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

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the ELLAKTOR Group conference call and live webcast to present and discuss the ELLAKTOR Group Nine Months 2021 Results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Efthymios Bouloutas, CEO ELLAKTOR Group; and Mr. Dimosthenis Revelas, CFO ELLAKTOR. Mr. Revelas, you may now proceed.

Thank you. Good afternoon to all, and welcome to ELLAKTOR's Nine Months 2021 Results Call. Mr. Efthymios Bouloutas, ELLAKTOR Group's CEO, is joining me on today's call. A press release announcing ELLAKTOR's financial and operating results for the first 9 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 relating to the COVID-19 pandemic continue to evolve, and the extent to which the pandemic will impact us in the future will depend on the duration and magnitude of such impact and the numerous factors that we may not be able to accurately predict. These risks are described more fully in our presentation on our website. All the information we provide on this conference call is provided only as of today, and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise. I will now turn the call over to Mr. Efthymios Bouloutas.

Dimo, thank you very much. Good afternoon, ladies and gentlemen, and thank you very much for participating in today's call. I would like to add that we have with us today Mrs. [ Aphrodite Avramea ], who is the Head of Strategy, who will provide an update on our ESG activities later during the presentation. So we will follow the presentation that has been uploaded in our site and has been sent to our investor base. If you would like to turn to Page #5, I will start with the financial highlights for the third Q results, and with references to either the third Q or 9-month results. So the first optimistic sign is our third Q revenue is EUR 244 million, which is up by 7% versus the same quarter of last year, and it is up 22% versus the same -- our previous quarter. Our 9-month '21 group revenue came in at EUR 638 million, which is down by 4% year-on-year. However, the rate of decrease is decelerating versus the first half where we posted a number close to EUR 393 million, with a minus 10% decrease versus the same period of last year due to the positive effect of the 7% up and 22% up versus on a quarterly basis. We decelerated the rate by 4 -- to 4% on an annual basis. Our third Q '21 group EBITDA came in at EUR 48.8 million, up 25% versus last year. And it's actually the highest EBITDA number for the past 3 quarters. 9-month '21 comparable group EBITDA came in at EUR 124.7 million. I remind the audience that Construction 6-month EBITDA included a negative impact of EUR 26.2 million, which was the impact of the ICC arbitration in Qatar. And we presented the numbers with both this negative impact, but also on a comparable basis so that the true underlying trends are being shown more transparently. On the comparable group EBITDA, as we said, the number is close to EUR 125 million, which represents a growth of 12% versus the same period of last year, and comparable margin at 20% versus 17% last year. The 9-month reported EBITDA with the Qatar hit is EUR 98.5 million, down 11% year-on-year with EBITDA margin standing in at 15%. Third very important point is our net debt is down at EUR 637 million, down from almost EUR 750 million end of last quarter and EUR 707 million in the beginning of the year. Group cash and liquid assets are increased to EUR 419 million versus EUR 375 million at the end of December of 2020, excluding the Moreas concession. Actually, excluding the Moreas concession, both the net -- both in terms of debt and also in terms of EBITDA, the annualized ratio of net debt to annualized EBITDA, if we take into account only the third Q '21 EBITDA, stands at a very respectable 3.7, which is a drastic reduce from almost 25% versus the end of last year for our full last year annual results. The fourth one, the 9-month results also point to a positive operating cash flow for the group as a whole by EUR 22 million versus operating outflows of EUR 37 million (sic) [ EUR 34 million ] in the same period of last year. This quarter is the first profitable quarter in the basis of pretax profit of EUR 8 million for the first Q, and it is the first profitable quarter in the last 18 months. Finally, we would like to emphasize -- and we will have a special presentation later on today on the sustainability footprint of the group. Here, 2 important numbers to remember is that from our green energy production in our group, we have prevented 2 -- almost 2 million tons of CO2 emissions. On top of that, almost 1 million of tons of waste was managed in our waste treatment plants. Turning now to Page #6. What we see here is sectoral financial highlights in our verticals. I remind you that the group has a Construction, Concession, Renewable business, Environment and Real Estate vertical. Staying in at the revenue of third Q. Here, we see third Q of this year versus third Q of previous year. On the revenue line alone, Construction is at EUR 128 million, posting an increase of 9% on an annual basis and 38% Q-on-Q. The Concessions on the revenue is EUR 68 million, 12% on a year-to-year basis and 17% on a quarterly basis. Our RES revenue came in at EUR 20.3 million, which is a decrease of 11% versus last year and 6% up on a sequential basis. The decrease on the RES relates to the wind potential. We had a seasonably low wind season in the summer in Greece. On the Environment, the revenue is almost flat on an annual basis, and minus 9% Q-on-Q. And the Real Estate business, the revenue is small, it's EUR 2 million but this also posted an increased 2% year-on-year and 48% Q-on-Q. Now on the EBITDA level, Construction came in at EUR 16 million on the third Q versus EUR 26 million of last year. Concession business was at EUR 44 million versus EUR 46 million of last year. The RES business is EUR 16.2 million versus EUR 17.5 million. Our Environment business posted a very big increase of more than 100% or EUR 5.6 million versus EUR 2.7 million last year. And the Real Estate EBITDA is almost flat at EUR 1.4 million versus EUR 1.6 million. Now looking in Page #7. What you can see here is the revenue and the EBITDA on a group level and on the segmental level. Let's -- in the previous slide, we focused on the Q-on-Q, third Q 2021 versus third Q 2020 deltas. Now I think it's