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

Ladies and gentlemen, thank you for standing by. I'm Poppy, your Chorus Call operator. Welcome, and thank you for joining the Ellaktor Group conference call and live webcast to present and discuss the Ellaktors Group full year 2022 results. [Operator Instructions] The conference is being recorded. The presentation will be followed by a question-and-answer session for the institutional investors and analysts via audio conference. Please refer to invitation received if you wish to connect to the audio conference for your questions. [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; Andreas Papanagiotopoulos, Group Treasurer and Finance Manager. Mr. Revelas, you may now proceed.

Good afternoon, and welcome to Ellaktor's conference call regarding our fiscal year 2022 results. A press release announcing Ellaktor's financial and operating results for 2022, the consolidated financial information and the presentation were issued last week -- last Thursday. 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. Efthymios?

Thank you very much, Dimos. Good afternoon, ladies and gentlemen. Thank you very much for participating in our conference call today. The issue is a discussion about the full year 2022 financial results of Ellaktor as published last week. I'm going to follow the logic of the presentation that was uploaded in our site on Thursday. So I'll begin with Page #3, where effectively, we're giving you in one page, the transformation journey that has been achieved over the past 2 years in Ellaktor. Effectively with a new shareholding structure and a new Board of Directors, early 2021, we began with the EUR 50 million bridge loan mostly subscribed by the then major shareholder [lehenburg] family office of the vessels family. We've done a successful EUR 120 million share capital increase, which was oversubscribed almost 2.5x. We implemented cost-cutting initiatives and operational rationalization initiatives. On the cost-cutting side, we managed to cost -- to cut costs of approximately EUR 90 million on an annual basis, which we consider were recurring, and we restored confidence and banking relations. For this paved the way for a pivotal 2022. Now within 2022, we had the change in shareholding structure, again, whereby Motor Oil successfully bought a part of our equity, approximately 29.9%, that we currently hold. And we engaged in discussions with Motor Oil about the sale of our renewable energy business. So we managed to complete this very quickly and swiftly within a period of 6 months. The equity value was EUR 495 million, and with that, we managed to crystallize the net asset value with total shareholders' funds at the end of 2022, EUR 913 million or EUR 2.62 per share, and shareholders as -- attributable to the shareholders approximately EUR 828 million or EUR 2.38 per share. Now in terms of capital structure, we managed to lower our interest expenses by almost EUR 35 million on an annual basis, paving the way for profitable 2023. We stand with net cash at EUR 182 million, excluding the Moreas facility. And the shareholder funds over total assets stood at 34% compared to 11% at the end of September of 2022. Now with all this, we managed to have earnings of higher visibility and lower volatility. We managed to improve the operating performance. On a continuing basis, revenues came in at EUR 944 or 17%, while group revenues including the discontinued operations came in at EUR 1.044 billion, which is 14% higher versus same period of last year. Our EBITDA posted 100% higher year-on-year at EUR 164 million and EBITDA margin at 17% versus 10% of last year. We managed -- we also managed to stabilize the construction, a very challenging environment. So revenue stood up by almost 20% versus last year. We will discuss about specific numbers in a while. And operating profitability became practically breakeven. If you remember, our EBITDA in the past quarters have been plus or minus a couple of million, while we managed to increase the backlog of our construction to almost EUR 2.8 billion. That paves the way to potential interest. And our latest corporate activity is we signed an SPA for the sale of Aktor with Intrakat in March 2023 for the total valuation of EUR 100 million in equity and EUR 114 million of intra-group debt, which is going to be additional cash coming in the company as the deal closes. All this brings us capacity to reward shareholders and a significantly more stable organization with significantly higher profitability potential. Now turning on to Page #4. In order to do all the things that we described, especially for the 2022. Effectively, we've done debt and equity transactions totaling at approximately EUR 2.7 billion, starting from a concession debt facility of EUR 275 million, a bridge loan facility of EUR 500 million. The repayment of the international bond, 2 years prior to maturity of EUR 670 million. We refinanced prior to the sale, the less activity with top-up debt of EUR 520 million. And finally, we sold with the RES for an equity ticket of EUR 795 million. This is the total. Of course, we sold 75%, and we are now owners of -- and I make no mistake of 25% and as discussed in progress is the sale of Aktor with