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

Good afternoon, and welcome to the financial disclosures for Dominion. Before starting, I would like to remind you that once the presentation is over, as usual, we will open the Q&A session. [Operator Instructions] So we can start off with the presentation. We have Mikel Barandiaran, who is the CEO of Dominion; Roberto Tobillas, who's the Director General; and Patricia Berjon, who is the Director for Corporate Development.

Good afternoon, everybody, and thank you for connecting to our conference call for the year 2023. But before starting, I would like to say that in these results, we've incorporated for the first time additional material to the presentation and the press release that we shared and it's an explanatory report that tries to facilitate the analysis of the results by giving a greater context on the evolution of dynamics affecting each chapter. We're doing so because we believe that this should help you have a better understanding of what we've done and our aim is to improve our communication with the market. Having said that, let's move on now to reviewing this information that we've already shared. And I would like to say that the year 2023 has been once again a challenging period, full of uncertainties, in which we have shown that we are very flexible. So that based on our culture, we can overcome the difficulties that crop up along the past and so that we can make the most of these opportunities and the past, by the way, we have now turned 25 years old. There have been many macroeconomic situations and events, like for instance, the conflict between Palestine and Israel, the blocking of the Suez Canal or the election of Milei in Argentina. None of these facts has had a relevant impact on the company's activities. There have been other factors that have had an impact like the increase of interest rates or the movement of foreign currencies, which you can see in the financial statement and on the balance sheet that we've presented. Inflation has also been an element to be taken into account in the year 2023, but as we already mentioned on previous occasions, the nature of our business and the contracts, especially in the area of services, make this not have any significant impact on the company's margins, and we'll see that now with the figures, which is just the opposite. One of the elements that has to be underscored of these results for 2023 is that we've been able to significantly improve our margins over sales. I think that this is one of the most important elements. And as regards to the numbers we're going to be sharing with you today, we have to bear in mind several things, which I would like to talk about now. On the one hand, that is revenues, as usual, contain inorganic component. And in the case of this year, that includes an additional invoicing that is provided by GESTHIDRO for 10 months. This company was acquired in March of 2023. 9 months of invoicing [indiscernible], an acquisition in Colombia of September 2022, an incorporation of 12 months of the infrastructure business that was incorporated in December of 2022. So in total, we have an inorganic addition to the business figure of about plus EUR 22 million. And then during the third Q of the year, you know that we carried out the restructuring of the B2B2C business. And this divestiture decision means that there has been a reduction in the sale of devices, which represent an inorganic impact of about minus EUR 45 million. So therefore, the inorganic contribution towards the business figure in 2023 is minus EUR 23 million. And on the other hand, and as regards margins, we have included some extraordinary effects. From the negative perspective, we -- the restructuring that I just mentioned that took place in Q3 and which is fully in line with the objectives of adapting to the reality of the market and to simplify things, as I mentioned by the strategic plan, and this brought about extraordinary costs of EUR 6.5 million. And then we've also had some extraordinary positive results, mainly related to claims materialized successfully in Q4. And in the net figure, we have negative one-offs of EUR 5.1 million. So let's move on to the accounts. We've closed the year with a business figure that exceeds EUR 1.1 billion, which means that it's been 2% in growth compared to the figure of the previous year. But I would like to underscore that this growth is really 5% from an organic perspective in line with what we have in our strategic plan. And inorganic growth in this case has subtracted 2% based on what I mentioned at the beginning, and the ForEx effect has been negative. It's been minus 0.9%. And by geographies, this business figure, we have 36% of it in America, 54% in Europe and Africa and 10% in Asia and Oceania. And our activity in absolute figures has grown in all geographies. And what we have seen as regards to the figures of 2022 is that part of the weight has gone from America to Europe. And this is because of the renewable project activities in 2022 was very intensive in the Dominican Republic, whilst this year in 2023, we've initiated projects in the European area, basically in Spain, too. And additionally, we also have the service activity in the telecommunications that has grown significantly in Germany and also gives a greater weight to Europe. We -- as regards to the operating margins, we maintain high levels of profitability. We already discussed this trend in previous quarters and the contribution margin grew 16% compared to the previous year, 90% if we look at it in recurring terms. In other words, without taking into account those one-offs that I mentioned previously. And the central structure of the company has reduced its weights up to 2.2% of sales. And well, some time ago, we set the target of going below 3%, and we have achieved that completely. And even in spite of the growth of the business and of the inflationary environment in which we operate. But with this level of adjusted structure, we have EBITDA growth that are bigger than what we saw in the operating margins, it's 18% more which is equivalent to 22% if we look at it in recurring terms, and it reaches EUR 145 million, EUR 150 million of recurring euros. So therefore, we have fulfilled the objective established in the strategic plan. But as the better score under this heading is that we've been able to make the operating margins growth, the EBITDA over the sales figure has improved by 1 percentage point. And for the first time, we have exceeded the barrier of 12% of EBITDA over sales. And as regards to amortization, we've had an increase of about EUR 16 million compared to EUR 22 million because we have amortizations linked to renewable infrastructures these are infrastructures that we own. And we also have the devices from renting activity. And as regards financial expenses, as we've had in the most recent quarters, there have