a good opportunity to focus on the 9-month results. So if you can look at the last columns, you see that almost all businesses of the group have a positive increase in revenue other than the Construction, which is improving. And we have a similar comparison with all businesses in the group -- almost all businesses in the group in terms of EBITDA. So in terms of EBITDA, we have -- all numbers are positive. The only negative number in comparison with last year is the Construction, which on a comparable basis, is almost flat. But on the reported basis is down to EUR 70 million on -- up until 9 months of 2021. On the left-hand side, you can see the revenue and EBITDA graphs. And you see here the normalization for the second Q of 2021, and the EUR 48.8 million of EBITDA for the third Q of 2021. Moving on to Page #8. Here, we provide an operational update. So let me spend a couple of minutes on this slide. Our first milestone of balance sheet optimization was reached in August '21, with a successful completion of the EUR 120 million of share capital increase. The ongoing operating restructuring of the group remains on track, strengthening corporate governance, internal controls and risk management. And we are seeing the first improving trends of group revenue that has stabilized, and we are seeing positive trends in some parts of the businesses in almost every segment. Also, we have communicated previously that we are in the process of exiting various countries where we have unprofitable operations. What we would like to report today is that the group is in the process of orderly exit in the Czech Republic, U.K. and Chile, and finalizing exit settlements in Australia and Brazil. Particular focus has been placed in cost optimization with the SG&A cost down almost 1/3 year-on-year, while procurement savings have started yielding the results. And you can view that in the group EBITDA margins that have improved considerably. And if you take the third Q alone, the EBITDA margin of the third Q stands at the highest level of -- in almost 4 years by approximately 20%, 19.9% to be exact. Construction and Waste Management segments have participated in various public and private tenders, and we are seeing the first tangible signs of improving. New projects of almost EUR 366 million in Construction and EUR 101 million in Waste Management were signed during 2021. And the last quarter has been a particularly good quarter in new projects with EUR 166 million on the Construction side. The Construction backlog has been increased since the beginning of the year by 12% to more than EUR 2 billion. Ongoing discussions with local banking system are continuing with a target to increase the funding access and lower the medium-term funding costs of the group. One particular area of the group that we would like to highlight is sustainable investments, clean energy focus, the circular economy with the Waste Management business, the preservation of natural environment and the sharing of benefits of our performance with society and employees are core of ELLAKTOR activities and values. In an effort to provide more transparency and visibility in these significant activities in this field, starting from this quarter, we will include in the quarterly presentation further information and updates on our ESG activities. Continuing to Slide #9 in terms of operational update. On the Construction business, we've discussed the progress that has been made so far with a backlog at EUR 2 billion versus EUR 1.8 billion in the beginning of the year. On the Concessions segment, we are seeing further improvement in the trends of first half on the back of recovering traffic from the COVID-19-restrictive rules. The new project in Alimos Marina has started with significantly higher, let's say, trends vis-à-vis our expectations since the beginning of the year. And by the end of the year, we will report solid progress on this front. The Concessions company is pursuing most of the ongoing tender offers for future concession and PPP projects. Indicatively, we submit an expression of interest for the acquisition of a majority stake in the Heraklion Port Authority in Greece. And we've participated in 3 waste management PPPs in collaboration with ELLAKTOR, the big ones in Athens and Thessaloniki. On the Renewable segment, RAE has issued producer certificates for 71 megawatts battery energy storage system in Northern Greece, while an application has been filed for RAE for developing our own RES aggregator permit for 500 megawatts. The RES installed capacity remains stable at 493 in the Renewables segment, but we will highlight the RES activity in the Environment segment as well that has not been highlighted in past presentations. Finally, in Agrafa, we had a setback with a rejection of the amended environmental terms for Agrafa project, which was an 88 megawatt project in Northern Greece. We are reviewing the situation, and we intend to exhaust all legal remedies for annulment. On the Environment segment, HELECTOR, as discussed, has already signed new projects amounting to almost EUR 100 million, and HELECTOR's share with various partners and JVs, HELECTOR's share is approximately 73% of that. We're seeing solid profitability increase in third Q of 2021, driven by increase in clinical waste volumes, higher recovered recyclable prices and a new Mavrorachi biogas project of 3.5 megawatts that has entered operation. The total RES installed capacity within the Environment segment comes in at 45 megawatts, predominantly biogas, but also some small wind farms. So in total, the group's operation in this field claims 538 megawatts of production. Finally, on the Real Estate sector, we have an operating asset, Smart Park. So most of our revenue comes from this, but we have a development asset, Cambas, 300 stremmata, within 20 minutes from the center of Athens. So this is a major project, which we will develop in the coming years, and we hope to provide an update on that on our pathway by the end of the year. We participated -- RES participated in the tender, and is 1 of the 2 participants that has been invited by TAIPED to submit a revised financial offer for the development of the former U.S. military base in Gournes, Crete with a lucrative land parcel. And with that, I'd like to stop here for the moment and turn the call over to [ Aphrodite Avramea ] to provide you some update on our ESG activities. [ Aphrodite ]?

