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

Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the ELLAKTOR Group conference call and live webcast to present and discuss the ELLAKTOR Group full year 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; Mr. Dimosthenis Revelas, CFO ELLAKTOR S.A; Ms. Aphrodite Avramea, Head of Strategy; and Mr. Yiannis Mamakos, Investor Relations Officer. Mr. Revelas, you may now proceed.

Thank you, and good afternoon to everyone. Welcome to ELLAKTOR's conference call regarding the full year 2021 results. Mr. Efthymios Bouloutas, ELLAKTOR Group CEO; Mr. Aphrodite Avramea, Head of Strategy; and Mr. Yiannis Mamakos, Investor Relations Officer, are participating in today's call. The annual report and the press release announcing ELLAKTOR's financial and operating results for the 2021 fiscal year were issued earlier today before market opened. For those of you who haven't seen those, they are 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. I would now like to turn over the floor to Mr. Bouloutas.

Dimos, thank you very much. Good afternoon, everybody. On my behalf, thank you very much for your participation in today's call. I'm going to follow the flow of the fourth Q and fiscal year 2021 financial results presentation that has been uploaded in our website. I would now like to turn on to page -- your attention to Page #3, where we present a snapshot of 2021 overview in both effort and also headline numbers. The 2021 year was a very crucial year where I think that under a new management, ELLAKTOR Group has managed to deliver a very solid set of financial results, but also set the stage for the next years in terms of sustainable growth. In a nutshell, what we have managed to achieve is; a, a capital structure optimization with the share capital increase that has been completed successfully; we've managed to restart most -- kickstart most of the construction projects that have been stopped due to the lack of funding; we reinstated and reinforced the domestic banking relations; we managed to decrease our net debt by almost 20% from EUR 707 million to EUR 578 million; and increased cash and liquid assets from EUR [ 375 ] million in 2020 to EUR 457 million. In terms of our organization, operating restructuring, we redesigned the business model, setting clear targets and priorities. We centrally coordinated the management of our subsidiaries. As discussed, we kickstarted the construction projects, we discontinued unprofitable markets and we optimized our geographical footprint. We managed to rebalance the cost base by a cost-based containment by approximately EUR 89 million, and most of this data we'll provide later on and analyze further. We centralized procurement, and we managed to reinforce corporate culture together with enhancing corporate governance and compliance. All these things, first of all, brought for 2021, a profitability on the EBITDA level on a group, obviously, level, of EUR 165 million versus EUR 34 million for 2020. And if we do not include the negative impact of the arbitration in Qatar, the EBITDA number, which we call comparable EBITDA would have come in at EUR 191 million. What is more important is not the financial numbers for the year. But I think we feel that we've set the stage for a healthy and self-sustained growth for the years to come. Turning on to Page #6. This is the financial highlights of the group, which I'm going to present in a greater detail later on. We managed to grow this year in terms of revenue, 3% up, EUR 915 million. And here, I remind you that we started -- most of the quarters that we published were negative, but we had a remarkable 4Q where revenue came in at almost EUR 280 million, up approximately 23% versus the fourth Q of 2020. And we managed to close the year on a positive note in terms of revenue. In terms of reported EBITDA, as discussed, the reported EBITDA came in at EUR 165 million, approximately 5x the respective 2020 figure. In terms of comparable EBITDA, the number is EUR 191 million or 5.6x the respective 2020 figure. And the 4Q 2021 EBITDA came in at EUR 60 million, effectively recording the higher quarterly figure that -- of the year with a margin of almost 22%, which is the group's highest quarterly EBITDA since the first Q of '19 -- first Q of 2019. On the 4Q 2021, we reached a pretax profit of EUR 11.3 million, which records the second profitable quarter in a row following 5 loss-making quarters. As discussed, we managed to achieve a significant cost savings across all major cost lines, through targeted management actions. The approximate number is EUR 89 million, approximately 10% of our cost base. Net debt is down to EUR 578 million from EUR 707 million a year earlier. Group cash and liquid assets increased to EUR 457 million versus EUR 375 million. These numbers exclude the Moreas impact. And the net debt to EBITDA is down to 3.7x. What is more important is that the operating cash flow is positive, amounting to an annual figure of EUR 67 million for fiscal year 2021 from minus EUR 24 million, the same of last year. Again, this is the first positive operating cash flow reading since 2018. Turning on to Page 7. Here, you can see more detail on the on the quarterly evolution of revenue and quarterly evolution of EBITDA, where you see a monotonic increase of revenue and a sequential increase quarter-over-quarter and a similar pattern for the EBITDA, excluding the second quarter of 2021, since in that quarter we recorded the potential loss for the ICC arbitration in Qatar. On the tables on the right-hand side, what you can see is revenue and EBITDA of our activities: construction, concession, the renewable business, environment, real estate and the total number. What you see here is that with the exception of construction that recorded a negative revenue, most of our other businesses recorded a very healthy double-digit growth. And on the bottom table, you see the EBITDA of these activities, where in all the