Mota-Engil, SGPS, S.A. (EGL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Mota-Engil's Full Year 2021 Results Presentation. I now pass the floor to Mr. Pedro Arrais, Head of Investor Relations. Please go ahead, sir.

Hi. Good afternoon, and thank you all for [ attending ] this call where we will present the annual results of 2021. With me, I have, as usual, Mr. Gonçalo Moura Martins, the CEO of the company. And we will start the presentation with some key highlights by the results overview. And at the end, we will have the usual Q&A session when we have the opportunity to clarify any doubt that you might have. I will suggest that we move to Slide 4 of the presentation. And as a snapshot, I would like to start to say that the company reached a record level in backlog of EUR 7.6 billion and a turnover of EUR 2.65 billion. That represents a relevant milestone for the company and a record level. Our profitability reached 15%, and our net profit was EUR 22 million, which compares to a net loss of EUR 20 million in 2020. In line with the guidance the company made a CapEx of EUR 213 million, while our net debt decreased to EUR 1.1 billion, with our gearing improving to 2.7x, recovering to levels before pandemic context. Moving to Slide 6. We can see the breakdown of the P&L. And starting by Europe, engineering [Audio Gap] performance with a small decrease in Poland in the second half of '21, while profitability with EBITDA margin moved up from 5% to 7%. And in the Environmental business, the revenues were up 6% year-on-year, and the EBITDA margin reached 27%, up from 25% in 2020, positively impacted by the tariff revision approved by the regulator during the year. In Africa, it's important to highlight the strong growth of 56% in turnover in the second half of '21 that puts the African division with more than EUR 900 million of sales, increasing 4% year-on-year with EBITDA margin reaching 22% above the guidance. In Latin America, the company reached an increase in turnover of 15% year-on-year to EUR 685 million and an EBITDA margin of 13%, a positive result driven mainly by the operations in Mexico, the main market in the region. For last and considering that in 2022, with the new strategic plan implemented and with the results being presented in the future by business units, I would like to give you some color about the contribution from the non-engineering construction business that achieved in 2021 a turnover of EUR 820 million, representing 31% of the total amount of turnover and EUR 224 million of EBITDA. In nonengineering construction, we should highlight the environment with EUR 443 million of turnover and EUR 121 million of EBITDA with a 27% margin and Industrial Engineering Services with EUR 235 million of turnover and EUR 94 million of EBITDA, representing an accretive 40% EBITDA margin. Moving to Slide 8. Looking to the commercial activity. We can see that the company achieved once again a new record level of backlog of EUR 7.6 billion, an increase year-on-year of 25%, reflecting the successful achievement of our commercial teams more recently and especially in Africa. From the total amount, almost EUR 7.2 billion corresponds to backlog in Engineering & Construction representing more than 3.5 years of the annual turnover in construction. Very important to mention the consolidation of the increasing trend of the long-term contracts with larger average contract size, which is very positive for the outlook considering the profitability and stability of the cash flow generation. Finally, important to mention that [Audio Gap] in the contracts already signed in 2022 in several markets like Uganda, Mexico [Audio Gap] at this moment above EUR 8 billion for the first time in our history. Moving to Slide 9. I will not elaborate on that, but you can see that the majority of the major contracts are in what we consider the core markets. The markets in higher dimension, showing in that way that nowadays the group don't depend on a specific business, having a balanced exposure between regions and businesses. Slide 10. We can move to the CapEx. We made -- the company made a total CapEx of EUR 213 million, with growth in long-term contracts representing 51%, mainly channeled through projects recently awarded in Africa that represents 45% of total CapEx. The railway project in Mexico, Tren Maya and EGF, the waste treatment company based in Portugal. The maintenance CapEx represents roughly 4% of the turnover of the company, in line with the recent years and due to the optimization of the procedures in planning, procurement and logistics. Moving to Slide 11. We can see here the working capital evolution that was EUR 6 million, reinforcing the positive trend of the last years. The main contributor for the improvement of the working capital was a higher exposure to private clients in projects with larger size and with prepayments established and reinforcement of cooperation in the recent years with multilaterals and export credit agencies with positive impact in the working capital evolution. Moving to Slide 12, we can see here that Mota-Engil have operating cash flow of EUR 350 million, and we manage a reduction of net debt in EUR 125 million, with a stronger