Hi. Good evening. My name is [ Aphrodite Avramea ], and I'm the Head, Strategy at ELLAKTOR Group. In the first few minutes, I'm going to provide a brief overview of our ESG activity on the group level, the focus of which has increased significantly since the new management took over. In order to formulate our ESG strategy, we have adopted the United Nations 2030 Agenda, are represented by the 17 Sustainable Development Goals for 2030, with this -- they are also called the SDGs. And we have combined them with our 5 sustainable development strategic pillars shown on Slide 11. As far as the low carbon economy is concerned, our first strategic pillar, the contribution is twofold for the renewable energy projects and our waste management activities. During 2020, our renewable energy power plant generated 1,250 gigawatt hours of energy, while our total energy consumption stood at 248 per gigawatt hours. As mentioned before by Mr. Bouloutas, from our activities, we managed to prevent 2 million tons of CO2 equivalent emissions, while the CO2 equivalent emissions produced by our operations stood at 98,000 tons. Besides energy production, we contribute to the circular economy for the activity of our environment business unit. HELECTOR, our environmental arm, is one of the largest companies specializing in waste management in the Southeastern Europe. For its Solid Waste Management Plant, HELECTOR managed almost 900,000 tons of third-party waste in 2020. Our second strategic pillar is employee's health, safety and development. We consider human capital as the most significant factor of our business strategy and, therefore, we place great emphasis on its health, safety and development. To this end, during 2020, we have spent more than EUR 195 million on employee wages and benefits, while more than 43,200 hours were dedicated to the training of our people. Now on our third strategic pillar, business ethics, conducting business ethically and transparently is very high on our agenda, and we are committed to continue our efforts to that end. Moving on innovation, which is our fourth strategic pillar. We aim to; participate in research programs that are related to our operations. As such, our Concessions, Renewable Energy and Environmental business units participated in 9 research programs during 2020. Further to that, on another innovation angle, we placed emphasis on digital transformation and the development of modern technologies to optimize our operations, and we have identified 7 areas of focus in respect to our digital transformation efforts. Finally, as far as our last strategic pillar is concerned, we continuously support local communities in our areas of operations, emphasizing on improving local infrastructure and citizens' quality of life with investments that increased by 59% in 2020, reaching the EUR 4 million figure. This was a brief overview of our ESG activities. I will now hand over the call to Mr. Dimo Revelas, the Group CFO, who will brief you about our Q3 financial results.

