Global Dominion Access, S.A. (DOM) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of results of Dominion. English language [indiscernible] icon at the bottom of your screen. Before starting, we would like to remind you that once we finish the presentation, as usual, we will open the discussion. [Operator Instructions] We have Roberto Tobillas, who's the Director; and Patricia Berjon, who is the Director for Corporate Development.

Well, good morning, everybody, and welcome to our results conference of the first half 2023. I would like to make a number of comments before I move on to reading about our figures. We have observed that these complex and uncertain environments have become the new normality. So this is why you know that on May 17, we presented our new strategic plan that covers the years 2023 to 2026. And we presented it with 3 fundamental elements of recurrence, sustainability and simplification. In the first element we refer to building or rather reinforcing a business that is ready to deal with any kind of environment business in which we have lots of visibility and allowed us to mitigate uncertainty. As regards to sustainability, we believe that the transition towards a sustainable world is not only a trend, but also a need and our business will be -- will benefit from this because we're helping all of our customers to make their processes more efficient and also be more sustainable. We'd already been doing this, and we position ourselves more and more in this field of services and projects that are related to sustainability. And in the third item, we talk about simplification as a commitment of where our strategic focus is. Our strategy is focused on our traditional business of services and projects in order to help our customers to be more efficient throughout their processes. -- with using the leverage of the available technology. We are sure that the strategic approach that we're presenting for 2023, '26 [indiscernible] that we're going to continue down this path of growth and fulfilling objectives. As regards to the effects of the environment in this semester all the main ones have to do with inflation, although this is reduced, it affects the operating costs and the increase in interest rates that have increased our financial expenses. But now let's move on now to talk about our financial statement at these first 6 months of the year. And you can see how the last and most recent strategic results have produced some very good figures and especially operating margins that are excellent, but I think that what we have to do is explain that in 2022, we've [indiscernible] have homogeneous comparison. And we haven't taken into account the electricity sales of [indiscernible], which, as you know, since the agreement [indiscernible] last summer, they are no longer on the business figure, so because we integrate them directly, and we've stopped adjusting the sales of devices as we explained in the last quarter. And we have reached a business figure of EUR 571 million, which means 9% more in comparable terms. And this means that organic growth is 72.2% far above commitment established in the plan, which is something about 5%. Now this occasion, ForEx has practically not contributed anything and inorganic growth provides 2.1% because of the integration of the 2 wind farms in which we own. And this semester, we have reached an EBITDA of EUR 71 million, which means that growth was 26% compared to the first half of 2022 and a margin of 12.5% related to the business figure. This shows, once again, the high level of operational leverage that the median has. And you can see how our EBITDA margins have grown significantly from 10.8% to 12.5%. So what has to be underscored is the fact that the central structure of the company, the [indiscernible] not growing in spite of the fact that the business has grown and although there has been several inflation. But as regards to EBIT, we can see that trends are maintained. We have reached EUR 40 million, which means a 21% increase relative to the to the previous year. And well, we have higher amortization, somewhat higher compared to what we had in the first half of 2022 because of the farms we have that we fully own and because we've increased the amortization through IFRS-16. With this, we have a net result of EUR 23.7 million. In other words, there's a 2% increase relative to the first half of 2022 in comparable terms. But if we were to now resort to the total business figure, we talk about 39%, although you know that we always refer to figures that can compare and that represent the progress made by the business. That's why we say 2%. And we reached this even in this current environment of the current rates. And as you know, they are having a big impact on the low levels of the P&L. So in other words, the results are very good for this first half of the year. But to understand the origin of this growth, let's see the information by segments. But it can be said that the good behavior is present in all of the business segments. In sustainable services, we reached EUR 393 million of business figure, which means that growth stands at 8.5% in comparable terms relative to the first half of the previous year. And of this 8.5%, 8.2% has to do with organic growth, thanks to the good evolution of the already existing contracts because new contracts have been awarded. This segment that provides lots of resilience for the account, thanks to its defensive characteristics and periods of uncertainty, now weighs 70% of the business figure and nearly 60% of the contribution margin. I would like to remind you that something like 85% of these service contracts are recurrent. So this is why we feel very comfortable with this proportion of total business. As regards margins, this quarter, we have observed an improvement of margins even though there are inflationary tensions that affect operating costs, and we closed the quarter was EUR 46 million, which means 11.7% of contribution margin. That is 16% growth in comparable terms with regard to the