been an increase in the cost of funding, which means that it's EUR 15 million more compared to what we recorded in 2022. So with this, we have an attributable net result of EUR 44.3 million, which is 43% greater than the figure reported in the previous year. We must bear in mind that the net profit figure reported last year, in other words, in 2022, included some because of activities that had been interrupted that was much greater than the figure reported in 2023. But this increase in balance cost does not reduce our net profit. But moving on now to how business segments have evolved. Let's start off with sustainable services where we reached a growth of 1%, which is 5.5% that is related to organic growth, because the inorganic effect of the is focused on this business segment. In other words, we are growing organically above what was established in this strategic plan and also in this segment of sustainable services. And this segment maintains an important weight relative to the business figure, 70% and increases its weight in terms of margins up to 60%, which means that we have an important amount of recurrents. Evolution of contracts existing in services is being very favorable and it's improved the margin by 1% compared to 2022. So we have a contribution margin of 11.4%. And this is thanks to orientation towards businesses with high levels of profitability that are generally linked to sustainability and also because we have less presence of less profitable activities like mobile phones. And the extraordinary expenses of this year are located in this segment. So that means that the recurrent service margin would have been even greater, even reaching a level of 12%. So with regards to the 360-degree project segment, the business figure remains pretty stable and somewhat limited by the impact of ForEx, which subtracts 2%. And although we are now facing the best isolated quarter of 2023, which is Q4, the quarterly comparative can produce a mistaken interpretation because Q4 was the highest quarter we have had in terms of projects. As regards to the contribution margin, there's been a 6% increase compared to 2022, closing the fiscal year at 19.4% over sales which is above our strategic target. The execution of the projects has been carried out throughout the year according to the rhythm established, the portfolio remains stable. We have closed the year with EUR 624 million at guarantee future results. and we've added new projects in the area for water management in the Latin American setting. For instance, and we also have the possibility of incorporating future projects in Angola after having finished the projects that were underway in that country. The -- our segment of stakes in infrastructures closed the 2023 fiscal year by contributing nearly EUR 10 million in EBITDA to the traditional business. As regards renewable infrastructures in 2023, we've carried out part of the 5 wind farms in the Dominican Republic, which as you know, are under the umbrella of the divestiture agreement of 50% with CMI and 2 wind farms in Spain. One is going to be our property and the other one was sold in the last quarter of the year on the 20th of December. And as we mentioned, we sold 100% of the shares of the Valdecarretas PV wind farm, or sort of PV farm rather, sold to renewables Japan. And this means that we materialize our divestiture strategy for our renewable assets. As regards the wind farm in Cerritos Mexico, we've connected it to the grid, and that's how we will probably set it. And this is why it's one of the assets that is still open for sale, and we have several offers for its acquisition. As regards to the balance sheet, the main movements that have to be underscored are the following. In the case of fixed assets, we have an addition of EUR 15 million that is connected to the integration of the GESTHIDRO company that we said was acquired in 2023. In infrastructural assets, the assets of 30%, Valdecarretas leave our perimeter the first because of a reclassification that is going to be sold in the case of the latter, because it has already been sold. As regards to the net financial debt, it has been reduced by EUR 88 million. And at the end of the fiscal year, it now stands at EUR 75 million, which is 0.5x EBITDA. The core business, in other words, excluding the debt of the infrastructure that is temporary until the divestiture takes place and which is clearly associated to each one of the projects close the fiscal year with a net cash position of EUR 45 million. And the net financial debt of the infrastructure business is reduced because of the departure of Cerritos and the sale of Valdecarretas whilst we invest in new developments. As regards to the generation of operating cash flow in 2023, it's a total of EUR 71 million. In other words, it's in line with the EUR 17 million that we established in the plan. And this strong cash generation was reversed -- has been invested in -- throughout the year in our category activity with EUR 5.6 million acquired that includes the acquisitions of the year, and payments for operations of previous years, dividends paid out to shareholders of EUR 14.7 million and to minority shareholders, EUR 2.6 million and the repurchase of shares on which we spent EUR 8.4 million. And as regards to CapEx and in addition to the recurrent maintenance CapEx, that is something like EUR 20 million which is included in operative generation. We have spent EUR 29 million on the expense in our business, basically, renewable infrastructures and the renting of mobile devices. So the global interpretation of these results is, therefore, extremely positive. With significant growth, especially in terms of margins and the profitability of the sales. And with the progress made in the strategy established by our plan. As mentioned in May, in the presentation of the plan, our ambition is to become a company that is totally focused on sustainable activities. Please, we mustn't forget that sustainability is all about long-term efficiency. Our activities in 2023 we're focused more than ever before on these areas on the circular economy on reducing emissions, the recovery of waste activities that have growing demand and also have a profitability above our average. And these 2023 results, which is the first year of the plan, placing us on the right path to fulfill this plan. And this means that we can confirm the guidance for the rest of the years until 2026. So we are talking about growth of 5% in terms of sales, 7% in EBITDA and 9% in the generation of operative cash flow because you know that we talk about what we can predict. So these figures are in organic terms, and we will also have to add the investments and divestitures that we carry out along this path until we become a 360-degree sustainability firm. Right. Well, thank you very much for your attention. And if you would -- now we can move on to your questions to the Q&A session.

