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

Ladies and gentlemen, thank you for standing by. I am Galie, your Chorus Call operator. Welcome, and thank you for joining the ELLAKTOR Group Conference Call and live webcast to present and discuss the bondholders' briefing on the first half 2021 ELLAKTOR's Restricted Group results. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Efthymios Bouloutas, CEO of ELLAKTOR Group; Mr. Dimosthenis Revelas, CFO ELLAKTOR; and Mr. Dimitrios Koutsoukos, Director, Business Planning and Investor Relations. Mr. Revelas, you may now proceed.

Thank you. Good afternoon, and welcome to today's call. Joining me on today's call, Efthymios Bouloutas, our CEO; and Dimitrios Koutsoukos, our Head of Investor Relations and Business Planning. A press release announcing ELLAKTOR financial and operating results for the first 6 months of 2021 was issued earlier today. For those of you who haven't seen it, it is available on the Investors section of our website, www.ellaktor.com. On our call today, we will share with you the business update and review of our financial results, which will be followed by a Q&A session. Before we begin our prepared remarks, I would like to remind you that various statements we make during the call about the company's future results of operations and financial position, our business strategy and plans and objectives for our future operations are considered forward-looking statements. These statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. Specifically, developments related to the COVID-19 pandemic continue to evolve, and the extent to which the pandemic impact us in the future will depend on the duration and magnitude of such impact and on numerous factors that we may not be able to accurately predict. These risks are described more fully in our presentation on our website. I would also like to remind you that the Restricted Group financial information has been prepared in accordance with IFRS except for the accounting treatment used for the Unrestricted Group. In specific, investment in Unrestricted Group represents the net equity of the subsidiaries included in Unrestricted Group and more specifically, subsidiaries under the Construction segment, Real Estate segment and Moreas S.A. During the periods presented, the Restricted Group functions as part of the larger group of companies controlled by ELLAKTOR. Also, the financial information of the Restricted Group is presented prior to elimination entries related to investment in subsidiaries and intercompany loans, liabilities to and receivables from companies forming the Unrestricted Group. Lastly, the accounting policies used in preparing this financial information are in accordance with those used in the preparation of the annual financial statements for the year ended 31st of December 2020. I would now like to turn on the call to Efthymios Bouloutas, our CEO.