total proceeds of EUR 214 million. All this adds up to almost corporate market transactions and capital market transactions of EUR 3 billion over a period of 2 years, not including our EUR 50 million bond financing and EUR 120 million share capital increase that has been completed in 2021. Now turning in Page #7. I'll give you the highlight numbers. Fiscal year 2022 group revenue at EUR 1.044 billion, out of which EUR 944 million are continuing operation, 70% higher versus same period of last year. Our group comparable EBITDA is EUR 248 million of which EUR 173 million from continuing operations, up by 30% versus the respective figure for 2021. The reported EBITDA for the year came in at EUR 239 million, out of which EUR 164 million from continuing operations, inclusive of EUR 66 million from the revaluation of 25% of RES, which is 50% higher versus last year. Pretax profit for the fiscal year came in at EUR 68 million, out of which EUR 18 million come from continuing operations versus losses of EUR 29 million for the same period last year. Net income for fiscal year 2022 now reached almost EUR 0.5 billion, EUR 519 million to be exact, out of which EUR 495 million was an extraordinary profit from the rest transaction. Here, just to clarify that the renewable business was booked at our historical cost base, and we sold at market rates. This is why we realized approximately EUR 0.5 billion of profits. Now in bullet #4, you see that the EUR 670 million high-yield bond was fully redeemed in December, 2 years prior to maturity, and that brought an interest expense savings of EUR 35 million. Net cash at the group level stands at EUR [ 152 ] million versus net debt of EUR 572 million at the same period of last year. Group cash and liquid assets, excluding Moreas are approximately EUR 467 million versus EUR 457 million as of December of 2021 and net debt to continue operations EBITDA is at 1x. We discussed about the big jump in our equity attributed to the shareholders at EUR 828 million, which is almost 3x above the same -- the respective value of 2021. And finally, the group's operating cash flow came in at EUR 36 million compared to EUR 67 million during the same period of last year. Turning into Page #8. What you can see here is on the left-hand side bar charts indicating the revenue for the past 5 quarters. And the EBITDA, what you can see here is what we mentioned previously, significantly lower earnings volatility which comes from the fact that most of our operations have a recurring EBITDA and contribution margin. Looking at the table on the right-hand side of this page and focusing in fiscal year numbers rather than quarterly numbers. Here, you see that our revenue from continuing operations 17% up, total operations are 14% up, and almost all businesses have posted a positive delta, 20% construction, 15% concessions, 6% on the Environment, 30% of the real estate and the other are minor entries. In terms of EBITDA, again, we have big deltas with the predominant effect coming from construction which from minus EUR 75 million came in at minus EUR 1.7 million, posting a substantial increase. The concessions came in at EUR 151 million versus EUR 142 million with 6% delta. Here, again, we remind that we had a one-off charge of EUR 9 million resulting from January's traffic disruption at Attiki Odos due to extreme weather. Otherwise, in comparable concession, we would have been up almost EUR 18 million or 12%. And on the Environment, we are at EUR 15.3 million versus EUR 17 million of last year, effectively with the results incorporating a provision for a retrospective adjustment regarding increased RES revenue compensated at the day after market prices. Adjusting for this, the EBITDA would have been higher by 12.5% versus last year. Turning to Page 9. Here, you see some bullet points on the operating performance. The key items to report, we signed new projects of almost EUR 1 billion in Construction last year. Additionally, EUR 45 million were awarded after December 2022 with a current backlog of 2.8 -- almost EUR 2.9 billion. And Construction EBITDA breakeven. The traffic growth at our concession for the full year accounted for 17%. And the traffic volumes, we can claim back to pre-COVID levels for motorways concession. Now in the Environment, we signed a new contract with Ellaktor's part of 60% for the revamping and 25-year operation of Attica, clinical waste incinerator with a budget amount of almost EUR 90 million in NPV terms. Now in terms of the real estate sector, we signed with IPEF, the privatization authority, the acquisition of Gournes which was completed in February 2023 and master plan to follow. And in Cambas Park, we are doing the master plans, and we expect to begin construction in approximately a year from now. You can also see 4 bullet points on the energy installed capacity with -- on the renewable segment, which remains similar -- the same actually as last year. However, we progress the Styra I and Styra II projects in AVM, where environmental terms were granted for the Styra I and production certificates were issued for the Styra II and without operational update, I'd like to pause here and turn the call over to Mr. Aphrodite Avramea, Head of Strategy and Sustainable Development.

