Fomento de Construcciones y Contratas, S.A. (FCC) Earnings Call Transcript & Summary

Good morning, one and all. Those of you who have connected to this earnings presentation, I'm Mr. Coronel from the FCC Group. I would like to highlight that these results which were submitted early this morning to the Spanish CNMV contain something which is different from the results of other periods because we present the most significant magnitudes of FCC Real Estate in an independent way in order to facilitate comparisons for 2020 and 2021 as compared with the past when we included this within Corporate Services. I just want to mention, as you know, in the last quarter of 2021, the company acquired 13.2% of the share capital of Realia. EUR 83.9 million was invested, and this allowed FCC, through FCC Inmobiliaria, to control of this company. And this led to a global consolidation. In addition, there was a contribution of 100% of the capital of the Jezzine company, which is an asset holding company which is in charge of exploiting assets to be put out to rental, and we preserve the control of the parent company, which is FCC Inmobiliaria, with 80% capital from our real estate parent company. These 2 transactions, as I will say later on, have strengthened FCC Inmobiliaria's capacities and will allow us to explore and achieve greater operational synergies in both companies. I just want to mention with regard to this aspect that both Realia and Jezzine in the real estate sector only contributed 2 months to the results of the -- to the annual earnings of the group. Now operationally speaking, before I go into the detail, in terms of the magnitude of 2021, you can see that we have reached pre-pandemic levels. That is the levels of 2019 across all activities of the group practically. And in this regard, if we look at the earnings, we reached EUR 6.5 [ billion ] across all the different main activities. All of them have had higher activity levels, not heavily than 2019 but also as compared with pre-pandemic levels. Particularly, I would like to mention the growth in our environmental activities within -- with 2.5% higher revenues. In terms of the different geographies where we operate. If you look at Spain, the weight of Spain stayed relatively stable, accounting around 60% -- accounting for 60% of total. Environment grew by 7%, and there was quite a stable growth across all the different areas where we operate in the management chain, especially urban waste collection and street cleaning. In terms of water in Spain, there was a growth of 3.8%. We had a moderate recovery of the invoiced volumes for municipal concessions and activities related to these concessions in the realm of hydraulic networks. Construction grew by 4.3%. Different projects were developed aligned with our goals, even higher than the targets we had for the different projects. In terms of Cement, there was an increase in activity, but this increase, well, moderated its pace throughout the year. Although last year, there was a significant retained demand and earnings increased by 10.5%. In terms of Real Estate, as I said before, now Real Estate is reported as an independent activity to make it more visible and to be able to conduct a full analysis of its contribution. All the revenues obtained 2021 also generated in Spain and all of them grew significantly to EUR 113 million because of higher activity in the development and sale of housing and because of the contribution of Realia and Jezzine during 2 months. I just want to mention that in the activities under Corporate, we are including concessions and corporate services and others. And the contribution last year went down as a result of the fact that in the first quarter of 2021 from the 1st of April 2021 actually, the Cedinsa Group was invested from. And for that reason, this heading went down -- well, the revenues went down to EUR 52 million as compared with over EUR 100 million in the previous year. If you look at other markets, apart from the domestic market, which I already spoke about. If you look at the U.K., we should mention that revenues increased by 28%, achieving EUR 855 million. And here, we could mention the recovery in the environmental activities, specifically in waste treatment and recycling plants, and the commissioning of a contract in Wales. In the European Union, in other countries outside Spain, well, there was a growth of 1.1%, particularly in the rest of Europe, EUR 811 million were obtained. This -- well, overall, there was a significant performance in recycling and environment. And in Construction, we also observed higher pace of activity, although this includes some new projects, amongst them, new motorway in the Netherlands, which offsets the conclusion of some other projects. Now if we now focus on the Czech Republic, which is reported independently because of its relative weight, we had a significant increase in revenues to 21.5% with EUR 346 million. Fundamentally, because of the good performance of the environmental activity in line with other European countries. And I will talk about this in greater detail later on. There was also a positive performance of integrated cycle for water in the East of the country. Now before I finish, I would like to mention Latin America and the U.S. We had a significant increase