activities we've reported numbers significantly better than last year. Even in Construction, where we've posted a loss of EUR 75 million. And without the ICC arbitration, this number would have come in at approximately EUR 49 million. The loss was significantly contained versus last year where the similar loss figure was EUR 156 million. What we believe is more important is that if you focus on the fourth Q numbers in construction, there, you see a very marginal loss of EUR 5.3 million. So we believe that Construction, the cost -- the restructuring of the Construction business is doing significantly well. And it is within the parameters of the business plan that we have set. Again, EBITDA margin came in at 18%, versus 4%, and the comparable EBITDA margin is 21%, versus 4%. Turning on to Page #8. Here, you can see the sectoral financial highlights for the 4Q. In a sense, we've discussed some of the patterns, but you can see them very clearly here. The 4Q revenue recorded increases in all businesses, 17% for Construction, 33% for Concessions, 30% for Renewable Business, 19% for the Environment business and 71% for the Real Estate business. Comparably, the EBITDA attributable to these businesses came in, in Construction, 95% higher, negative, but significantly better. 57% increase on the Concession business, 47% -- 45% increase in Renewable business, positive versus negative EBITDA on the Environment and more than 100% on the Real Estate business. Turning on to Page #9. We would like to highlight some of the operational updates for the businesses. The construction organization, operation and financial restructuring is fully phased in. We managed to have optimization for the cost of sale. We had a significant cost containment arising from EUR 9.5 million saving from project-related excess personnel, EUR 3.4 million from savings from headquarter related excess personnel and EUR 0.5 million saving from recalibrating employee benefits. We redesigned the bidding policy. We redesigned the compliance management, and we are in the process of implementing a new ERP. All this led us in new projects of almost EUR 440 million signed during 2021 in both Greece and abroad, predominantly Romania. And post-2021, we have signed EUR 228 million of new projects. On top of that, we've been declared lowest bidders in projects valued at EUR 657 million. And from, let's say, our own construction -- potential construction business in the real estate business, we look forward towards exceeding EUR 350 million worth of projects in the next 5 years. All in all, the backlog that 1 year ago stood at EUR 1.8 billion, right now is significantly higher than EUR 2.5 million (sic) [ EUR 2.5 billion ]. We recorded EUR 2.5 million (sic) [ EUR 2.5 billion ], but we do not include the EUR 675 million projects in that. As discussed, we focus significantly on the cost side. Group labor costs are almost EUR 20 million down or minus 8% at the group level. And SG&A expenses are down by 30%, which is -- translates to EUR 12.5 million. Now sustainable investments, clean energy focus, circular economy and the preservation of natural environment, and sharing the benefits of our performance with society are the core of the new Ellaktor activities and values. We discussed about the capital structure optimization that paved the way for internal capital accretion, and we believe we have ample capacity to fund medium-term CapEx and opportunistic bolt-on value-enhancing acquisitions through a mix of the existing liquidity, internal cash generation and asset-backed debt financing. Finally, we've fully adopted the Hellenic Corporate Governance Code with strong committee structure supporting the BOD and the CEO who split the Chair and the CEO roles, and we report a significant diversity with 43% female representation on our Boards, with skills, knowledge and experience across a wide range of disciplines, Finally, the BOD meeting frequency has been increased to 36 meetings, physical meetings in 2021, versus 28 in the previous year. In Page #10, we present details of the cost base. As discussed, the group cost base stood in last year at EUR 852 million. and we manage for 2021 to bring that down by EUR 89 million, almost 10%. And that includes a negative cost, i.e., positive, which is the arbitration impact. You can see the details in the graph. And in terms of sectoral operating update, which you can see in Page 11. Effectively, in the Construction, we discussed the developments in construction. We signed EUR 440 million new contracts, with an additional EUR 230 million signed during the first 3 months of the year. And backlog, EUR 2.5 billion, up 37%. In the Concessions, we are seeing trends of recovery of traffic in motorway. So we believe 2021 -- 2022 will be better than 2021. And the other -- this relates to almost all projects that we have. On the Renewables segment, we have managed to obtain environmental permits for 286 -- for 377 megawatts and we have applications for 286 megawatts. Again, here, in order to give you, let's say, our strategy, we have a backlog of approximately 1.5 gigawatts, and we expect that approximately half of that, i.e., 730 are going to be in operation until 2025, bringing the total number of operating assets to 1.2 gigawatts. On the Environment segment, HELECTOR signed in fiscal year 2021, new projects amounting to almost EUR 100 million, and it recorded a solid profitability increase. Here, we would like to highlight the RES installed capacity within this sector, which is 42 megawatts, and it is significant. It's also a significant contributor to our EBITDA. Finally, on the Real Estate sector, we've acquired a new plot, which is a very lucrative, let's say, new project called Gournes in Crete. And we expect to develop it in the next years, following a successful e-auction held by the privatization authority [ HRADF ]. And with that, I would like to stop and turn the call over to Ms. Aphrodite Avramea to discuss our ESG footprint and sustainability.