Good evening. My name is Aphrodite Avramea, 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 2022. Slide 10 summarizes our basic 2022 ESG KPIs and how they compare to the relevant 2021 and 2020 figures. As you can see, energy consumption remained relatively stable versus the previous years at 251 gigawatt hours despite the increase in total turnover and the pickup in the overall economic activity. As a result, energy consumption per turnover reduced by 11% during the last year due to equivalent emissions produced by our operations decreased for one more year to 69,000 zones. This is another reduction by 30% in the last couple of years. For one more year, the group's contribution to the environment remains positive. Since in 2022, we managed to prevent 18x more CO2 equivalent emissions compared to the ones that we produced. On the society front, the percentage of female employees increased for a second year in a row, improving by 3 percentage points in the last couple of years. Board female representation also remained strong at 27%. As in the previous years, there were no confirmed incidence of corruption or discrimination while more than 90% of our supplies were acquired from local suppliers. Capitalizing on the 2021 achievement, 2022 was a year of further expansion of sustainable development practices within the group. We were included in the FTSE4Good Index, for the first time, we were assessed by Bloomberg Gender Equality Index achieving a score higher than the threshold. We further strengthened the group's diversity and inclusion initiatives by releasing our diversity equity and inclusion policy and endorsing the United Nations women empowerment principles. We introduced the Donations policy at the Donations Committee in order to implement our social responsibility action plan in a structured and consistent manner. As far as the environment is concerned, we revised the group environmental policy, and we initiated the design of the group's road map towards zero greenhouse gas emissions by 2050. The road map will be concluded within 2023. In addition to that, during 2022, we refreshed and reinforced our communication with the group stakeholders by conducting double materiality assessment. The results are formally presented in the group's 2022 annual report and will be further analyzed in the sustainability report that will be released later this year. In the next slide, all these efforts were depicted in the vast improvement of the group's performance according to the curators. This performance in comparison to the previous year is summarized in the slide that you can see. Finally, the following slide shows revenue, operating expenses and CapEx eligibility and alignment according to the EU taxonomy, in order to meet the European Union's climate and energy targets for 2050 in which the objectives of the European Green Deal, the European Union has created a classification system establishing a lease of environmental-friendly economic activities. As of January 2022, all large nonfinancial preparations in the European Union had to report the proposal of their activities that were considered as taxonomy eligible. As of January 2023 reporting was extended to identify taxonomy-aligned activity. Of course, this year, reporting relates to the figures of the previous year. In accordance with the guidelines for 2022, our taxonomy-aligned revenue exceeded the EUR 300 million and represented 30% of our overall turnover while 41% or more than EUR 400 million of our revenue was eligible but not aligned. As far as our operating expenses are concerned, EUR 11 million or 63% of the overall operating expenses were taxonomy aligned, while EUR 3 million or 15% were eligible but not aligned. Finally, 74%, that is about EUR 34 million of our CapEx was related to taxonomy-aligned activities while EUR 7 million or 16% of CapEx was eligible but not aligned. Just to mention that the figures mentioned include renewable energy-related activities, which were defined as discontinue in the 2022 financial statements. So this was a brief overview of our ESG footprint. I will now hand over the presentation to Mr. Dimos Revelas, the Group CFO, who will present the group's financial highlights and 2022 results.

