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

Welcome to the earnings presentation of this third quarter for FCC. As you know, we have sent all the documents this morning to the CNMV. I would like to remind you that to interpret the results we have published as we did in the first half of the year, both Real Estate and Cement activities have been classified as discontinued. This is what we did from the 1st of May 2024, but it was backdated to the beginning of the financial year. In this way, all their contribution has been included with the results of discontinued activities. And if you want to look at the evolution of the financial debt, the situation is the same. It has been included together with other current and noncurrent liabilities in the same chapter. Also, as we said for the first half in the P&L, you have also a comparison of the figures. Having said this, I will review the main magnitudes of the figures for the first 9 months of the year. I will start with the revenues. Here, we had an increase of up to 8.4%, EUR 6.5 billion. There was growth across all the different business areas. I would particularly mention 2 of them. Water, which was also supported by the incorporation of the United States. We will review this in greater detail later on. And also the activity of Concessions, which also has had a good performance at an organic level. And there's also been an increase in its consolidation perimeter, but the growth has occurred across all the different areas of activity. In terms of EBITDA, it grew over the period in a similar way to revenues, 7.6%. We reached EUR 985.5 million. Here, and it's a significant factor which we already mentioned in the first half, we had to make an endowment of our provision for an environmental transaction in the United States and also something to do with our recovery plant in the U.K. And there was also a lower contribution of some work in the Construction activity, and I will explain the reason for this. But as I said, our EBITDA was 15.1%, which was very similar to our figure in the same period of last year. If we now look at the net attributable result for FCC, we reached EUR 426.6 million, 6.3% increase. And here, there were a series of elements to be mentioned. First of all, Concessions, there was an incorporation to the perimeter that of the Parla Tramway in Madrid. And then there was also an increase in financial expenses, as you can imagine, because of the increase in base rates, which has been going on for some time, and an improvement of results because of the equity method, particularly in the Environment area. But as I say, these are effects that offset one another, and that is why we had that 6.3% figure in the net attributable income. The net financial debt of the group finished at over EUR 3 billion, EUR 3.2 billion. There was an increase of 3.5%, if we look at it in terms of December 2023. And here I want to mention, although this is something that was mentioned in previous quarters, there was a significant investment effort from the group. We closed the third quarter with investments for over EUR 1 billion, and this is a significant amount. If you compare it with our revenues in percentage terms, you can see that there's a significant investment effort. Amongst the different investments, we have the case of Environment. I would like to mention the transaction in U.K., Urbaser, for EUR 535 million. This was made at the beginning of May. Also ESG in France, for over EUR 100 million, so it belongs to -- and then GEL Recycling, which was a plant in Florida, for over EUR 29 million. I would also like to mention within those investments for over EUR 1 billion, the investment -- the Water transaction for MDS, it's a water transaction that was made at the beginning of the year. And also the effect of the deconsolidation of the financial debt associated to the 2 activities I mentioned, Cement and Real Estate, which is a result of the process or the separation process at 30th of September. They're not included anymore with the financial debt. Net assets are showing you a good evolution. It increased to EUR 6.5 billion, 6.8% more. And the breakdown would be EUR 548 million for the attributable FCC and over EUR 100 million for the minority shareholders, basically for Environment and Water. I also want to mention the other business areas where we had a significant evolution in our revenues, [ 4.1% ]. A significant amount, which compares very well with our revenues in 9 months which was EUR 6.5 billion. And here, I would like to mention the most important activity, which is that of the Environment because of the expansion, as you can imagine, because of the investments I have been mentioning in the international business. So ladies and gentlemen, now if we now go into the different business areas. If we now focus on Environment. The revenues here grew by 9.7% over EUR 6 billion more. That was the final amount. Per activities in geographical areas, waste collection and street cleaning, which is linked to our Spain business model, grew significantly. In Central Europe, the growth was also quite harmonious across all the different areas of activity. And then I would like to mention the U.K. where there was higher revenues in recycling and waste recovery. And here, you need to consider the effect