Good evening. My name is Aphrodite Avramea, and I'm the Head of Strategy at ELLAKTOR Group. In the following few minutes, I'm going to provide a brief overview of our ESG activity for 2021. Slide 12 provides a summary of our basic 2021 ESG figures, how they compare to the previous year and how they relate to the Group's 5 ESG strategic pillars and the ESG. As you are aware, our group has a positive environmental impact, which is evident from a quick look at the basic figures. Energy consumption remained stable versus the previous year at about 250 gigawatt hours. Despite the increase in total turnover and the pickup in the overall economic activity as the COVID-19 pandemic entered a stabilization phase. On the other hand, energy production from renewable energy sources increased by 10% to 1,380 gigawatt hours. This result was a combination of the increase in the average capacity and the enhancement of the capacity factor of our renewable energy projects. That practically means that through our activities, we consumed 1/5 of the energy that we produced through renewable energy sources. At the same time, the amount of CO2 equivalent emissions prevented from our operations increased by more than 30% to 2.7 million tons, while the CO2 equivalent emissions produced by our operations decreased by 8% to 90,000 tons. That is, we prevented 30x more CO2 equivalent emissions compared to the ones that we produced, increasing this figure from 20x in the previous year. 2021 was also a year of governance reorganization and enhancement. Board female representation doubled to 43%, and an ESG committee was formed in order to set the strategic guidelines and monitor the progress on the ESG front. As in the previous years, there were no confirmed incidents of corruption or discrimination while almost all of our supplies were acquired from local suppliers. Finally, the percentage of women employees also improved from 24% to 26%, with injuries remaining at the same levels of the previous year. The following slide shows revenue, OpEx and CapEx eligibility according to EU Taxonomy. In order to meet the EU's climate and energy targets for 2030. And with the objectives of the European Green Deal, EU has created a classification system establishing a list of environmentally sustainable economic activities. In order for an activity or an investment to be characterized as environmentally sustainable, it has to meet certain environmental criteria related to climate change, circular economy, biodiversity, pollution prevention and water supply and waste management. As of January 2022, all large nonfinancial corporations need to report the proportion of their activities that are considered as taxonomy-eligible in their turnover, CapEx and OpEx. 2022 reporting relates to 2021 figures. Assets that we estimated that are taxonomy eligible revenue exceeds EUR 650 million, and represents 71% of our total turnover. Out of this figure, approximately half comes from the Construction segment, 1/3 from the Concessions business unit, 16% from RES business unit and the remaining 5% from the Environment. As far as operating expenses are concerned, EUR 17 million or 83% of our overall operating expenses are taxonomy-eligible with the majority of it coming from the Renewable Energy Sources business unit. Finally, 58%, which is about EUR 10 million of our CapEx is related to taxonomy-eligible activities, with approximately half of it coming from the Construction segment and being related to transportation infrastructure activity. Our ESG ratings are summarized in the next page. As you can see, overall, we enjoy satisfactory ratings and favorable rankings. So this was a brief overview for ESG activities. I will now hand over the presentation to Mr. Dimos Revelas, the Group CFO, who will briefly present the group's financial highlights and 2021 results.