Thank you, Aphrodite. Let me browse you -- [slides] about our financials. I'll try to be brief and not too repetitive because some of those have already been highlighted or mentioned. If we can turn on to Slide 16. We present the group's P&L in a way so as to separately depict continuing and discontinued operations. Please be reminded that discontinued operations include the results of the renewable sector up until December 13 of 2022. Looking at continuing operations on the left-hand side, revenues grown by 17% year-on-year, chiefly on account of construction and concessions, which recorded deltas of EUR 92 million and EUR 36 million, respectively. In terms of geographical breakdown, Greece accounted for 78% of continuing operation sales and other European countries for 17%, with the remainder being accounted for by Middle East. Of domestic sales, almost 50%, 48% to be precise, corresponds to the public sector. Continuing operations EBITDA settled at EUR 164 million, more than twice last year's respective reading, thus yielding an EBITDA margin of 17.4%. Excluding one-off charges both for 2021 and 2022, i.e., for the EUR 26 million arbitration case and the EUR 9 million charge in Attiki Odos. Comparable EBITDA would have been settled at EUR 173 million compared to EUR 106.7 million in the same period of 2021. In the bottom line, as shown in the right-hand column of the table, the group recorded a post-tax profitability of almost EUR 520 million, EUR 518.6 million, an amount which is inclusive of EUR 497 million, which is the profit from the rest transaction. For compliance with accounting principal, this amount is recorded under discontinued operations. Continuing operations, on the other hand, produced a pretax profit of EUR 17.9 million against losses of almost EUR 77 million a year earlier and the post-tax loss of EUR 18.3 million against losses of more than EUR 100 million a year ago. The revaluation of our 25% stake in ANEMOS RES holding to the transaction economics levels produced a profit of EUR 65.8 million. On Page 19, as of the end of the financial year 2022, the group's balance sheet does not include the rest segment since it had been sold prior to the end of the year. Total equity attributable to shareholders of EUR 828 million or EUR 2.38 per share. Receivables almost flattish at EUR 760 million, mostly decomposed into net trade receivables amounting to EUR 138 million in contract assets, which also include claims amounting to EUR 350 million. On the next slide, net debt and liquidity, as of December 31, continuing operations, excluding the Moreas debt, enjoyed a net cash position of EUR 182 million versus EUR 381 million net debt at the end of 2021. The landmark difference is due to the early in full redemption of the EUR 670 million senior secured notes. On a consolidated level, including Moreas, net debt settled at EUR 184 million, or a net debt to continuing operations EBITDA ratio of 1.1x. Let's now move on the segmental analysis, just briefly touching upon some operational -- construction. Operating and financial highlights. So on Page 24, we depict the major financial items, construction EBITDA marginally negative on Q4 2022 with revenues expanding by 20% year-on-year for the full year. Currently, the total backlog amounts to EUR 2.8 billion, driven by new projects worth EUR 907 million awarded during 2022 and an additional EUR 45 million signed since the beginning of the current year. The most significant ones are the North Crete road section and Neapoli-Agios Nikolaos, EUR 140 million. The Patra-Pyrgos national road 105, Psyttalia wastewater treatment plant, operation and maintenance contract at EUR 68 million and the Corinth Canal restoration works of EUR 25 million. In Romania, we have been awarded 2 superstructure maintenance contracts totaling EUR 187 million. On the concessions part, I think we already mentioned about the better traffic metrics that we have witnessed in 2022 and continue to witness in the current year. Let me remind you that on June 7, the joint venture in which Aktor Concessions participates has been announced the preferred bidder in BOAK, in the northern Axis of Crete, the PPP project, where we have a 20% participation. Now on Environment, on Pages 27 and 28. The clinical waste incinerator project concession has been already mentioned by Mr. Bouloutas. There is also a 50-50 joint venture between Aktor and Helector on the other hand, that has been declared preferred bidder for the execution of a contract procured by PPC for the 65-megawatt natural gas-fired co-generation plant in Kardia Kozani, the overall budget is at EUR 82 million. And let me remind you that due to the retrospective adjustment regarding the increased renewable energy revenue, which has been compensated at Day Ahead Market prices. The overall impact in our figures is a hit of EUR 9.3 million on the revenue line and EUR 8.4 million on the EBITDA line. On the real estate segment, Smart Park, which is the sector's yielding asset is experiencing constantly rising footfall around 14% and excellent occupancy rate at almost 100%, both of which are reflected in revenue, which is higher by 30% compared to 2021. The EBITDA on the other hand, appears to be marginally lower by 3% and chiefly on base effects, given that the revaluation gain has been recorded in the 2021 accounts. So the underlying trend remains very healthy and solid. Finally, on the next 2 slides, we present the main operating and financial metrics of the RES segment where you can have an insight of how things moved last year. This concludes my part. Let me now turn over the floor again to Efthymios for any closing remarks before we take any questions from your end.

