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

[Audio Gap] Presentation of the first quarter of 2025. All the documentation has been sent to you in the early hours of this morning. It is also available on our website. I would also like to mention, and I'm sure you are aware of it, that as a result of the carve-out, the partial carve-out last year, which was reflected on our accounts from the 1st of November 2024, we are going to be comparing this year accounts, which especially in the bottom part of the accounts are not really comparable because if you look at the profit before tax, there's a contribution already in 2024 from Cement and Real Estate, which were really considered to be interrupted activities. But regarding revenues and EBITDA, the comparison is really valid because we have expressed the accounts of the first quarter of 2024. And I wanted to mention this because the first quarter means that there was a fall in the consolidated net profits of the group. In fact, 43.4% that we have expressed up to EUR 55.8 million of attributable profit include this effect. In the first quarter of last year, we had EUR 35.2 million coming from these 2 activities, Cement and Real Estate. Also at the consolidated level, I just want to mention something because you know that the first quarter is always a very short period. And so we had an asymmetrical impact on the -- from the evolution of the exchange rate of euro as compared with other currencies. Last year, there was a contribution -- a positive contribution of FX differences. But this year, the contribution is of the same amount, but of the opposite sign. So there's a base effect of approximately EUR 32 million that also had an effect on the net profit. And these 2 effects have created an asymmetry between the operational evolution of the company and the attributable net profit. So as I was saying, reviewing the main figures at the consolidated level of FCC in the first 3 months, the consolidated revenues were increased by 8.9%. I would like to mention that the main element here was the Environment activity because of the combination of a good organic evolution underlying apart from the effect of the different acquisitions that we'll be looking at in greater detail that have taken place over the period, which created a positive effect. Water also had a good performance, and this will be the second area that should be mentioned in terms of its contribution across all its main activities. Afterwards, I will give you further details. [Audio Gap] EBITDA, the figure was EUR 324.4 million. This is an increase of 14.6%, even higher than the one recorded in revenues. But here, we should mention that the main element apart from a good operational performance, there was a base effect last year in the Environmental area. But since this year, we're not going to have that anymore. This has also helped reach this higher EBITDA growth. And so this has resulted in an EBITDA margin over consolidated revenues of 15%. The other headings of the P&L account, apart from the interrupted activities and FX effects I mentioned, well, did not show any effects that were of any consideration. Now the net financial debt at the end of the first quarter was quite similar to the balance we had in the previous period until December. We were slightly above EUR 3 billion, EUR 3.093 billion with a very modest growth that can be attributed to the expansion of the working capital, which in some of our areas was quite marked halfway through the period. And this is something that is quite common for the group. So this is the main culprit to this element. Net assets were quite stable with a slight reduction of 0.3% to slightly more than EUR 3 billion. Here, I perhaps should mention that the consolidation reserves of foreign companies also as a result of the -- some of the FX variations, well, gave rise to these small variations, particularly because of minority interest, which is related to the assets belonging to minority shareholders. And I should also mention the capture of new activities in terms of revenues. There is a breakdown here, and you can see that we stand at over EUR 45 billion, more than 6%. And here, I would like to mention, of course, there's been an increase across all the different areas, Environment, Water and Construction had a slightly higher importance because of an element I will be mentioning later to do with Construction specifically. As I was saying, if we now turn to the different business areas in greater detail, in the Environment, here, revenues increased by 16.7%, reaching over EUR 2 billion. And here, we had good performance across all the 4 platforms we operate in. What we have done since the end of last year is to aggregate the different operations in the Atlantic, which would comprise our operations in Spain, Portugal and France after the takeover we carried out last year. But as I say, the evolution has been quite positive across all the different platforms. If we start by this new platform of Western Europe, in the case of Spain, revenues increased by more than 9%, EUR 576 million. And here, we had a good evolution. The situation is very stable, particularly in our main activity, which is waste collection and street cleaning, which -- but all the other activities, processing and -- had a good performance, very harmonious performance. In other countries such as France and Portugal, we had EUR 35 million on this platform, which compares with a much lower figure in the previous period. And this -- here, we should mention the acquisition of ESG, the French group that we took over