Thank you, Aphrodite. On Page 17, we present the consolidated P&L figures and allow me to highlight the following. Group revenue for the fourth quarter reached EUR 278 million, a year-on-year increase of 2.3%. This positive delta of EUR 53 million is attributable by 39% to Construction, 32% to Concessions and 15% to Renewables. Sales for the full year posted an increase of 3% to EUR 916 million, the highest last 12 months reading in more than 2 years. 78% of our group sales were generated in Greece, almost unchanged year-on-year, 16% in other European countries, versus 13% the year before, 4% in the Middle East, versus 5%. And 2% in U.S.A. and Australia, down from 5% in 2020. All in all, 94% of revenue was generated in Europe, compared to 90% in 2020 while the public sector accounted for 45% or EUR 523 million of group revenues. As already depicted in the cost-related waterfall presented a bit earlier, our total cost base that is cost of sales plus SG&A, excluding depreciation, was lower by almost EUR 90 million for the year, including a EUR 26 million negative impact from the arbitration in Qatar, but also a EUR 20 million positive impact from nonrecurring in 2021, photovoltaic related provisions accounted for in 2020. Total labor costs were contained by EUR 20 million, following targeted management actions, both at the head office and across the various work sites where construction is present. Labor costs are also inclusive of severance payments in the tune of EUR 6 million. Other income loss. The delta and other income loss is explained by movements in Construction and Concessions. In the former, a loss of circa EUR 13 million was recorded in 2020, corresponding to losses from the disposal of nonoperating assets in Bulgaria and Romania. Our share of profit from associates amounted to EUR 3.6 million and related almost entirely to the Concessions segment. This line will from now on be reported above the EBITDA line for those associates that are core. EBITDA for the fourth quarter was EUR 60 million, reversing losses of EUR 79 million in Q4 2020, thus bringing the full year respective figure to EUR 165 million, as already mentioned. In the net interest expense line, excluding IFRS 16 lease costs, the increase is due to: a, noncash increase by EUR 6 million as a result of changes in the heavy maintenance financial model of Attiki Odos; b, higher expenses by EUR 2.4 million related to a new loan associated contracted for Alimos Marina. The main interest expense outlays related, a, to the high yield bond, EUR 42.2 million; Renewables, EUR 12.1 million; and Moreas, 28.8%. Finally, at the pretax level, the group recorded a second successive profitable quarter. Moving on to Page 19. Group total assets remained almost unchanged at EUR 2.8 billion, only marginally -- with a marginal change versus 31st of December 2020. On the asset side, Investments in subsidiaries increased by EUR 30 million, and this is attributable to the recording of participations in our 2 SPVs in Avia, and this relates to the EDPR project. In Note 9 of our annual report, the participation cost of the parent entity in major subsidiaries is also depicted and you can have the info there, but allow me to mention those. Our participation cost in Aktor Concessions is booked at EUR 266 million, AKTOR at EUR 234 million following, a, the share capital increase and the debt to equity that took place in 2021. The whole of renewable assets are, on aggregate, booked at EUR 62 million, ELLAKTOR is booked at EUR 9 million, and real estate assets are, on aggregate, again, booked at EUR 57 million, apologies, 5-7. Financial assets at amortized cost and at fair value through other comprehensive income is down by EUR 17 million, following the maturity of a new EFSF bond held by Attiki Odos. Current and noncurrent receivables were down by EUR 53 million on the back of reduced renewables receivables. Other noncurrent assets include deferred tax assets and advanced payments for the long-term leases of service stations in Attiki Odos and Moreas. Other current assets mainly related to inventories. Now on the liability side, Total equity attributable to shareholders amounted to EUR 286 million. That is a 10% ratio over total assets. The respective figure for last year was 8.3%. Total bank borrowings were down by EUR 64 million, and this stems primarily from the renewables business, down by EUR 36.5 million; Moreas, down by EUR 18 million; Concessions EUR 6.5 million; and Environment, EUR 6.4 