same period of the previous year. Sustainable transition was present in all fields is boosting this segment, thanks to new contracts and opportunities in this area. We have acquired a company called [indiscernible], a company from the environmental sector that supplements our activities routed to industrial cleansing and circular economy in Spain and it has provided us with a very big activity license. And with a portfolio of current customers, it's an earn-out of EUR 30 million that will be paid between this year and 2025. In the same manner -- well, you know that the sustainable transition or the environmental issues, we can say that digital transition, which we already mentioned, the strategic plan has provided us with new contracts like those that have to do technological integration at data centers. In the 360-degree segment, we've reached EUR 171 million in business figure, EUR 34 million in the contribution margin, which is growth of 6.8% and 15.1%, respectively, driven, among other things, by the construction of [indiscernible] farms in the Dominican Republic in Spain, and we're still developing the pipeline. In the second quarter, we've added 400 megawatts of projects in the development stage that will be fed into this segment of 360-degree projects in the next few years. We reported exceptionally good contribution margins, 20% relative to sales. And the target that was set was 15%. I would like to remind you that one of the rationales that was used to carry out the operations closed at the end of the year 2022 was the objective being present in the entire value chain, which [indiscernible] mentioned on many occasions. We believe that the margins are not adequately distributed, but now that we are present, we can see how this increase in margins is now starting to work. But moving on now to our stake in infrastructure, this half year contributed EUR 6.7 million in business and EUR 4.5 million in EBITDA for the traditional business because of the farms we fully own and which are those in Ecuador and in Argentina. And to really have associated something like EUR 40 million in debt, and they have provided something like EUR 10 million in EBITDA every year. As we've mentioned in the strategic plan, the states want to optimize our core business in projects and services. They also provide recurrence and resilience. In these 6 months, the farms that we own 100% and those that are under operation, producing electricity, where we own minority stakes have generated a cash flow of EUR 1.3 million. In the next quarter, the Spanish farms [indiscernible] will be commissioned with an approximate capacity of 44 megawatts that is. And as regards to the agreement with the European partner, well, we are now involved in the due diligence process. So that means that the information we can give you is limited. And in any case, we hope that this will materialize over the next few months. As regards to the balance sheet, the main movements are explained by the buyback of shares and also by the rest of the dividend that was paid on July 5 after the closing of the semester and the reclassification of the assets in [indiscernible] that were open to be sale because we have several offers in front of us so that these assets can be sold and we have the acquisition of the company, as I mentioned before, that [indiscernible]. And the buyback of shares represents a cash out of EUR 8.3 million and the register of the dividend represents a reduction in equity of nearly EUR 15 million, although this will not be reflected until the third quarter, that is in terms of cash and the reclassification of [indiscernible] assets means that we have to reclassify the net figure for assets and liabilities under the section of others with a reduction of the net financial debt of EUR 80 million. And as regards to the acquisition of [indiscernible], it's going to be EUR 13.5 million in earn-outs, of which EUR 5 million will be paid in the second half of this year. Since the new strategic plan was presented, you know that we reported the net debt separated between debt and ex infra, in other words, the traditional core business that is operating in the net cash and the debt associated with our stakes in infrastructures. As regards of the format that is the movement of net cash in the traditional business, there's been an increase of EUR 13 million. So instead of EUR 47 million, it's now EUR 60 million. And this can be explained because there's been cash consumption that has to do with the buyback, totaling EUR 8.3 million and because there's been a flow of operating cash of nearly EUR 21 million -- or EUR 21 million where the movement has been practically nonexistent. And the net financial debt associated with infrastructure closes the semester with EUR 145.5 million, which means a variation of minus EUR 65 million compared to December 2022. And we also have a total net financial debt of EUR 85.5 million vis-a-vis the EUR 164 million, with which we closed 2022. And as established in our guidance for the strategic plan, the net financial debt will evolve with more during this plan. So this figure will, obviously, be reduced. As regards to our sources of funding and the impacts produced by interest rates, we've already mentioned this. And this semester will be closed with financial expenses, totaling EUR 16 million. And this is something like EUR 11 million higher than the previous year, which, as we already mentioned, has increased because of the integrated debt of renewable farms, but above all because there's been an increase in debt rates and preexisting debt rates. And I'd like to finish, what we have presented is a very good semester where we are crystallizing all of the strategic movements that we shared in the month of May and which will continue to consolidate our solid track record quarter after quarter. So thank you very much for your attention. And now we're going to move on to your questions. So please go ahead. I would like to remind you that you can ask us via the chat or you can do so via telephone.

