to support the business. On the bottom left-hand side, we can also see the liquidity constraint due to a mismatch of liabilities and receivables, leading to a gap of EUR 43 million in Greece and Romania, while another EUR 45 million is required to finance liabilities of international PVs and other projects, mainly due to implementation of the exit strategy on both countries. This leads to a total liquidity gap of EUR 88 million. This gap has been created by critical operational challenges which we are now addressing. For example, there was a hot selection of target geographical markets without the appropriate operating model and controls. Leading to full scope management and cost overruns. There was a suboptimal organizational structure in place as well as an inflexible fixed cost base which is currently not aligned with revenue levels. Also, there was a lack of structured project planning and control practices with; a, frequent cases of full project planning and budgeting practices; b, lack of systematic monitoring of project progress and performance; and c, inefficient risk management procedures. Finally, the business was facing increasing operating costs, such as wages, rentals and fees for due to liquidity constraints. This is why we are proposing this EUR 120.5 million short capital increase, of which EUR 100 million will be directed to construction. This is the necessary first step to restore AKTOR's competitiveness and stabilize performance. The second step, equally important with the proposed capital increase in AKTOR is to better monitor and control the projects and streamline the business model in order to address the current size of business. On Page 16, we see the key initiatives that the new management is undertaking to resolve after liquidity issues: one, exit loss-making activities and focus on core markets; two, restore relationships with suppliers; three, accelerate projects progress; and four, received AKTOR's project portfolio. This EUR 100 million injection will cover AKTOR's pressing financing needs and will restore competitiveness, stabilize performance and return to positive run rate net cash flows by the end of 2021. This will position AKTOR to take advantage of the significant infrastructure investment that will drive Greece's GDP growth in the coming years. In addition to the proposed and necessary short capital increase, the group-wide transformation plan, which is underway, is an equally important component of repositioning AKTOR to positive net cash flow generation. On Page 17, we see the key objectives and expected benefits of this program, and we have taken recently additional cost-cutting measures. In procurement, we are optimizing the group procurement function and proceeding with renegotiation with suppliers and subcontractors as well as setting over 2 payments. This is expected to deliver a benefit greater than EUR 25 million by the end of 2023 since early 2021. Looking at AKTOR's organization, we are rationalizing payroll costs and introducing a new fit-for-purpose organizational model. We are reducing overtime expenses through effective HR management and further rationalizing fringe benefits. Our new organization structure will promote effectiveness and accountability and will focus on the effective release of personnel linked with project completion rate. The above measures are expected to have an additional benefit pre other than EUR 35 million by the end of 2023 since early 2021. Finally, we are disposing of nonoperating assets with an expected positive cash flow impact of EUR 9 million by the end of 2023 since early 2021. Following the short capital increase, delivering and delivering on the transformation plan in place, the group will be well placed and sufficiently funded to proceed with its growth strategy, capitalizing the positive outlook on key sectors in which ELLAKTOR is a leading player. In closing, I would like to repeat the short capital increase framework and time line. On Page 20, we summarized the use of funds raised by this proposed EUR 120.5 million for capital increase. EUR 100 million will be used to cover the capital requirements of the construction pillar after. In more detail, an amount of EUR 45 million will cover liabilities which arose from existing international PVs and loss-making projects, and an amount of EUR 55 million will be used to cover critical overdue payments to the Greek market. The balance of EUR 20.5 million will be used by ELLAKTOR to finance new investments in RES. Regarding the time line, we have invited shareholders to vote on the matter in the upcoming AGM on April 2, 2021. We expect, following all the necessary regulatory procedures, the new shares to start trading by mid-June 2021. I would like now to open the floor for any questions.

[Operator Instructions] The first question is from the line of Memisoglu, Osman with Ambrosia Capital.

A couple of questions from me, 2 on the SCI side and 1 on construction. The SCI specifically, what is your plan if the capital increase is not approved by the general assembly? And then related to that, have you got any commitment from the main shareholders to participate? If you could give us any color on what percent is covered and what type of commitment? And then on construction, I was wondering if you've highlighted the recovery funding opportunities. Is there any outlook you can provide us for your construction backlog for the next couple of years or some kind of medium-term goal?