Thank you, Dimos, and thanks, everyone, for joining the call this afternoon. I will follow the presentation on our side with the title ELLAKTOR Group First Half 2021 Restricted Group Results. If you turn to Page #3, our second Q Restricted Group revenues came in at EUR 102 million, 24% higher year-on-year and 9% higher sequentially versus the first Q. The first half Restricted Group revenue came in at EUR 195.3 million, 13% higher year-on-year. The Concession revenue for the second half of this year is 51.4%, 44% year-on-year and 40% Q-on-Q. And the first half '21 number is EUR 88 million, 9% year-on-year on the back of gradually increasing traffic volumes as a result of the gradual lifting of COVID-19-related traffic restrictions. The Environment second Q revenue came in at EUR 31.1 million, 25% year-on-year and 28% Q-on-Q. And the first half '21 results spend for the Environment sector revenue -- I'm sorry, sector stand at EUR 55.4 million, posting an increase of 17% versus last year. Whereas Renewable business, the second Q revenue came in at EUR 19 million, 9% lower year-on-year as a result of particular favorable weather conditions in the first Q of this year. And first half 2021 revenue at EUR 51.6 million or 14% higher year-on-year. In Page #4, the quarterly profitability update with emphasis on the EBITDA numbers. Second Q Restricted Group EBITDA is EUR 51.5 million, up 14% -- 45% versus 35.6% recorded in the same quarter of last year and marginally up by 3% on a Q-on-Q sequential base. The first half Restricted Group EBITDA came in at EUR 101.3 million or an increase of 18%. The first half Restricted Group EBITDA margin was at 51.9, materially improved by approximately 230 basis points compared to last year. The second Q Restricted Group EBITDA margin is 50.6% versus 43.4% in the same quarter of last year. In Page #5, we will discuss a few -- we have put a few comments on operational update. As discussed in our first Q results presentation, the group has embarked since February 2021, upon a business and operating restructuring, the main pillars of which are improving balance sheet structure and injecting equity into AKTOR; gaining access to the local banking system; optimizing the geographical footprint through disengagement of unprofitable markets; streamlining operations, optimizing the cost base through OpEx reductions where possible and gradually realizing procurement savings through thorough review and direct negotiations with suppliers. Our first important milestone has been reached on August 3, with successful completion of the EUR 120 million share capital increase which was 2.2x oversubscribed. And this share capital increase marks the biggest share capital increase of a nonbanking institution in the Athens Stock Exchange for 2021 so far. The share capital increase in AKTOR that was announced 3 months ago of approximately EUR 100 million, EUR 98.6 million to be exact, was completed on August 6 and full repayment of EUR 50 million bridge facility subscribed to by the main shareholders and Greek banks was affected on August 10, effectively completing the list of tasks announced 3 months ago. Since the beginning of February, which was the date for the election of the new Board of Directors and management, the yield to maturity of Group's listed Eurobond has improved by 187 basis points from 8.4% to 6.5% approximately, reflecting market perception of improved risk profile. Finally, in Page #6, on the operational update side, we would like to point in that in Concessions, trends are anticipated to improve due to recovery traffic, while the new project, the Alimos Marina 40 plus 10 years Concession that was started from the 1st of January of 2021 poses encouraging trends. In Renewables, new businesses -- on new businesses, the Regulatory Authority of Energy has issued producer certificates for photovoltaic assets of 140 megawatts in Northern Greece, while new application for production licenses has been submitted to the Regulatory Agency for 97 megawatts wind farms and 417 megawatts battery storage. Finally, on the Environment segment, the Helector subsidiary specializing in waste management, signed new projects amounting to EUR 76 million, of which Helector's share is approximately EUR 49 million. In Page #8, we finalize -- effectively, this is a very short summary of 5 bullet points of what we've told you so far. Restricted Group revenue, EUR 195 million for the first half, increased by 13% year-on-year, 10% up Concessions, 14% up the Renewable business and 17% up on the Environment basis. The Restricted Group EBITDA, EUR 101 million, increased by 18%, with EBITDA margin at EUR 51.9 million, substantially higher than the 49.6% in the first half of 2020. Net debt is approximately EUR 747 million, up from EUR 735 million at the beginning of the year. We completed the share capital increase, restoring confidence and solidifying the group's liquidity and capital structure, and we see a gradual normalization of the group credit profile following the successful share capital increase. And with this progress, I'd like to give the floor to Mr. Dimo Revelas, our CFO, to get you more details about the financial results of the company.

Thank you, Efthymios. We're moving on the next page, Page #9, where the Restricted Group consolidated P&L is presented. I think it needs to be highlighted that the -- this group's EBITDA is up 18% year-on-year in the first half of 2021 on a very healthy increase in revenues and very close containment of operating expenses, which are down by a significant percentage of almost 30% in this period. On Page 11, the net debt position of the Restricted Group is presented. Net debt as of June 30 amounted to EUR 746.8 million. 65% of the total debt corresponds to the high-yield bond, around 29% of debt related to renewables. On Page #12, we present the cash and liquid assets, which stood at EUR 270 million as of June 30 versus EUR 298 million at the end of 2020. Operating cash flows amounted to EUR 57.5 million in the first half of this year versus EUR 1.2 million in the same period of last year. Investment cash flows amounted to EUR 7.1 million in the first half of this year versus EUR 56 million in the same period of last year. Cash outflows from financing activities is EUR 64.2 million in half 1 '21 versus inflows of EUR 30.6 million in the same period of last year, excuse me. Now let me go through the segment -- briefly through the segmental analysis of the first half. On Page #14, regarding Concessions, encouraging trends are witnessed in traffic performance in Attiki Ring Road, which registered a 4% year-on-year increase in first half and 6% year-to-date, also incorporating the latest trends, as traffic in July and August reached the pre-COVID levels of 2019. As a result, EBITDA rose 10% to EUR 55.4 million, with the respective margin remaining at 63%. Already mentioned, the Concession of Alimos Marina has started on January 1, and it is being consolidated since the previous quarter, that is first Q of this year. Moving on to the Renewable segment on Page 15. First half revenue of EUR 51.6 million and EBITDA of EUR 40.7 million. Again, very solid increases of 14% and 11%, respectively, with EBITDA margin of 79% compared to 81% a year earlier. Domestic Energy Market Regulatory has issued producer certificates for the voltaic assets of 140 megawatts in Northern Greece, while new application for production licenses have been submitted to the regulator, out of which 97 megawatts for wind farms and 417 megawatts for battery storage. Finally, moving on to the Environment sector on Page 16. First half revenue of EUR 55.4 million and EBITDA of EUR 10 million, posted significant increases of 17% and 45%, respectively, with the relevant EBITDA margin at 18% compared to 14% a year ago. Prospects appear strong as Greece needs to proceed with new infrastructure in order to comply with national and EU waste management legislation and utilize the available EU funding within the tight time frame. Investments to be launched are expected to reach EUR 2 billion for the treatment of approximately 4 million tons of municipal waste. This concludes my presentation of group and segmental performance. And let me now take this chance to open the floor for any questions that you might have. Thank you.