million. We're moving on Page 20. Now, having a look at the net debt picture. So as of the end of last year, net debt, excluding Moreas, nonrecourse net debt amounted to EUR 578 million, and this is down by almost EUR 130 million for the year. On Page 21, just a quick view on our consolidated cash flow position. Operating cash inflows amounted to EUR 67 million versus outflows of EUR 24 million in the same period of last year. And this is -- and if this is coupled with the fresh equity raise and the scheduled loan repayments already mentioned, drove total liquid assets up by EUR 64 million. Now let me go through briefly commenting on the segmental analysis for last year. On Page 24, Construction had a strong end to the year with Q4 revenue rising by 17% year-on-year to EUR 145 million. Sales for the full year were 7% lower year-on-year. Operating losses for the last quarter were contained at just EUR 5 million, with full year EBITDA -- while full year EBITDA was negative by EUR 49 million on a comparable basis. I believe we have already mentioned the new project that AKTOR has managed to secure. So we're moving on to Concessions on Page 26. With traffic moving higher month after month, both revenue and EBITDA for the year moved up by 15% year-on-year. Just a brief reminder, on January 24, an offer has been submitted for the Northern Axis of Crete. This is a PPP project where AKTOR Concessions has a 20% stake. On February 25, the consortium in which AKTOR Concessions holds a 60% stake, was announced preferred bidder for the KalamataRizomylos-Pylos-Methoni PPP, and this is valued at EUR 250 million. This may be seen as an extension of the existing Moreas road. On March 18, Construction works at Patra-Pyrgos. This is a new 74 kilometers length motorway in Olympia Odos, was initiated. Existing liquidity, internal cash generation on top of project-related debt that can be easily secured provides the necessary financial resources for the group and the company after concessions, in particular, to participate in several major PPPs and concession projects scheduled for the near future. Let's move to Renewables on Page 28. Revenue was set at EUR 106 million and EBITDA at EUR 84 million, both of those posting health increases of 13% and 15%, respectively. The EBITDA margin was at 80%. We see an impressive performance of the operating cash flow level with operating cash flow per megawatt amounting to EUR 224,000 in last year versus a 5-year average of EUR 132,000. This is, however, underpinned buying, and this might not be always recurring, a, accrued revenues relating to a 90-megawatt wind park producing since 2020, however, no premium had been paid as the license was granted in the summer of 2021. And b, extraordinary collections as due to the energy crisis, market prices were significantly higher than the tariff. And this amount has been credit to our accounts. However, it will be eventually and gradually returned back to the oath-taker. Avia projects for this almost 500 megawatts of new capacity in cooperation with EDPR are progressing smoothly. On Page 30, for the Environment sector. Sales and EBITDA for the year reached EUR 115 million and EUR 17 million, respectively. 817,000 tons of waste have been treated and 208-megawatt hours have been produced. The slowdown in Q4 '21 EBITDA compared to the previous quarters is mainly due to the incorporation of provision for future losses in the tune of EUR 1.5 million as well as profitability adjustments for construction projects reaching completion. Total projects worth EUR 103 million have been signed in the course of 2021. The most significant of which are the expansion of Fyli landfill, the Athens Mechanical Recycling Plant, the Larnaka project extension and the significant improvement in EBITDA compared to Q4 2020 is mainly due to the increased clinical and municipal waste volumes being treated as well as significant decrease in recovered recyclable prices due to the developments in the global demand seen. Last but not least, let's have a look at the real estate sector on Slide 32. So the unit recorded annual sales and EBITDA of EUR 7.6 million and EUR 6.2 million, respectively. Smart Park is well back to business with increasing foothold and rentals back to pre-COVID levels. While both pipeline projects, Cambas and Gournes, remain key priorities going forward. This concludes my entire presentation for our results, and we can now open the floor for any questions that you might have. Thank you.