Thank you very much, Dimos. Just a quick update since the closure of the financial results for the year, as you probably know, we have received 2 approaches for a potential sale of our subsidiary Aktor, the construction activity. The first one was by Adamas and Adamas Group, together with Wade Adams on January 30 with -- after 39 days on March 9, we announced that these negotiations have been terminated. And on March 24, we announced that we've received a nonbinding letter of intent from Intrakat for the acquisition of Aktor. Following a couple of weeks of negotiations. Again, on March 30, we signed an agreement with Intrakat for the sale of Ellaktors entire shareholding in Aktor. The sale consideration amounts to EUR 214 million. EUR 100 million will be received at the transaction completion and represents the equity value and EUR 114 million will be received within 19 months from completion and this -- there's also a guarantee from the buyer, the seller got the repayment of a portion of the intra group loans, which have been provided by Ellaktor to its subsidiary sector. The completion of this transaction requires, among others, approval from the competition authorities and the signing of a pledge agreement for 50% of the shares of the total paid up share capital of Aktor -- I'm sorry, to ensure the repayment for the amount of EUR 114 million of intra-group debt. We've taken a fairness opinion from National Bank of Greece. And this has been uploaded in our Internet side. The adjusted equity value for Aktor according to National Bank of Greece ranges from EUR 160 million to EUR 196 million. So NBG concludes that they are of the opinion that the total offer is reasonable and fair. And we will go with this fairness opinion to our extraordinary general assembly, which has been called for the 24 of April in order to have the shareholders approve this transaction since this is a major transaction in sense that in terms of sales, it represents 50% to 55% of the group. Now what is the rationale according to management in last. We believe that this transaction strengthens the financial position. It increased the operational and net profitability of the group and improves the profit margins. It improves the liquidity and consequently, the group's position to finance the investment plan and return capital to the shareholders. And it secures the flexibility, the ability to leverage the proceeds from the transaction to focus on the profitable activities. Following the sale of Aktor, the group will focus activities on the wider infrastructure sector in Greece, strengthening its investments in concessions, PPPs, waste management, real estate development management and management projects. Specifically, the group will retain its position in concessions through Aktor Concessions with expected cash flows of over EUR 1.3 billion from the existing concession projects in the coming years. We will provide innovative environmental services in Greece through HELECTOR, which applies cutting-edge technologies in waste management green energy production. We will execute an ambitious real estate investment plan, they're alomst EUR 350 million through Moreas , and we will operate in the renewable energy sector through ANEMOS RES in which the group holds the majority stake of 25%. And with this update of what we've done since the beginning of the year, I'd like to stop now and turn over the call to the operator, the conference call operator for any possible questions from the audience.