Well, thank you. Well, in terms of -- in regards to the share capital increase, what I can comment on is that; first, the size of the proportional capital increase is the outcome of a thorough exercise regarding the progress of the projects, but also cash flow exercise that we have performed. We feel very confident that the size, the proposed size of EUR 120 million reflects the current needs of the group, it's a realistic and pragmatic number. And we feel that it will be well perceived on the basis of the presentation that we have shared with you by the investment community. Secondly, my comment on the commitment of -- from the side of the shareholders would be that we feel that we have a very strong shareholders base, and we feel very confident that they will support the capital share increase in the upcoming general assembly. We cannot really fully preempt their decision. But we are pretty much confident that they will support the share that they possess as of now. Regarding the construction, as probably you know, the backlog stands at the level of EUR 1.8 billion. Almost half split between Romania and Greece and a small amount in the Middle East, mainly Qatar, which is facility management. Following the actions that we are taking, we are expecting EBITDA to improve significantly in 2021 to be very close to breakeven. Of course, we will give you more details when we give you the results of the 2020. But also, we're expecting, as I mentioned before, that by taking those actions, at the end of 2021 to start producing positive cash flow gradually.

Okay. But I mean -- any more, I guess, guidance on the construction? Like, is that possible at the moment, or it's a bit early?

No. I think in -- at that moment, we cannot say more from -- except what I just described.

[Operator Instructions] Next question is from the line of Gkonis, Argyrios with Axia Ventures.

If you could comment a bit on the liquidity movements from the restricted entity towards construction. I saw in your presentation that you mentioned something about EUR 30 million utilized to support AKTOR in the beginning of 2020. Can you give us an update where do you expect 2020 to close, and what do you project that you will need to use from the restricted entity over the next maybe 4 or 5 months until the new funds from the capital increase come in?

Yes. Following the summer call that we had in place in the second half of 2020, we have provided additional EUR 33 million from restricted to unrestricted. So that was the amount that has been transferred in that time. That was still early January 2021. So in the second half and early January 2021 also amount that I just described. Now going forward, we still have some room in case that is needed. The room stands at the level of EUR 11 million from the basket outside -- according to their knowns that we have in place. And of course, as Aris mentioned before, we are scheduling. We're planning for British financing, which is outside of the -- which is direct financing to AKTOR and this is something that is underway, we have to see how that will be developed.

And a follow-up, if I may. Looking at the bigger picture, 5 or 6 months post the share capital increase, can you give us an idea of how you contemplate the available liquidity under the Construction division and other the restricted entity. And essentially, what I'm trying to understand is what is your available firepower in order to participate into new project tenders that could potentially require some kind of funding from the concession as or equity type of equity participation?

Yes. As you can see on Pages 12, 13, mainly, which describes the operating cash flow of concessions and linear benefit. Those segments are contributing very positive on the cash flow to the group. And the group also has the power to use part of the cash position that are in place. In order to use in case what is needed. Ahead of us, we have some investments on renewable energy, as we have described, and we are planning to raise the EUR 20 million to accelerate the investments on the rest. Which is part of the equity contribution that is needed in the next 2 to 3 years. And on top, we have the liquidity available in place, which could help in case that we need it in other projects for concessions that are on way. On top, as we have communicated in the past, we have an ability to top-up if it is needed, some amount from the existing RES projects, which that could be in place if it is needed in the future, depending on the developments of the projects that we are looking for. So the group, as we discussed in the beginning, has the power to capitalize the investment that will take place in Greece in the next 5 years as we are describing on Page 9 of the presentation.

Next question is from the line of Hatiris, George with Solidus Securities.

Hello, I would like to ask if there is any intention to transfer the part of all AKTOR activities? And if this increase in share capital will cover all the needs of the company?