whose activity is very similar to the activities we carry out in Spain, waste collection, street cleaning and also in Portugal, the performance was quite similar to that of other countries. The second platform that we have in Europe, the second and most important one is the U.K. Here, revenues increased significantly by over 34%, reaching over EUR 240 million. And here, there are 2 effects to be mentioned. You will remember that in June 2024, we bought the U.K. Urbaser Group, which is really focused on processing. And we also had more activity in the recycling and valorization chapters. And here, we really act as collectors on behalf of the British tax authority. And here, there was a lower collection of the discharge tax, which meant that our revenues were slightly lower. The last platform I wanted to mention in Europe is the Central European platform. We have a cluster with different countries, and the growth was moderate, but still positive, 4.2% more. And here, I would like to mention the Czech Republic and Poland with quite harmonious growth between waste collection and street cleaning. And the last platform I want to mention is that of the United States. The turnover increased to more than EUR 100 million in just 1 quarter. This is the first time we have reached that large figure. And here, there are 2 effects to be mentioned. The first one is the organic effect because we are still incorporating new contracts based on the platform we already have, new contracts in Florida and then a new contract in North Carolina. And there's also a modest contribution, but still important because we made a takeover of the Recycling Holdings Group, which is a waste processing which is a processing plant in the Central Florida. This takeover took place in May 2024. So with this increase of 16.7% of our consolidated revenues, our EBITDA went up by 46.2%. And here, apart from all that I mentioned to do with the 4 platforms, we should mention a negative base effect we had last year that was already reported in 2024. This was a provision of EUR 10.9 million for a claim for the collection of the discharge tax in the U.K. But if we adjusted for that provision of EUR 10.9 million, then you would see that removing this from the base effect, the real increase in EBITDA, homogeneous EBITDA for the group in Environmental activities was very similar to our revenues. It's a positive improvement around 17% of the Environmental EBITDA for the first quarter. Now if we look at Water, as far as Water is concerned, to the end of March, revenues increased by 10.1%, slightly more than EUR 422 million. And this was basically supported by the increase in the rates we charge across different geographies. I will mention this in detail in a minute. In the Water Supply, we are present in 4 continents, adding up to 15 different sites. The growth has been harmonious, both in our main activity, which is management, integrated or partial management of the Water Cycle and also in what we call Technology and Networks, which is some projects we carry out linked to the services we render for managing the Water Cycle. Having said this, in Spain, starting by the main market we have, which is Spain, revenues increased to EUR 236.7 million. And here, there was a combination really, a harmonious combination between consumption, cubic meters that we release and an increase in rates. And also Technology and Networks had a good performance, reaching an increase of 11%. As far as the center and the East of Europe, where we have 2 important markets where we own the network, and this is something important because the activity is 100% that of a utility. This is the case of Czech Republic and Georgia. Revenues increased to EUR 68 million, 5.5% more. And here, we have to mention our increase in the rates we charge in the 2 markets. Also in the Czech Republic, as I mentioned, for Spain, we had a slight increase in consumption, whereas in Georgia, there was a more flat performance. But since we are net producers, not just for the self-consumption of electrical energy, but we can also export to the network, thanks to our hydroelectrical plants in Georgia, we did have an increase because we sold the surplus to the system, and this was something good for us. Now for the rest of Europe, we are present in Portugal, also in Italy, et cetera. Here, we increased by 7.3% our revenues, EUR 28 million. In Italy, [Audio Gap] Czech Republic and Georgia, we had an increase of rates. Again, this is a concession-based model, which allowed us to make these increases. And as I said in previous quarters, in Italy, for example, in Sicily as far as water is concerned, the drought has hit us very hard, especially last year, but also this year. But in spite of this, the business model is highly resilient and allowed us to have a good performance. In the Americas, the turnover increased by 11.7%, EUR 58.5 million. Here, you know that since the 1st of January of last year and this is -- the like-for-like figure is comparable. We included a new company in Texas, where the model is basically based on an integrated cycle. And then in other areas, we also had increases in rates in companies -- in countries like Colombia. And also in Technology and Networks, we have carried out projects and in Colombia, in Mexico, the contract -- we have quite a few contracts for the management of hydraulic infrastructures. Finally, in the in Middle East and North Africa, MENA, especially in the Arabian Peninsula, the main market is Saudi Arabia. Revenues increased by 8.5%, EUR 40.8 million. And here, I should mention the clusters we have