in revenues of 43.8% to EUR 376 million. Here, there was, well, significant development of some construction projects in Mexico, Chile and Colombia. And also in the United States, particularly led by the Environmental business, we had an increase in recycling and water collection activities to -- well, an increase of 38% with contracts that have been operational since the beginning of last year in places like Omaha and some sites in Florida. Now I will now focus on the specific business units of our company. In terms of the Environment, as I said before, specifically, we had an increase in our revenues of 12.4%, reaching over EUR 3 billion over the period. The main activities is waste collection and street cleaning. And the figure was EUR 1.5 billion with an increase of 8%. We had new contracts I should mention, well, the specific cases of Spain and the United States. And in terms of street cleaning, in Spain, there was also an increase with important contracts such as the cities of Madrid and Barcelona. Now regarding the waste treatment and waste recovery, there was a higher increase in waste collection to up to 21% with a significant turnover. And here, I should mention the recovery activities in the U.K. and the increase in prices and volumes in Central Europe. Geography by geography in terms of the Environment, in Spain, revenues increased by 7.1% to EUR 1.8 billion. Here, I should mention in addition to the street cleaning and waste collection contracts, I should mention the good evolution of some waste treatment plants such as those in Campello and Loeches. In general, in Spain, the -- well, this activity normalized after all the pandemic-related events of 2020 and 2021. In the U.K., revenues increased by 17% to EUR 600 million. There was a recovery in volumes and also in prices and waste recycling. And another effect that was positive because there were certain technical outages that really affected us badly in the first part of last year. Now in Central Europe, revenues also increased similarly to the U.K. and even more, 18.5% to 555 -- EUR 50.5 million. The evolution was good across the 7 countries where we operate, particularly the Czech Republic, Slovakia, where we secured new industrial soil contracts. And we obtained awards, for example, in Poland for waste -- urban waste collection. And there was also an increase in the prices of secondary raw materials, and this had a greater impact in Central Europe than in other jurisdictions. In the United States, we increased by 45% with EUR 148 million. Here, we had significant contracts such as the one in the main city in the state of Nebraska and others such as Volusia in the central of Florida and a new treatment plant, a new processing plant in the central part of Texas in the area of Houston and Fort Worth. In terms of EBITDA, it grew, thanks to this, over and above revenues by 18.7%, EUR 531 million. So it is one of the most significant pillars of the group because of the evolution in revenues. And also, this should be compounded by the higher profitability effect because of the recovery in volumes and prices in some secondary raw materials. So the operational margin has really recovered. We managed to compensate for what we had lost during the pandemic. The final figure was 16.5%. So the levels are very close to those in 2019. Now if we turn to the second area, the second most important area, which is Aqualia, that is water. Here, revenues went down slightly to slightly over EUR 1 billion, but it is due to a pattern that we had already observed in previous quarters, which is a lower activity, what we call technology and network. So the central, the core activity of the group, which is concession and services, did experience an increase of 6% to over EUR 1 billion. And the growth was quite well-balanced across Spain and other jurisdictions abroad. As I was saying as regards to technology and networks, revenues did go down by 32.3%, but this is linked to projects that we had on our budget and which were coming to an end particularly in some countries in Latin America. And more specifically, country by country, to give you greater color, the evolution in Spain, while in Spain, revenues increased by 3.8% overall, EUR 814 million, here there was growth both in terms of municipal concessions and technology and networks because these were interventions linked to investment plans that are included in the contract under operation, particularly the municipal concessions experienced a recovery of volumes and invoiced cubic meters of up to 0.5% with levels that are close to those of the pre-pandemic period. Internationally, in Central Europe, there was a growth of 8.2% to EUR 113.6 million. This was the revenues. Here, we managed to increase our prices in the activities that are our own in the Czech Republic. And also, we were -- well, we were also benefited by the increase in the Czech koruna exchange rate. And in other countries, revenues increased by 2.9% to slightly over EUR 80 million. In other areas such as Middle East and Africa, there was a significant reduction in revenues of EUR 12 million because we were affected by lower activities in technology and networks. The forecast is to recover our volumes through hydraulic infrastructure operations in the future. In Latin America, as