of the consolidation of the U.K. Urbaser Group in May last year. If you look at the different platforms in the group, the most important ones. First of all, in Spain, they grew by -- so revenues grew by 8.3%, EUR 1.6 billion. Here, as I said, the growth was highly harmonious in waste collection, street cleaning and processing and other associated services, and the rest stayed quite stable. Then in the U.K., as I said, revenues grew by 11.5% to EUR 655 million. Here, we had a higher increase in the activity of waste treatment and recovery, particularly because of U.K. Urbaser. But it is true that we also obtained revenues for the sale of electrical energy, which was which was slightly lower. And in revenues, there was lower levels of collection from the U.K. tax authorities because of the discharge tax. As you know, we just act as a collector there, but that doesn't have a result in our operational results, but it does have a result in revenues. In Europe, in the countries where we operate, revenues increased by 7.5% to EUR 484 million. And to be honest, the growth was also very stable and systematic, particularly in the Czech Republic and Poland. The latter is growing more than the former. And then for the time being, we are reporting the U.S. and other markets. When I say other markets, I also include France. I already mentioned the purchase of ESG in August of last year, and this -- we'll report this differently in future quarters. But this U.S. unit grew in the last 9 months at a level of 16% to EUR 324 million. So apart from the incorporation of ESG in France with EUR 16 million or EUR 18 million contribution, we have also made progress in the implementation of our operations in Florida, in central and north of Florida and California. So the EBITDA for this area grew to EUR 491.9 million. The growth was very similar to the revenues, 9.2%. To be honest, I would say that the evolution was positive, particularly if we remember the provision that we had to make in the first part of the financial year for Environment related to claim that we were facing for the discharge tax. So in spite of that, together with the lower prices of energy which affected the whole market, our operational margin was identical to that of the first 9 months of last year, 15.7%. But to speak to Water. In Water, the revenues increased by 12.2%, EUR 12 billion. Here -- EUR 1.2 billion. So here, I want to mention the integrated cycle activities in the United States. And we also had an impact from the rate hikes in 2 markets in Europe, the Czech Republic and Georgia. In the Czech Republic, we're not just the managers, but we're also the owners, as the monopoly owners of significant areas, also in Georgia. But this is not a concessional model, it's a proprietary model. By different geographical areas, Spain increased by 12.6%, EUR 702.6 million. Here, there was a combination of different factors. Rates evolved in a very positive way. Consumption was quite lower for residential than nonresidential. But we need to consider that this was a little bit limited because of the restrictions imposed in some areas, much less than we might have thought at the beginning. Some areas like Catalonia and Andalusia. But the increase in revenues in Spain, what it limits it -- what limited it to 2.6% is in Technology and Networks, a lot less works were done. Because you know that sometimes there's a lot of repair and maintenance work which is invoiced separately. But all in all, the evolution was quite stable in the Iberian market. In Central and Eastern Europe, we had an increase of 6.6%, EUR 186.8 million. Here, as I mentioned, there is an important role played by Czech and Georgia. But in this case, we need to consider that we -- there was something that played against us to do with the evolution of the Czech koruna and the Georgian currency, which depreciated by 4.9% and 4.5%, respectively. In the rest of Europe, as I said, I already mentioned, well, we have France, Portugal, Italy, the revenues grew by 3.3%, EUR 82.2 million. Here, we're still -- well, we are still growing quite a bit in the order areas in France, but we -- there was also less work to do with Concessions. Particularly in [indiscernible] in Italy, which limited revenue increase. And well, in the Americas, you see there was an increase to EUR 138 million, particularly because of our Texan operations. And there was also, as you know, we are present in markets at Colombia, and Technology and Networks activity here was really very good for us. And also, we have partial cycle operations in Mexico, which also had a very positive evolution. Finally, the platform that we call Middle East and Northern Africa. Here, there was a significant increase. This is a smaller platform. We went -- so the increase was 23.7%. And here, as you know, we are working on -- well, in the clusters in Saudi Arabia, these are very large areas of the country where we do monitoring, advisory work, together a wonderful evolution in our facilities in Northern Africa, particularly in Algeria. With all of this, the EBITDA, as I mentioned, for the Environment, grew by 12.2% -- sorry, 11.1%, which is a very stable margin. We reached EUR 303 million. And all the different elements I mentioned, the operational margins also stayed very stable at 24.6%, very similar