[Operator Instructions] The first question is from the line of with [indiscernible]

I have 3 questions. So the first relates to Renewable energy. It seems that Q2 was quite weak compared to Q1 because it was down quite massively year-on-year versus Q2 2020. And it seems it has to do with the lower capacity factor. So maybe you can provide some insight about this and whether you expect this trend to continue in Q3 and Q4? So that's the first question. The second question is about Construction. You said previously that you expected the division to go back to equilibrium by the end of 2021. So can we expect EBITDA to be better oriented in Q3 than in Q2, excluding that you suffered in Q2 and that it is close to 0 in Q4? Should we also witnessed an improvement in sales, the division in Q3 and Q4? And third, this is about the -- still the Construction division. Can we expect injections from the restricted perimeter to be 0 in Q3 and Q4, given the fact that you have just received EUR 120 million of capital increase proceeds. And regarding the fines that you suffered in Q2, I mean, when will that be cashed out? Will it be in Q3 or Q4?

First of all, about the Renewable business. The first half results is up 14% year-on-year. So you pointed with a massively down, but this is the 41% Q-on-Q. However, as we have outlined during our presentation in the first Q of this year, the result is 41. The last quarter was an extremely favorable weather condition in January. We had the strongest winds ever to be record in Greece. So we believe that as we go forward, the number will be positive vis-à-vis of last year in terms of revenue. However, you have to strike out first Q of 2021 as an exceptionally high number. Now on the Construction business, i.e., as this is the profitability update and business update of the Restricted Group results, Construction is not part of the Restricted Group. So I don't see how these questions are relevant, so yes.

The sense that if Construction improves, there will be lower need for equity injections from the respected perimeter going forward. So this is why I'm asking the question.

Yes. I mean, this is exactly, let's say, the planning. We have communicated that the biggest part of the share capital increase of EUR 120 million went to AKTOR. This has already been completed with EUR 100 million. As we stand right now, AKTOR is adequately capitalized. So if AKTOR stabilizes the operating performance, then definitely, we're not going to have, let's say, injection -- capital injections from the segment group. But we are not -- we're going to provide updates on this at this particular point in moment because it is a forward-looking statement of a business that is inherently volatile, does not relate to business such as Concession or Renewable business.

Mr. [Kojo], you finished with your questions?

Just also asking, I mean, you announced the new applications for production licenses in Renewable as well as new producer certificates. I mean, can you communicate on the related CapEx we could expect?

The related CapEx on it's -- the CapEx is -- first of all, we have issued the producer certificates. However, it's going to take at least 2 years to have the full licenses. On the PV side, capital -- the capital requirement is approximately EUR 600,000 per megawatt. So you multiply 140 by EUR 600,000, and you see that. But then you have structuring, i.e., a big part of that can be a debt and significantly smaller part can be equity, like 35% to 65%. On the wind farms, the CapEx is significantly higher versus the PVs. However, these licenses are probably going to take a couple of years more than the PV asset. So we're talking about 2026. So it goes further into the future.