I said before, revenues were EUR 48.5 million, 15% less. But this is because of the lower contribution of technology and networks that had been factored in already. This has to do with projects in Mexico and Colombia that last year came to an end or were very, very advanced. Now thanks to the activity of our core business, which is concession and services, the EBITDA for this area increased by 5.6% to almost EUR 300 million because of the concessions. And also, since its weight is higher, it manages to push up the operational margin to over 25% as compared with 23% in 2020. With respect to Construction, revenues here increased by 3% to EUR 1.6 billion. As I said at the beginning, the execution pace was reasonable in line with the forecast for all projects in Spain and abroad. In other jurisdictions, in the rest of Europe, Latin America, essentially, they managed to compensate for the lower activity because of lagging behind of some projects in the Middle East. In Spain, revenues went up by 4.3% to EUR 885 million. This is for Spain -- construction in Spain. This includes the remodeling of the Santiago Bernabeu stadium and some minor works such as the works in cities like Madrid and [ Tendeus ]. In the rest of Europe, Construction grew by 7.5% to over EUR 400 million. As I said before, there was a positive net effect with higher activity levels because the commissioning of new contracts in civil works in the Netherlands, in Southern Wales. And there was -- in other cases, such as Ireland, the activity was lower because some projects came to an end. In the U.S., the turnover went up because of the contribution of our railway infrastructure in the Southeast of Mexico, the so-called Maya train, in the beginning of a railway in the city of Concepcion in Chile. So I was speaking not just about the United States but also about Latin America. In the Middle East, there was a reduction to EUR 115 million because of the lower weight -- the lower relative weight of the construction of 3 railway lines in Riyadh in Saudi Arabia because the project is about to finish its -- but the EBITDA in this area, in spite of this, grew by 91% to over EUR 100 million, EUR 102 million, almost double the figure of last year. And this is because of the good evolution in the execution of the different projects but also because of the disappearance of the impact that we already talked about in 2020 of the stoppages that we had to endure and the measures that had to be introduced to fight the health crisis. So in this financial year, we managed to reach a margin of 6.2%, which is aligned with the margins of this activity in the intermediate quarters of the financial year. If we turn to the activity of materials, in this case, of Cement, the revenues increased across the whole area by 13.4% to EUR 433.8 million. There was an increase in volumes particularly in Spain and higher exports, both those from production in Spain and from the plant that we have in Tunisia. If you look at the different markets, in the Spanish market, as I said, the turnover went up by 10.5% to over EUR 200 million. As I said, we had a growth in volumes which exceeded 11%, although it is true that it was more visible in the second half than in the -- in the first half than in the second half of the year because of the retention of the demand in 2020. And of course, this was a year where prices remained quite stable -- selling prices remained stable. The local size of the market in Tunisia is -- market is lower, and our revenues were EUR 57 million. And here, well, we increased prices, but volumes were lower, so basically, the contribution remained stable. And the combination of exports from the plants in Spain and Tunisia increased significantly by 30%. There was the figure of -- the revenues were EUR 13 million, and this is aligned with the exports to neighboring countries of Spain and countries neighboring Tunisia. So the EBITDA for Cement was EUR 76.1 million. There was a significant reduction of 45.6% with respect to the figure of the previous year. But I just want to remind you that this reduction is -- can be accounted for by the fact that in 2021, sales were much -- the sales of CO2 rights was much lower than in 2020. In fact, in 2020, we sold EUR 58 million. And in 2021, only EUR 7 million were sold. In other words, if we discounted the effect of the CO2 rights sales, last year, the operational earnings would have gone down but by only 15%. Here, we should also mention that there was -- in the second half of the year, there was an increase in the prices of certain raw materials to do with cement. Finally, Real Estate. As I said at the beginning, we reported -- in order to give the evolution of the different areas as much visibility as possible, I just want to remind you that the figures that we have made available only include 2 months in terms of the contributions of Realia and Jezzine. And the revenues in 2021 reached EUR 147.9 million. This is a significant increase with respect to the figure of 2020. As I said, there's a combined effect of a higher level of activity for development in FCC Inmobiliaria and in these 2 corporations. If we look at the 2 main activities, developments accounted for EUR 130.7 million. Here, if we excluded the effect of the contribution of the consolidation