in Saudi Arabia, where we are just starting off, but this model holds a great promise in the future. Now the EBITDA for Water increased to EUR 90.8 million. And here, I would like to mention that -- well, the margin remained quite stable, 21.5% over sales. There were some readjustments of the margins for some BOT contracts that is partial cycle contracts, and that is what explains the slower pace in the increase of EBITDA than the increase in revenues themselves, but it was not really very significant. Now if we turn to Construction, I want to mention, and you know this already that the 2 previous activities, Environment and Water contributed 80% of the group's EBITDA. But now if we turn to Construction, [indiscernible] revenues rose to EUR 626 million, 3.4% less. Now the problem here was because -- well, some very important projects came to an end internationally, particularly last year, the Maya Train in Mexico, which gave us a very healthy margin, and we completed the project in a very successful way. And also, we made a lot of progress in other projects, which did not manage to offset the completion of the Maya Train project. Now in terms of geographies, in Spain, we had a reduction, quite a marked reduction, 7.6% less -- EUR 21 million less. But here, in Spain, we also completed last year a project that was very important, such as that of the Santiago Bernabeu stadium. Now with respect to the different positions we have in the rest of the European continent, there was a more positive performance, 9.8% more than the previous year. And here, we are still making progress in the different projects we have in Romania, in the railways in Romania, the highway in Wales, which is being done on a concession basis and another highway in the Netherlands. In the Americas, the turnover also went down because of, of course, the completion of the Maya Train project. But I should mention for the Americas, and I want to mention this particularly that there was a significant growth in our project portfolio, particularly because in the American market, particularly in the United States, we incorporated a new project that has now moved on from design to construction. This is a model that we are trying to implement more and more at a general level and which allows us to reduce risks because first, you talk to the customer, you define the contracting model and the execution of the works. So a contract is signed. And then this -- when you start the execution phase, things are very streamlined because you have already defined the scope and the cost that are going to be current. And so in this Scarborough contract, this is precisely what we did. And this allowed us to offset the Maya Train reduction. Also in the MENA region, Middle East and North Africa, we have been very cautious in this area, but we have made some progress in Australia. There's a series of jurisdictions where we had a fall of 14.4% in our revenues to EUR 37.5 million because there was less activity in important contracts that we had in Saudi Arabia, such as the case of the completion -- very successful completion of the railway works in the capital and the underground lines in Riyadh or the NEOM tunnel. But at the same time, we're going to start off a social housing project that we have signed with the authorities of Queensland in Australia, which is a project that is quite significant, which is added to some other minor works that we also have in Australia. The EBIT of construction also experienced a fall EUR 34.9 million. The operational margin was also lower than the previous periods, but it is quite aligned to our forecast. Finally, the fourth business area I want to mention is Concessions. These are -- all of them are -- well, it's different types of infrastructures really. Revenues, EUR 21.5 million. Growth was quite significant, 26.5%. And here, fundamentally, there's 2 elements to be mentioned. First of all, you should remember that we made an acquisition of a certain percentage of 50% of the concession of the urban tramway of Parla in the Madrid region. And we also started the development phase and the implementation phase of our road concession in Aragon also in Spain, the Aragon region. The revenues for Concessions basically are concentrated in Spain. The most important ones in terms of their contribution are the road -- the motorway in Conquense and then another concession we have for a motorway in Murcia in the southeast of Spain. And the performance was also good across all the different Concessions we have in terms of volumes and also in our urban projects. The EBITDA was EUR 13.7 million, 13.2% more. The EBITDA was aligned with what we expected over the period. There was a slight reduction as compared with the comparable period of the previous year, but we should also consider that when Concessions are in the development phase before the exploitation phase, for example, in the Aragon motorway, the contribution margin over that period is slightly lower, and this is only logical. So it's all very well aligned with our forecast. Right. I think that this is the long and short of what I wanted to share with you about this first quarter. And apart from the things I mentioned about the differences because of the carve-out that we had last year and other details that I also mentioned when I spoke about the different areas, I think that the evolution has been quite healthy, both in terms of revenues and operational margin. Also, revenues were very positive, and I don't have much else to add. So I think we should move to the Q&A period. Thank you very much for your attention.