operational performance in the second half, the company achieved a net debt of EUR 1,118 million. Moving to Slide 13. We can see the debt position in more detail, and you can see here the gearing that improved to 2.7x returning to levels before pandemic with the combined efforts of increasing EBITDA and reducing debt and broadly with a stable cost of debt. Worth to highlight that our liquidity position of EUR 964 million equals to 1.6x of the nonrevolving financial needs with maturities with less than 1 year and with the short-term debt, and in which EUR 232 million is [Audio Gap] to be financed shortly. That represents roughly 40% of the short-term needs for [indiscernible] and are already refinanced in the first quarter of '22. In line with the ESG targets, which we are committed, it's important to mention that the company issued in November the first sustainability-linked bond to retail market in Portugal with a successful achievement amounting EUR 132 million. Our focus for the next years will be strengthening the balance sheet and on increasing the debt maturities and reducing the cost of debt with new operations in the near future. Moving to Slide 16, to an overview and outlook for each region. We will start by Europe on Slide 16 and the turnover in the Engineering & Construction division showed a strong evolution of 11% year-on-year in Portugal and EBITDA increased -- and the EBITDA as a whole increased [Audio Gap] million, helped by the increase of the average size of contracts and higher profitability in the main markets such as Portugal and Poland, allowing that the EBITDA margin increased from 5% to 7% in Engineering & Construction segment. The outlook for the Engineering & Construction division in Europe is positive as we expect more dynamic public tender scenario going forward in Portugal considering the recovery and resilient investment plan for Portugal. Here and for the short term, we expect relevant decisions, namely in the new hospital in Lisbon, for which we are competing only with 1 Spanish company at the final stage of the tender. And we are fully convinced that we have the best proposal for a very important project to improve the health public system in the country where the quality of the infrastructure will be decisive for the future operation of the units. In the Environmental business, the turnover was up 6% year-on-year to EUR 355 million, and EBITDA was up 15% year-on-year to EUR 199 million, reflecting a better performance in the waste treatment business, positively impacted by the adjustments that followed the recognition of tariffs made by the regulators in the last year regarding the Environmental business. A new regulatory period will start in 2022, and we believe that there is also upside potential in this business as we believe we have now a better starting point for the discussion even in the recent and positive tariff reviews from the regulator. Moving to Slide 18. Moving to -- flying to Africa. The turnover [Audio Gap] has very strong performance in the second half of '21 with an increase of 56% year-on-year. And once again, with the operational performance that allowed the African division to be above the guidance, achieving a 22% margin. Another item that is fair to highlight is the very positive results from the business development department, reflecting the recent contracts awarded that bring the backlog in Africa to a record level of EUR 4.8 billion -- allowing to anticipate a positive outlook regarding the execution of the existing contracts for the upcoming years. Although the focus will be in the execution, the pipeline remains strong with the commodities price opening new opportunities of public and private investment in the continent. Finally, we should bear in mind that the goal that [Audio Gap] in the Environmental business in Africa, helping with our knowledge and technical tools [Audio Gap] African continent capacity to enter in the circular economy. Moving to Slide 20, Latin America. And during the 2021, you know that this region was the most impacted by the context of pandemic in 2020. And here, we can see the consolidation of a full recovery of the activity with a 20% growth in the second half of '21, supported mainly by the main market that is Mexico that showed in the full year a very good performance, increasing 23% year-on-year to EUR 392 million, mainly supported by the ongoing projects of the first stretch of Tren Maya, the biggest railway project in this moment being built in Latin America and the positive contribution of the Energy business. I would like to highlight also the positive contribution from the profitability of the region from Peru and Brazil, 2 important markets in the region that are increasing margins for all the region and focusing in a more selective backlog is -- with a higher exposition to private clients. Looking to the future, we have to say that our goal is to revamp the commercial activity in 2022, also and already with positive results from the commercial front, mainly in Mexico and Peru that supports a positive outlook for the upcoming years. And now we will be -- we are available to any questions that you might have, and so we can proceed with the Q&A session.