The PV asset, the CapEx will be incurred mostly in 2022 and 2023?

No, no, no, no. We need the licenses. We need the licenses. 2024, I think the earliest.

It's for these 2 sets over 2021 and 2022, and even 2023?

No. All of them are going to be after 2024 in terms of CapEx. The first asset probably within 2024 and the rest between 2024 and 2026.

Mr. [Kojo] are you finished with your questions? We will now proceed with the next question. The next question is from the line of [indiscernible] with Citigroup.

I have two questions. Could you give us an update on the renewal of the Attiki Odos Concession? And where that has got up to? And the second question is, how much capacity do you have under your covenants currently?

Can you repeat the second question, please?

Yes. The second question is how much capacity do you have under your bond covenants?

Okay, okay. On the Attiki Odos, as you probably know, this is a concession that expires at the end of 2024. Now at some point during either late 2022 or early 2023, I think we will have bidding process in which obviously we plan to participate. However, we cannot provide any updates since we don't have any concrete information right now. Dimo, can you take on the second question?

Yes, sure. What we have done so far is that in the course of the first half of 2021, total support provided to the Unrestricted Group was almost EUR 18 million, to be precise, EUR 17.8 million. So the total amount provided to the Unrestricted Group since the issuance of the bond is 96.5. So post the share capital -- post the successful share capital increase in ELLAKTOR and then in AKTOR, the available limit right now stands at EUR 28 million.

[Operator Instructions] We have a follow-up question from the line of with [indiscernible].

I wondered if you could first break down the EBITDA of the Concession division between Attiki Odos, Marina and other assets? I mean, if that was possible for more detail. And regarding Environment, I saw that there was a big improvement in Q2. So I wondered if there was any specific contract that was behind this strong increase in Q2 that was a lot stronger than Q1?

So just to make sure that we know what you're asking. So the first question was about the breakdown of Attiki EBITDA -- of the Concessions EBITDA?

Is that possible?

So almost 2/3 of the EBITDA comes from Attiki Odos.

And on the Marina, it's very early -- we are at very early stages. So the numbers are not particularly big, not material.

Remaining 1/3 is operation and maintenance for Egnatia?

Excuse me?

What is it?

I didn't understand your question, please. Can you repeat that?

2/3 of concession EBITDA came from Attiki Odos. What is the remaining 1/3?

What is the remaining -- well, we have...

Apologies for breaking up for a while. So we correct, almost the entire figure comes from Attiki Odos. Other Concessions are not consolidated in the figure that we presented. So apologies for that.

We have another follow-up question from the line of [indiscernible] with Citigroup.

Yes. Sort of follow-up question. So just to confirm that 100% of the EBITDA comes from Attiki Odos, the rest of the Concessions are consolidated, not consolidated. And the second follow-up question is, can you confirm whether AKTOR is free cash flow flat or neutral or whether it's still continuing to burn cash?

On your first question, on a consolidated basis, since we control almost 65%, 66% of Attiki Odos, a 100% of the numbers that we are seeing are Attiki Odos and Attiki Odos related business like Attikes Diadromes. Attikes Diadromes is also doing maintenance on other roads in Greece. In terms of total, let's say, revenue of consolidated and unconsolidated, approximately 2/3 comes from Attiki Odos and the rest from nonconsolidated entities like [indiscernible] and so on. On the second question about the cash flow of AKTOR. AKTOR cash flow is not yet flat. This is our second milestone, and we expect we will reach this milestone by the end of the year.

Okay. So can I just follow up by asking what -- I mean, you received a dividend from Attiki Odos of cash flow. How much dividend has been paid so far? Or have you received any dividend from Attiki as yet or taken any dividend out?

Apologies. Total dividends paid, that is on the cash flow basis in 2021 is EUR 39.4 million. This does not include the capital return that has been also affected thus far this year. This is a cash dividend paid in 2021.

[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.

Well, thank you very much. We don't have any additional comments. I would like to thank everybody for participating in this afternoon's call. Thank you, and have a good evening.

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