[Operator Instructions] Firstly, we are going to get the [indiscernible] from Santander.

Can you hear me?

Yes, we can hear you perfectly. Carlos.

I joined the conference call 5 minutes late, so my apologies if I'm asking something that doesn't make much sense. Well, several questions -- the first question that I wanted to ask you as regards services, if we take a look at the second quarter, growth was more limited, if I'm not mistaken. It's plus 2% or plus 3%. Over in the first half, there was very solid growth. But I would like to ask you why there was less growth in terms of services in Q2? Does this have to do with B2B? Or is there any kind of impact related to B2C? I don't know, anything along those lines? And my second question has to do with the backlog. The backlog has dropped slightly. And it's not had any significant increases for us through 4Q. And in renewables, you have a very powerful portfolio, but I would like to ask about the timing. When do you think that these projects are going to be improving? When do you think you're going to be able to include these projects? Because if we look at the figures of the backlog as regards to infrastructures -- well, that's the same figure that you gave us 3 months ago. And the third question has to do with phone house and the information we've seen in the newspapers as regards possible layoffs. So could you please say something about this? What are your plans? And what kind of restructuring actions will you be carrying out of the phone house? And above all, what kind of impact is this going to have for your financial statement in the second half of the year? And finally, the tax rate for this quarter has been very low. Could you please explain why that is so?

Thank you very much for your questions, Carlos. Well, first of all, you were asking about the growth we reported in Q2 in terms of services and how it's somewhat stagnant. Well, there's nothing very relevant to point out here, although it is true that in Q1, we did have some very strong growth figures, although you know that services I do have -- not have any seasonality. So they move pretty -- in a pretty stable manner throughout the quarter. So there could always be some variations and taking as a basis, what we had from previous years, that is our reference. But there's nothing that is worth mentioning to say that we are seeing a slowdown of services. And this is what we can expect for the year. It's a growth that according to these accumulative figures of how we have grown by 8% in services and so on and so forth. And we don't really expect there to be any kind of different evolution compared to what we expect for the year. Well, there's nothing significant, Carlos. That sometimes happens in the Central Europe and Germany in places like this, where we have July and August that are a little bit more powerful. And then between April and May, April and June can be somewhat lower because of maintenance issues or whatever, but [indiscernible] focused on the accumulated figures and there's nothing relevant and nothing that's a big concern. But as regards to backlog, it is true, yes. I think that sometimes, we talk about pipeline and backlog, but we're maintaining a stable backlog and renewables in the pipeline. We have those two [indiscernible] that have been identified. So it is true that they are gaining more visibility. Those projects that are closer to B2B in Italy, for instance, some projects that are in the pipeline and that could eventually become portfolio and the Dominican Republic, something very specific [indiscernible]. So you have to take this backlog figure with -- as a preliminary figure. Because you have to bear in mind that it has to be conjugated together with the pipeline that is still there and which we are seeing new possibilities and new entries into that pipeline. And this is like a living beam. And you spoke about TPH, you spoke about phone house, the layoff scheme finished yesterday, and it's closed and it's been a success. And that's it. So there's not much more to say about this, and we are advancing according to our plan and things are progressing well. And with regards to the tax impact, I suppose that we'll have to look into the accounts, but there are impacts on the consolidated statements due to a number of issues, have their own fiscal activation. We do have some operations that are generating specific margins in renewables that come more from the setting of shares. So the fiscal impact is lower than what we had last year, but it is correct. But I think that this year, we will improve relative to the previous year. We will improve the tax impact because of what has to do with operations that we believe are going to provide deductibility, which in previous year, we had adjusted and we're going to have some income that are not going to be computed as regards taxation.

Just a follow-up question for you very quickly. Do we have to consider any kind of restructuring costs in Q3 because of these adjustments in phone house?

Well, yes, there is a cost, but it's something that will be absorbed, and we'll give you more information when the process is -- has been fully calculated and concluded. But in any case, it will not be especially significant figure. We consider this within what would be the operational parameters. So we will give you information in this regard. But in any case, it should be absorbed or it should come under what we would call more or less usual operations.

We're going to continue with Juan Pea from Gaesco.

Look, I wanted to ask you three quick questions. First, on the M&A, you said that you're going to acquire a company called [indiscernible] Retiro. Could you please give us some more information? You spoke about EUR 30 million over the next 3 or 4 years. Has there been any cash issue? How much was that? How much cash expenditure has there been? And how much does this represent in terms of income and margins, especially income in the [indiscernible] is we can expect as regards to the contribution of organic growth this year. So could you give us more information on this operation as regards the evolution of the net debt. There's been a reduction because of cash generation because I suppose that there are some renewable infrastructure projects involved that have left the balance sheet. So could you please confirm this? Because you talked about a reduction of EUR 80 million or EUR 90 million in the net debt figure. And as Roberto pointed out before, the issue of Phone House was according to the plan. Could you please tell us what this plan means or what it's all about? Because after this reduction of employees, what is your vision? What is your take on this division on this line of business? What do you expect once you've carried out the operations with the electricity customers and with the telecom customers, what are your plans for this? You spoke about a reduction of 15% of the workforce. So you still have quite a few work. Could you please give us a bit more visibility on what do you expect with regard to Phone House?