to the 24.7% reached over the same period of last year. So everything is in line with done in the past. Now as far as Construction is concerned, revenues increased by 4.4%, EUR 2.1 billion. Here, we -- everything was aligned with our program. And I think I should say that there's a higher contribution in revenues in projects of our Industrial Construction FCC unit, particularly to do with renewable energies. And in Spain, we also have gas, which is also very important. As you can imagine in countries like Germany, with all that we have seen in the last few years, in Germany, we are playing a very important role. Geography by geography, in Spain, our turnover grew by 7.3% to EUR 8.78 million. As I said, there's 2 effects. First of all, we have renewable energy contracts, particularly solar and [ portable ] energy, which have compensated for a very significant project, which was that of the Santiago Bernabéu Stadium in Madrid. But in Spain, we had this good evolution of results. In the rest of Europe, essentially the European Union plus the U.K., the turnover increased by 29.8% to EUR 614 million. Here, the most important contracts we have are in the Netherlands, the U.K., Norway, and they have progressed without a hitch. In the Americas, the business grew -- no, in the Americas, there was a reduction of our turnover, because here, what we have is an effect which was not easy to avoid related to the finishing of the Maya Train project in Mexico, which was a very satisfactory project. It was a very important contract. And although we have important projects in different areas in construction of Canada and the United States in areas like Pennsylvania, Toronto, but all of this could not compensate for the finishing of the Maya Train project. In Middle East and North Africa, which also includes Australia. Well, in Australia, we clinched a very important contract recently and we had an increase of 59.5% by EUR 192 million. And here, well, the Riyadh Metro is still making quite a significant contribution, but this is some accessory things we're doing in the Riyadh Metro. This is a huge produce we are working on the train -- on the rail tunnel that gives access to a city in the northern area of the country. So just to give you some color of the evolution based on our program, the EBITDA reached EUR 121.4 million. It stayed practically stable with respect to the previous year. And as I said before, here, what we had and you see it in the operational margin is a fall in the operational margin from 6% to 5.7%, and this is because of the margin we had in some finished projects. For example, the Maya Train, which made a slightly higher contribution. And now, of course, the project has come to an end, but the margin is still quite satisfactory. And lastly, the last activity I want to mention, which was started reporting at the beginning of this year and we are not including it under the Corporate heading, it's Concessions. As you know, it's a combination of Concessions to do with infrastructures of different kinds, transport, railway, road and [indiscernible]. Here, the revenues over 9 months reached EUR 59.6 million. This is a significant growth of 31.9%. And here, there was both traffic growth, which was very satisfactory, both for rails and roads, particularly urban railways. Here, essentially, we have 2 concessions. One of them is the Murcia Tramway. Murcia is a city in the south, a sizable city in the southeast of Spain. And then the Parla Tramway in Madrid. Obviously, the majority of the revenues from Concessions to date reside in Spain, almost 90% of them do. The main 2 contributors, as I said, are the Murcia Tramway, and another one, which we have been operating for some time, which is the Conquense Highway. And internationally speaking, we need to mention the contribution from the Coatzacoalcos Tunnel in Mexico. So the EBITDA for this Concession activities, EUR 41.8 million, an increase of 15.5%. And the operational margin was 70.1%. That's a fall in the operational margin from September '23 to September '24. And this is because, last year, we recovered the provision that we had endowed for OpEx work, which resulted in an increase, so 70.1% we had in this third quarter is really in keeping with the current operational evolution of the business. I'm just saying this in case you notice this difference. So all in all, I think I mentioned the most important highlights of this period. As you can see, the results are very stable across all the different lines and across all the different activities. I just want to mention that we also have very good prospects for the future. We are very optimistic about the future. We need to consider that the utility profile of the group, and taking into account the fact that 25% of our business is in Environment and Water, so we are a highly predictable company and we are still making progress. In this respect, I don't know if you have any questions after my presentation. Remember that we're still advancing in a partial in the partial separation of the Inmocemento Group. And we believe that this is going to give greater visibility to the different [ tax dividends ], which are still in the perimeter of FCC. I don't want to run on. I just want to thank you for connecting and for joining us. And now we are going to have...