[Operator Instructions] Firstly, we have Juan Peña [indiscernible] for the floor -- from GVC Gaesco.

I would like to ask you a couple of questions on the renewables business because do you have any new developments that you can talk about the possible arrival of a minority shareholder in Europe? Or have you implemented any change in strategy? Or what is your vision in relation to this business? What is your take? And secondly, I'd like to understand how the pipelines under construction is going because nothing has happened in terms of construction since the 9 months results. So do you have any projects, any projects coming up in this year so that we can have a clear picture of what's going to be going on? As of right now, it's not very clear. These are the 2 questions that I wanted to ask you.

Well, Juan, I will answer you. The strategy in Europe has not changed. And we are in the process, as we explained some time ago, and we're looking at different alternatives. I think that the sale of Valdecarretas has been the first step -- but in any case, what we're doing is, now we are adopting a much more global position to link Spain and Italy. We are carrying out the process, and we hope that we will be able to identify somebody in this year. And with regard to the pipeline and the portfolio, we are really on the ready-to-be -- focusing on ready-to-be. We've identified 4 ready-to-be projects in Italy, of about 100 to 100 megawatts and some other projects in ready-to be. Well, we have something in Ecuador that is on standby and which we won in the auction. And there are a couple of more opportunities, too, in the Dominican Republic and another one in Spain. And apart from that, we have the small projects of less than 5 megawatts that are under the radar in Spain. So as all of these things are reached so that we can initiate the construction process. That is when we will consider that the enterprise is valid, and the contract can be included in the portfolio.

We're going to continue with Carlos Treviño from Banco Santander.

Well, firstly, I would like to thank you for the additional information you are giving on this quarter. But there's a question I would like to ask I had a question on renewables that you've already answered. But the other question that I would like to put to you has to do with 360 projects, and it's a year, which in the total of the year, there has been practically no growth. And it's true that it was very difficult to make the comparison. And there hasn't been a major thrust in the backlog in this quarter either. So what I wanted to ask you is about your growth expectations in projects this year. And what kind of projects are we talking about? And do you expect that you'll go back to the usual patterns of growth in this particular business?

Well, if you want, Mikel can answer later on, but I'll start. For this -- for us, it's a very exceptional and positive year in 360 because the EUR 350 million that we've invested have not affected our portfolio. And I think that we've included a little bit -- we've improved a little bit in relation to this conservative approach of including to the portfolio, what is ready-to-be. But I think that as regards to the Capital Markets Day, we are very positive since we have been positive since then. And we are very optimistic with rate agency issues and with new projects and we're doing things again in Angola, and we're very excited about the different opportunities that can crop up in terms of hospitals and also in relation to renewables not only ready-to-be but also battery projects. We are pretty optimistic. As regard to whatever is connected to 360, and we reaffirm that this is an absolutely valid strategy with which we feel extremely happy. So I believe that we are in that process now and the margins of 19-point-something percent are sustainably above the figure of 15. And as I say, we're very comfortable with the strategy and with the approach to. And the 3 transitions that we spoke about, we believe that this is like a tailwind to continue along these lines. So for us or at least our perception is that the year is very good in 360. And I seem to recall that in '22 and because of the closure of renewable projects and other issues. We had an exceptionally good final quarter that we have not been able to repeat in terms of revenues and margins by very little. But it's a figure very similar to the figure reported in 2022 and margins are improving. So we're very, very happy. And the truth is that I can't say much more about this. But I would just like to remind you that in 360 is where we had the biggest ForEx impact, which was 2%.

We will continue on with Enrique Parrondo from [indiscernible] Capital.