As we said, we feel very confident that the size of the proposed share capital increase is a good number. It's a pragmatic number and fully covers the needs of the construction business line. In regards to your -- to the first part of your question, there is absolutely no intention whatsoever in that respect.

[Operator Instructions] We have a follow-up question from the line of Memisoglu, Osman with Ambrosia Capital.

Just following up on the previous question regarding the movements from restriction. Did I hear you correctly in '21 so far, there was EUR 33 million from restricted to the Construction business? That's the first bit. And then who would be the borrower entity for the bridge financing? Is it the construction company? If you could clarify that.

So regarding, as I mentioned, it's from the summer. So it was from September till January, the EUR 33 million that I just described before. Regarding the second -- your second question, we're talking about a third-party to participate.

If you can clarify the question again on your second part of the question, please?

Sure. I was just trying to clarify who would be the borrower, which entity would be the borrower with the bridge financing?

It will be after construction.

Okay. And this will happen soon ahead of the SCI, correct?

We are in -- this is a work in progress. We are exploring the alternatives and the options that we have. I guess that pretty soon, we will be able to share with you details on the structure.

Okay. Any size? Any color on size?

Not yet. I mean, we are in the process, as I said, most probably, it's going to be a bond issue addressed to our shareholders. But then again, it's something that we are contemplating upon. And once we have a confirmed position, we will certainly share that information with you.

Your next question comes from the line of with Prelium Investment Services.

Well, my question is for the management to come out asking for such a large amount, obviously, there is a big certainty that the increase will be covered. What is the feedback that the management has received from major shareholders, such as Greenhill, Reggeborgh, Leonidas Bobolas, Barclays and AstroBank concerning their commitment to their participation in this capital increase as well as for any interest that they have shown in purchasing any available share-wise, let's just say. Overall, can you reassure the investment community about the success of the capital increase?

Well, in regards to the size of the share capital increase, the driver is not whether the shareholders are committed or not. The driver is what we feel as a management team, we should address to the best community. We have been spending quite a lot of time in the last few weeks, trying to assess the business, primarily in the construction side, both in regards to our domestic, but primarily our international activities. As I said, we have performed a number of exercises, cash flow exercises. We have reviewed the liabilities and receivables mismatching that we have. And we strongly feel that this is a fair price, a fair number. On the second part of your question, on how responsive the shareholders will be, I guess this is something that we have to wait until the general assembly to say.

Okay. May I ask another question?

By all means.

God forbid, in case that the capital increase is not approved. What's the alternative plan that you might have to support the construction sector?

This is not an option. As we said, we -- I mean, we -- the group has strong background. I think our people have a strong expertise, a good knowledge. They have very good experience. We have business lines which are contributing strongly in the business of the group as a total. And I think, as I said, we have a strong shareholder base that makes us feel confident that show up an increase can be a success.

[Operator Instructions] Your next question is from the line of Gourdain, Nicolas from Lexcor Capital.

Just following up on the previous question. I guess, do you have sort of any indication from some of your large shareholders in terms of who is supporting or sort of not supporting the rights issue? And I guess, give us some hint some of the Greek press that regulatory board might sort of extend the sort of loan to the company sort of short-term and also potentially underwrite the rights issue. I'm just wondering if there's something you could comment on -- and you might have addressed it, but I lept out of the call for 5 minutes, apologies if you have?

Well, my first reaction is that you should address this question to the shareholders. But on our side, what I can say is that with regards to the bridge financing that we have been discussing, this is going to be a market-oriented structure. We will address all our major shareholders. And we intend also to address the domestic financial institutions as well. But as I said earlier on, I mean, give us some time, and we will be sharing the details with you in a few days. On the second part of your question about the commitment. We feel that, again, this is -- we cannot really preempt the decision-making or the decision from the side of our shareholders. But truly speaking, we feel very confident that the shareholder base has been strengthened. And we feel confident that we're going to have a positive outcome out of this process.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

Thank you for participating today to this call. We are available. We IR team and ourselves are available for any questions after vote this meeting either tonight or tomorrow or the next day. Thank you very much.

Thank you all.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.