What can you say about the listing Inmocemento? And could there be a capital increase or just a spin-off?

Thank you very much, Álvaro, for your question. Well, the process -- well I just mentioned it, the process is going to be a formal -- it's going to be a partial financial separation. So what we're going to do is now we have 100% stake in the Cement and Real Estate activity, but all of that is going to be university transferred, all the rights and obligations. So the 80% we have in the Real Estate mother company and the 100% we have in the Cement mother company, all of this is going to be transferred to our subsidiary company, which today is owned by -- fully owned by FCC, which is called Inmocemento. Once we have complied by all the requirements imposed by the Spanish CNMV and prospectus is going to be issued to the market, we hope it soon to be as soon as possible, so there's going to be a financial separation. Literally, the idea is to transfer all of those activities to Inmocemento. And the shares, the Inmocemento shares, are going to be delivered proportionally to the FCC shareholders. So this is going to be an assignment that is -- it's not going to be free. I mean it's not just going to be free for everyone, it's going to be conducted in a proportional way. So it's really the same operations because Inmocemento is also going to be listed on the stock market so that it doesn't lose its liquidity. And the process is going to be very simple. So when the CNMV approved the project and an announcement is made of the IPO, a price is going to be signed. It is still not known, but it will be known before the IPO. So price will be assigned to the Inmocemento shares to the shareholders of FCC, and it is going to be as simple and as operational as that.

Next question. In Concessions, I would like to know what strategies you have and whether you would consider entering in highways in the United States together with some other countries?

Well, Concessions is an activity which fits in with our utility profile, which is 1 of the vocations of the group. We have in the Water activities -- our business is also a utility business because it's -- and for the Environment, well, we have also shown that it is also a utility activity because it provides basic public services. And Concessions, which has been in the group for many years, decades, because it's also a been very close to us. So all our concessional projects have been very close to our core Environment and Water businesses. So in Concessions, we had an opportunity and we went for it, and we decided to grow in a brownfield way. For example, in the cases of the Parla and Murcia Tramway, so we have always done what was the most attractive for us. And we also have greenfield projects. For example, the development of the A465 in Wales in the U.K., which is a project, which is a greenfield project, which has a concessional participation. And also other projects such as the Haren in Belgium or some lines in the Lima Metro in Peru. So the strategy is a combined strategy. And in the United States, well, the United States is a market we might, of course, consider. Remember that we are present with Environment, with Water, with Construction in the United States, so it's a market where we already have our foot in the door. So we're going to go project by project to see what comes out of it.

Third question, when are you going to be able to clinch or close the Inmocemento transaction?

Well, we have a calendar of course. But given that, logically, we need to be subject to all the different processes and reviews with CNMV, I need to be [ pacing ] here. And the only thing I can tell you is that we hope it's going to happen before the end of the year, but I can't give you a precise date.

Next question. What can say about the 9-month working capital as compared with the 9-month working capital for 2023?

Well, I think we are aligned, I would say. We are basically within our target for the -- there's an expansion, we also have had a growth in revenues. But at September 2024, our expansion similar to what we had expected for the end of the year. Making predictions on working capital is very difficult because, of course, you can't control everything yourself. But we are within our budget in the different activities. And we have a reasonable position to think that we might be within the target by the end of the year.

There's no further questions.

Okay. If that is the case, I would like to thank you very much for devoting your time to us. If you have any further questions or any other queries, you can get in touch with us through the usual channels. Thank you again, and have a good day.