of Realia for these 2 months, we would have revenues for EUR 102 million. At any rate, this is a significant increase. In turn, Realia in these developments contributed with EUR 28.4 million. This gives us a figure of EUR 130.7 million of revenues in the development activities. These revenues occurred because of the delivery of different housing estates, up slightly over 10 in middle-sized cities in Spain. In terms of rentals, in 2017, well, the figures -- well, the figure was 17% over -- and we should also mention commercial premises and shopping malls. The level of occupancy was quite high. And I just want to mention the case of the Jezzine subsidiary, which is based on a very long-term contract for office space for banks -- with one of the leading banks in Spain. In terms of EBITDA, the results, well, it reached EUR 40 million. Here, we should also consider the effect of the perimeter, but the operational development of dwellings was also significant. So real estate accounted for approximately 27%. And as rental gain ground, as this activity makes a higher and higher contribution, then there will be changes. Now I want to mention before I finished that the last market valuation of the real estate of this area, at the 31st of December 2021 stood at EUR 3 billion -- almost EUR 3 billion. And this reflects the structure of assets that I mentioned before, 71% are concentrated in the rentals activity. And developments, land at different stages of development together with what has already been put up for sale accounts for 29%, EUR 855.2 million. So having reviewed the different activities, the different business areas of the group, I just want to make a brief comment about the cash generation and the cash financial position. In terms of cash generation, the operational cash flow reached EUR 746 million, 23% higher. Here, we should mention that the operational capital variation captured EUR 67 million, and this includes the removal of the nonrecourse credit transfers, which were reduced by EUR 109 million in 2021. The idea is to remove them fully especially in the water area. This is the same thing we did in 2020 for the environment. And it allowed us to optimize and reduce the financial bill of the group. In terms of the investment cash flow, the generation was EUR 193 million and as compared with EUR 400 million in the previous year because of the divestitures we have made, especially in Cedinsa or the one we reported to do with a minority stake in the energy activity. The financing -- consolidated financing cash flow applied EUR 700 million, which is a higher figure than the EUR 138 million of 2020. And obviously, we dedicated a significant part of this cash flow to repayment of financial debt. The payment of interest only accounted for an outflow of EUR 99 million concentrated where we have the essential part of our borrowing, which is water and the environment. But there was a significant mean reduction of the mean balance of the financial debt and the mean cost associated to this debt in 2021. As a result of all this, the cash flow and equivalents of the group, the treasury position of FCC grew by EUR 313.4 million at the 31st of December of last year and reached a balance of EUR 1.5 billion. So with this evolution of cash flows, I just want to mention 2 things. First of all, the gross financial debt, well, the balance at the 31st of December did grow by 16.4%. That has to be said, EUR 697 million, but this increase is fully due to the inclusion of the global consolidation of Realia and Jezzine, which entailed a contribution of almost EUR 900 million, slightly over EUR 900 million -- EUR 967 million additional gross financial debt. So if we adjust the treasury position and equivalent that I mentioned before, our net financial debt was increased by 15.3% to EUR 3.2 billion. But again, this is fully due to the effect of the consolidation of the financial debt incorporated for the rental activities of Realia and Jezzine. So I don't want to run on really. These are the most significant comments I wanted to share with you about the operational evolution and the financial evolution of the FCC Group. I just want to repeat that this has allowed us to go back to the profitability and earnings levels of -- before the COVID-19 pandemic. We strengthened our cash flow generation of the group, available cash generation. And this places us in a good position to keep consolidating our policy for selective growth and value creation. That's all I wanted to share with you. Thank you very much for listening to me. And now we can open the floor for questions. We can start by the questions on the Spanish channel. Thank you.

[Operator Instructions] There are no questions. I give the floor back to our Chair.

Okay. Thank you very much. So I guess there are no questions on the English channel either. As you know, we are always available on all our channels, our website, our Investor Relations lines. So if you do have any questions after you've analyzed the report we have submitted to the authorities, we would be delighted to answer all your questions. Thank you, and have a good day.

Thank you, everybody. This brings us to the end. The meeting is adjourned. [Statements in English on this transcript were spoken by an interpreter present on the live call.]