I have 3 questions for you people that have to do with renewables. And the first one is, could you please talk about the partial divestitures that you've been referring to in the Dominican Republic? And the second one has to do with the timing that has been adopted for divestitures in renewables. You said something about Cerritos, but could you please add some details on the potential timing? And then as regards to the agreement with CBI, if I'm not mistaken, you talked about a significant divestiture by the end of 2023, which I suppose has been postponed until this year. So could you please say something about that? And then how -- or what should we -- how should we address CapEx at [indiscernible] 2024, '25, so that we can understand the timing of these new projects that are currently under construction?

Enrique, thank you for the questions. I'm going to ask about the divestiture systems in the Dominican Republic. And in this case, and as occurred with Valdecarretas, that was a specific agreement for a specific project. But in the case -- the 2 projects in the Dominican Republic, they are under a framework agreement with CMI. And automatically, and as we develop the projects, what they do is materialize at this 50% divestiture. So in 2023, we have made progress in the execution and construction of 5 projects in the Dominican Republic. And as they progress what we do is gather this information in the books. Where we have established the divestiture will perhaps more semantically more than a partial divestiture. It's an accounting recognition of the framework agreement we have in a way, we are co-investing. So in other words, we have a noncontrol stake and another one that is accounts collectable. But in any case, what you said for about last year is something that we're looking into right now and perhaps for the year 2024, there would be other options. So it was supposed to be a complete divestiture, but in any case, work is still in progress, and we'll see what's going to happen. This is what I would say about the Dominican projects. But as regards the issue of Cerritos. What I can say about that is that the news we received, we've just been informed by the Energy Regulation Commission. We are now processing the permit, and they have the consent of [indiscernible], and we're waiting. And this is something that affects the national confirmation of energy. And we are now waiting for things to happen this week or next week so that from the legal and documentary perspective, everything will be ready to initiate the trial process. So this, fortunately, after quite a lot of time when nothing has happened means that in the months of March, the trials will start, and we'll inform you about this. And the part that is connected will be suitable for the complete divestiture process. And as regards to the infrastructure CapEx, what we have to consider is that we're talking about a mix here. And as you can see, it's -- it requires new projects in Italy. We also have part of the Greenfield that Patricia pointed out at the beginning. So I think that what we're going to have here is a net positive balance as regards to cash generation with the consumption of CapEx so that we can forge ahead with these projects with a 360 vocation and whatever has to do with the recovery of the enterprise value and use the invested equity. But of course, there are quite a lot of variables at stake to be able to quantify an estimate of what would be reasonable for the year, I mean.

[Operator Instructions] So in line with the question on Cerritos, that has just been answered, Miguel Melina is asking us, is the central scenario, the connection in Q1 '24 and after the connection will you automatically sell Cerritos to what are the offers received?

Yes, these -- well, it's a Mexican timing. But in any case, as I say, we're talking about March and April to have the project connected and to readdress the different offers received so that we can advance and carry out an operation together with this timing. And of course, our interest and while money has a certain value as time goes by, and we want to speed up the process as much as we possibly can. So we have to run the tests for connection. But in any case, we'll try to do this as soon as possible.

Gabriel Colominas has raised his hand. So you have the floor now, sir, Mr. Colominas.

I have some questions for you. And the first one has to do with the CapEx for renewables. Have you mentioned anything about the return on the capital invested in these projects? Or do you have any kind of internal reference when you analyze how much has it been invested?

Well, our approach since the Capital Markets Day as regards to renewables. As you know, this is a 360 vision. And what we have is the obligations over 20. But in any case, the assets that we're selling will -- well, they have a return that we think is above 10 but this is something that we see in the price of sale. And it's relevant with regards to knowing what we're selling. But whatever we believe and what we want to achieve is a return on our resources with the RONA above 20. And you've already seen how this year, we were at 21. And the fact is that we have that CapEx undergoing a transition in some of the projects, which we hope will be transformed into liquidity.

And then the second question, the question has to do with the buyback of shares. Are you considering that option for 2024? Will you be establishing a new buyback program for shares?

Well, yes, well, we held the Board meeting yesterday. And we still have the intention of buying at these prices. I think that the best investment we can make is to buy back the shares of the company itself, and we will carry on doing so.

There's another question from the chat. How do you expect net profit to evolve within the strategic plan?

Well, we've established guidance for this 2023, '26 plan, and the guidance talks about turnover, EBITDA and cash flow. So if EBITDA evolves as we expected to at about 7%, it will greatly depend on how interest rates evolve and how this can be transformed into a net profit. According to the information we have today, and if everything would continue along the same lines, it should be the same proportion, but it's very difficult to predict how things are going to be between 2024 and '26. So that's why we decided to establish a specific target for the net profit.

We have no more questions, so we can therefore close the presentation this afternoon. Thank you very much for attending. Goodbye. Thank you all very much. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]