Thank you for guiding. On Page 14, the consolidated P&L figures are presented for the year through to September 30. And I would like to draw your attention to the right part of the table, on the following items in particular. Revenues for the third quarter reached EUR 244 million, i.e., a year-on-year increase of 7%, thus reversing negative deltas of 14% and 6% recorded in Q1 and Q2, respectively. Nine-month consolidated sales amounted to EUR 638 million, marginally decreased by 4% or by EUR 29 million versus the same period of last year. The EUR 29 million decrease has been impacted on one hand by lower sales in Construction by 70 -- by EUR 57 million; and on the other, by Concessions that were higher by EUR 14 million; Renewables, up by EUR 4 million; and Environment, up by EUR 8 million. Selling and administrative expenses continued their downward trend at an accelerating pace for yet another quarter on the back of substantial savings at the Construction and the holding levels. They were down 27% for the quarter and 25% for the aggregate 9-month period. EBITDA for the third quarter posted a rise of 25%, reaching EUR 49 million, thus bringing the 9-month respective figure at EUR 99 million or 11% lower year-on-year. However, after accounting for the EUR 26 million Qatari arbitration that was recorded in Q2, the 9-month comparable EBITDA figure increased by 12% to EUR 125 million, thus revealing positive underlying trends, particularly in the Construction segment. In the bottom line, the group succeeded in recording a Q3 pretax profit of EUR 8 million, the first profitable quarter over the last 18 months. On Page 16, group total assets at the end of September 2021 amounted to EUR 2.9 billion, only marginally changed versus the end of last year. Total shareholders' funds for the group were at EUR 378 million, with total shareholders' funds attributable to shareholders settled at almost EUR 300 million or 10.3% of total assets against a respective 8.1% reading as at the end of last year. On Page 17. As of September 30, net debt excluding Moreas nonrecourse net debt amounted to EUR 637 million, down by EUR 70 million for the year, following: A, the completed share capital increase; and B, the scheduled repayment of debt linked to the Renewables segment. Let's now turn on Page 18, briefly commenting on the main drivers of the cash flow. Operating cash inflows amounted to EUR 23 million versus outflows of EUR 34 million in the same period of last year. Investment cash outflows amounted to just EUR 1.5 million, which includes net inflows of EUR 9 million from a reclassification of -- from time deposits to liquid assets and CapEx of EUR 10.5 million, almost 50% of which was accounted for by Construction. Cash inflows from financing activities reached EUR 25 million versus inflows of EUR 12 million mainly, driven by inflows from the share capital increase on one hand and by outflows, on the other hand, from the dividend distribution and subordinated debt/share capital decrease of Attiki Odos minorities. Now let me go through briefly commenting on the segmental analysis of the 9-month period. On Page 20, for the Construction segment, Construction demonstrated solid signs of resilience in Q3, with Q3 sales up by 9% year-on-year and a negative EBITDA of EUR 16 million, albeit at a decreasing pace when compared to Q1 and Q2 of this year. During 2020, ELLAKTOR and its subsidiaries signed new projects worth EUR 366 million, out of which EUR 166 million in the last 3-month period. We refer indicatively to some key or the most important projects that we have signed or have been awarded, such as: a new hotel complex in the Attica region in excess of EUR 100 million; the construction of U.S. Army hangers in Larissa of EUR 20 million. The rest of the projects have already been mentioned in our half yearly presentation as well. Looking forward, we also expect the Psyttalia project to be signed by year-end. Over there, the value of the contract is EUR 165 million, and ELLAKTOR has a 40% stake in the joint venture. Therefore, the total backlog as of September 30 amounted to just over EUR 2 billion or 12% higher since the beginning of this year. Let's move on to the Concessions