[Operator Instructions] We have a question from the line of [Asana Sakis George with Padraic Securities].

Congratulations on the turnaround of this group and good results. I wanted to ask about future dividends and cash inflows, such as a potential capital return from Attica Ring Road as well as the dividends coming out from the other concessions going forward. Yes.

Yes, what -- George, thank you for the question. This is Efthymios. We have provided a figure which is a gross figure of the total concession revenues in terms of dividends, coming in, in the next years until the expiration of the concession. So this is for a 20-year period, which is EUR 1.3 billion. This is a figure that we have quoted in our numbers. And this -- a nominal figure, it's not an MPV figure. And it is front loaded because of Attiki Odos. In Attiki Odos, we will receive dividends up until the year 2025 and in 2026 and 2027 we will get back our equity, the original equity and our subordinated loan. So we will continue to receive cash flows from Attiki Odos up until 2027.

And how much of the EUR 1.3 billion do you think exactly would come from Attiki Odos?

I don't like to give this information currently because it's not public information.

The next question comes from the line of [Carlos Castallenos] with [ Europe ] Securities.

Two questions, please. One is regarding the transaction of Aktor. Do we have any expected extraordinary effect after the transaction from the book value of the Aktor as it is presented in the mother company? Second question also for Aktor, after the conclusion of the transaction with Intrakat, the backlog of almost EUR 3 billion will be transferred. What is the expected EBITDA margin of this backlog or allocated regarding the next 2 to 3 years? Last question regarding Attica Ring Road. What's the time line regarding the tender for the renewal of the contract? And what news do we expect regarding this time line?

[Castallenos], let me take the first one. Thank you for the question. Look, the -- as you understand, the final impact of the transaction closing within 2023 will be determined at closing. So most probably, we will have a similar set of results as the one we were presenting for 2022. The -- with a separate way of depicting continuing and discontinued operations. However, according to our estimates and what we see right now and given what we have already recorded in 2022, the final impact is not expected to be material for the group.

Okay. For the second question, what we have indicated to the market when new management took over was that in the new contracts in construction, the target would be approximately 10% gross, 5% EBITDA margin, and we tried all of our bids to abide by approximately these numbers. However, this is a bit expected number. And you cannot average that for the full book since from the bit up until the start of the construction and effectively the end of the construction, there's a lot of time delay and a lot of volatility in the prices of raw materials and human resources. So this is the best estimate. But as discussed, it's significantly more complex in order to arrive at a figure for what is expected profitability of this EUR 3 billion, EUR 2.9 billion backlog. Regarding the Attiki Odos tender, as you probably know, there is a deadline of the 29th of May for the final bids. So our group is working for this final bids. We believe due to the elections, we might have some possible changes but these are not -- we don't know anything yet on that. We will see whether we are going to have -- there is an expectation of a possible, let's say, extension in this deadline, but we will see.

[Operator Instructions] We have a follow-up question from the line of [Asana Sakis] George with Padraic Securities. Mr. [Asana Sakis], can you hear us? Would you like to ask your question? Sorry. There is no sound coming from your line, Mr. [Asana Sakis]. [Operator Instructions]. We have a follow-up question from the line of [Asana Sakis] George with Padraic Securities.

The follow-up question is what will the balance sheet look like after the completion of the transaction of Intrakat in terms of net cash and how much will the cost base of the group be relieved out of this transaction? I mean what will the cost structure look like, they're ongoing very caring cost structure the new Ellaktor Group post this transaction.

George, we just today uploaded on both the FX and our website an information memorandum, which we were obliged to do so since the disposal of factor represents a considerable part of our asset base where we depict the compose the asset based on December 31 with and without Aktor. So you can have a pretty fair picture of how things would look like.

I want to thank you. Sorry, i missed that.

It was only -- It is very recent. It's only today that we -- ahead of the AGM that is called upon to approve the transaction.

[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. No further comments on our side. Thank you very much to everybody for your participation, and have a good afternoon.

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