Are there any questions? First question, could you give us information about the revenues and the EBITDA figure for organic growth of the first quarter? Well, yes, just let me look at the figures for a minute for the Environment area, just the Environmental business. Well, in the Environmental business at the level of organic growth in the first quarter, there was an increase of 8%. And the rest, which is 50% would come from the taken-over activities. Next question. Any -- was any M&A transaction carried out in the first quarter of 2025? No. To be honest, there were no M&A transactions. Nothing was incorporated to the consolidation perimeter over the period. In fact, as I was saying with respect to the evolution of our net financial debt in this first quarter, the payments that we made for investments were very well aligned with the investments and the recurrent activities of the group and the investments in group companies were practically negligible, not very important at all. The leverage target is under 3x. When do you think you will be able to reach that target? Probably by the end of the year. Well, the question about the borrowing target. Well, it's not that we have a target under 3x EBITDA. If we look at the consolidated figure for FCC last year, we closed with an EBITDA of EUR 1.45 billion with a debt that closed below EUR 3 billion. So we will be at a level of 2x EBITDA at a consolidated level. You know that our borrowing level is easy to understand because it is -- 100% is concentrated in the 2 business areas that are most visible, utilities or pseudo utilities, that is Environment, Waste Management and Water and Water Cycle. That's where 100% of the debt is concentrated. So in these 2 business areas, as you know, we have a mixed hybrid financing, banks and capital markets. We have covenants, and we have borrowing targets. In the case of Water and the Water Cycle, we have a commitment to stay below 5x debt to EBITDA. And in the case of Environment, 3x. But at a consolidated level, we are there. We were there at the end of -- so at the end of last year, we were at a level of 2x, which I think is very good because utilities account for 80% of our revenue. So this is quite robust. So to answer the question, I think we are where we really want to be. We don't have the target of going down from this. And in the 2 activities where we concentrate 100% of our gross financial debt, which is Water and the Environment, we have a good rating and investment grade, and we feel comfortable with our leverage level. Next question. Could you quantify the evolution of the working capital over this period? Well, in this first quarter, as I said already, there was an expansion. We stood at a figure slightly above EUR 150 million, which is lower than our figure in the like-for-like period of the previous period. This is an expansion that is typical of this first half, and it is quite aligned to -- quite well aligned to our target. Next question. In Water, can we expect that during the first quarter, the EBITDA debt will stay aligned with the figure of the same period of last year. Well, I think that we will be halfway between the 2, I would say, but closer to the figure for 2024 because in Water, Water is very seasonal. We operate in the Northern Hemisphere. And as you know, in the Northern Hemisphere, when summer comes, people consume more water. But I would say that precisely because of that reason, our consumption, as you know, is residential. So that is really one of our strengths. So of course, we provide services to industrial companies. So it's basically residential. So that's why in the summer, in the Northern Hemisphere, there's quite a high consumption level. So I wouldn't extrapolate this 21% for the rest of the year. Of course, there may be a few things that might affect such as BOTs, but we will be closer to the figure of 2024 than to the figures of the first quarter of 2025. Okay. If there's no further questions, I would just like to thank you very much for your interest and for paying attention to what I had to say. You know that we are available to you for any questions you may have. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]