segment on Pages 22 and 23. Positive trends are being witnessed in the traffic performance in Attiki Odos, which is registering a year-to-date increase of 8% while the pre-COVID 2019 levels have been exceeded in the months from July to September. EBITDA for the 9 months '21 period at EUR 100 million appears flattish at plus 1%. However, the same period of 2020 has been flattered by a one-off item of EUR 9.1 million. So the increase is closer to 10% to 11%, the underlying increase. On Page 25, regarding Renewables. The 9-month revenue figure was at EUR 72 million and the respective EBITDA at EUR 57 million, both of them posting healthy increases of 6% and 5%, respectively. The EBITDA margin was settled at 79% compared to 80% a year ago. The increased sales is the result of, on one hand, higher weighted average installed capacity for the period; and on the other, lower wind potential as a result, slightly lower capacity factor when compared to long-term historical averages. Something that is expected to be eventually -- to eventually mean revert in the coming quarters. The average remaining PPA life stands at just over 17 years. Over the next 2 slides, we refer to the Environment business unit, which presented a substantial improved performance with 9 months top line performance at plus 11% and operating profitability at EUR 15.4 million, thus, yielding a respective margin of 18% vis-à-vis 13% in the same period of 2020. Significantly higher profitability stemming from: A, increased clinical waste volumes; and B, higher recovered recycled prices; and C, the Mavrorachi 3.5-megawatt biogas project, which has initiated operations in August 2020. Within the year, as has been already mentioned, EUR 100 million of new projects or renewals of contracts have been agreed with the company's stake in that being 70%. Finally, the real estate sector is recording lower sales and profitability, chiefly as a result of lost rental revenues tied to COVID-19-restrictive measures. No rent reductions apply from July onwards, while Smart Park is witnessing a gradual increase in footfall. The Cambas project feasibility study and business plan are progressing according to plan. While following the submission of a financial offer, RES is one of the 2 participants invited to submit a revised financial offer through an e-auction scheduled to take place on December 6 for the development of the former U.S. military base in Gournes in Crete -- in the island of Crete. This concludes my part of the presentation. I would like to pass the floor again to Mr. Bouloutas for any closing remarks he might have.

No. I don't have anything additional. I think we can open the floor for questions.

[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. Just a moment. I'm sorry. There's a question from Donati, Stefano with BlackRock.

[Audio Gap] Construction side in term of return to profitability, how you look at 2022? How should we think about cash flows and EBITDA for 2022, if you can give some guidance.

Well, it's very difficult to predict. However, we hope that next year, we will not lose money in Construction. But at this point in time, we, let's say, cannot commit to that. However, we are seeing improving trends, and we believe both revenue will be -- revenue will post an increase. And on the back of new projects with significantly higher profitability vis-à-vis the other projects, we hope we will break even by year-end of 2022.

And how much of this potential is already in the backlog?

I'm sorry, can you repeat the question? I didn't understood it.

Yes. Sure. How much of this potential improvement in revenues, hence, in operating profits is already somewhat contracted? It's just a matter of executing it.

Well, almost all is contracted. But it's an inherently volatile business. So it is something that we cannot provide, let's say, guidance, especially for 12 months ahead. But we can update you in 3 months when we have our year-end results.

[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. I don't have any -- we don't have any additional comments at this point in time. So I would like to thank all participants, and have a good afternoon.

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