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

Congratulations on a good set of results. I have a couple of questions. I'll ask and then if -- maybe get back to the end of the line to allow some others to go ahead. First of all, I was wondering if you could talk about the restricted payment capacity that you have today and as of the end of 2021?

Okay. Would you like to place both the questions and then we take them all together or we take them one by one, up to you.

Yes, I'll ask the other one. You did quite well on the Concessions, but I was expecting margins to increase as well as revenues. Is there any reason for that? Or was I just too optimistic?

Okay. Let me take the first question, and Mr. Bouloutas will reply to the second one. Both in the end of last year and at the end of Q1 2022, the available capacity is EUR 36 million. And this does not -- apologies, this does not include the profitability of Q1 yet.

Yes. On the Concession business for a significant part of 2021, we had a reduced traffic flow, okay? And given that we incur expenses that are fixed, i.e., personnel, margins were not improved. Hopefully, the coming year, we're effectively -- we're going to have a similar amount of personnel with similar, let's say, wage cost. Revenue will increase, so margins will also increase.

The next question comes from the line of [indiscernible] with BNP Paribas.

Could you comment on your strategy to participate in the renewal tender for the Attica motorway?

Well, we cannot comment on the upcoming tender. The upcoming tender is on the 5th -- the deadline for the tenders on the 5th of May, we intend to participate. And this is the only thing that I could comment on at this point in time.

[Operator Instructions] The next question is from the line of [ Nok, Henry ] with Rothchild & Co.

I understand that you can't comment on specific details about the tender but can you maybe give us some information about financial -- I mean, condition associated with that? Is there any condition that require you to have a kind of financial leverage for -- before bidding?

Can you repeat the question? It was not understood well.

Okay. I mean, for bidding to the Attiki tender process, is there any required financial leverage or equity level?

For bidding, no.

The next question is from the line of [indiscernible] with [ Prelium Investment Services ].

Yes. Congratulations on the results in the presentation. I wanted to ask, what do you guys expect for the running year in the Construction segment? And the reason I'm asking this is to elaborate a bit more is due to the -- I mean, how are you planning to overcome the significant increase of the construction costs due to the energy prices in order to maintain this momentum?

Okay. Obviously, as discussed in other calls, Construction is an inherently volatile sector. Just to give you some comfort, though, 50% of our construction activity comes from Romania. In Romania, there is an automatic CPI inclusion in the contracts. So 50% of the revenue for construction, the problem is already solved. The Greek state has reinstated an automatic CPI correction after the third Q of 2021, and that covers part of the costs. The Construction segment -- sector is in continuous discussions with the government to resolve fully the issue.

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

I was just wondering if there's any update or conditions about the settlement you expect for the Attiki Odos highway?

Yes, there is. We have also included a specific paragraph in our notes, in our annual report. Following a negotiation that took place at the end of last year, between the company on one hand and the ministry on the other, we have a positive ruling by the state's legal counsel, the [indiscernible]. And the amount that has been approved following the completion of the satisfaction of certain CPs to the best of our knowledge, all of those CPs have been met. So the amount that has been determined, approved is EUR 85 million, 8-5.

And is there any update yet on the timing of when you might receive them?

Not really. We're closely monitoring that.

The next question is a follow-up question from Mr. [indiscernible] with [ Prelium Investment Services ].

I wanted to ask if you believe that the ongoing business of ELLAKTOR Group will be affected from all the recent developments around HCMC's decision concerning major shareholders of ELLAKTOR Group. And if you have a comment on that.

Your question relates with actions of the shareholders. So it does not -- first, we cannot comment on that. And second, it does not, let's say, affect the business of ELLAKTOR as a company.

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.

We don't have any further comments. We'd like to thank everybody for their participation in our conference call today. Thank you very much, and good afternoon.

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