[Operator Instructions] The first question comes from Artur Amaro from CaixaBank BPI.

Just a minor correction to the moderator. It's not CaixaBank BPI, it's from Caixa BI. It's a little different. The first one comes related with the EBITDA performance on the quarter. EBITDA was down 2.5% year-on-year despite a very significant increase in revenues. I would like to know more precisely what was the reason behind the EBITDA fall? I assume that we're talking about very significant increase of raw material prices? The second question relates also with a very significant reduction of financials. It's a positive news, minus 38% year-on-year. Just to have an idea what was the reason behind this very significant reduction of financials? And if this can be considered recurring going forward?

Yes, you are right. CaixaBank BPI and Caixa BI is a very large difference, very large difference. So the first question is about EBITDA in the second half, I think, comparing with the previous year. Basically, during the other -- EBITDA is different of operational margin. If you see the operational margins, I don't think we disclose there. The average -- is almost the same. A little bit better in that in 2020 than it was this year. The EBITDA has some impact sometimes because we have internal corrections when we close some projects. And into 2020, we closed some important projects and that led for this difference in EBITDA. But I would say [indiscernible] and is not linked to this inflation of raw materials, nothing of that potential dimension, not at all, first of all. The second question is about the...

Reduction of financials.

Yes, we have materially and effectively a difference and improve in our financial costs. But of course, this main difference is related with a gain of capital with an operation that we did at the end of the year in Mexico with our tourism subsidiary.

Which means it's nonrecurrent, right?

Part of that is not recurrent.

The next question comes from Filipe Leite from CaixaBank BPI.

I have three questions, if I may. First one regarding EGF. And if you can give us more details regarding the ongoing negotiations for the new regulatory period, which I believe from 2022 to 2024. Namely, what is the RAB and the return on RAB that you are expecting or that you are proposing to the regulator? Second question on factoring, leasing and confirming, that reached in 2021 an historical high level of 26% of the top line. And they've been increasing significantly in the recent years. I understand that this is part -- partially or at least partially related with the mining contracts. But can you give us what should be the level of Leasing, Factoring & Confirming that you are comfortable with? I mean should we assume that in terms of percentage of top line, this amount will continue to increase or it will remain in the upcoming years at roughly the same level reported in 2021? And last one is on the pro forma figures that you present on Page 26. If you can tell us what is included in capital, the subsidiary capital which had more than EUR 140 million top line and EUR 9 million EBITDA. And also, the reason for the other contribution in terms of EBITDA standing at minus EUR 24 million this year, when in 2020, it was only EUR 7 million.

Okay, 3 questions. First of all, EGF, okay, we are in -- of course, we are in a process of renegotiation of the future, the next period of -- regulatory period of EGF. As you know, we changed the conditions [Audio Gap] this ending period, which was a very important and significant capacity of the company to show to the regulator that we were right. He was not at that time. I think our main ideas was very well accepted by the regulator. I think now the company, which is serving public interest company, it's a provider of a public service this -- our ideas, our figures, investment are much more aligned with the regulator now after this very troubled discussion than was before. So our expectation for the negotiations of the next regulatory period are very aligned with our goals. You can understand, like I cannot disclose the details of that negotiations because I think we will have the final outcome of the decision in the middle of this year. So more than saying that we will be aligned with the actual performance of EGF Group, I cannot more detail from this -- that conversation. Factoring, conforming, and leasing, yes, we are comfortable with the level of these financial instruments. It's very important to finalize that -- to highlight that leasing. It's a very important instrument for some contracts in which we amortize all the equipment during the delay or the period of [ debt contract ]. So makes a lot of sense to have confined those equipments with [Audio Gap] to align totally the equipment, the contract and the period of the payment. So it's for us make a lot of [Audio Gap]. And of course, we are -- we should use more this instrument in contracts that allow the capacity to pay during the same period. The other question, which is relevant to confirming. The conforming -- it's not an instrument, a financial instrument that -- it's a very short-term financial instrument, but to -- but we normally, we don't use a lot. What is new this year? This year, when we start in Tren Maya -- mainly in Tren Maya, the client pay or proposed to pay an advance payment by having a [Audio Gap] down payment, but I put a public bank to give to [Audio Gap] that during -- as was an amortizing of down payment, is while confirming increase in such an expressive amount. And for that, we clarify -- was important to clarify how we deal with confirming when the value became -- to be more material than it was before. And back in any sense not treat confirming like factoring and leasing. I think it's more short -- much more term than the other and much more not linked with real debt and was the other. What -- if you want to compare this year with last year, the confirming in 2020 was -- I don't have the figure here, but [ shouldn't ] with the material, EUR 15 million, EUR 20 million, something like that. You can check that on the balance sheet. I don't -- it's not material. The point -- the last question, I'm so sorry, but I missed that. Can you repeat?

Yes. So basically, looking at your presentation on Page 26, you are providing a pro forma information. And my question, what I would like to understand is what activities are included in capital, which reported EUR 142 million top line in 2021? And the reason for the others and intercompany EBITDA, which minus -- or a contribution of minus EUR [ 29 ] million at EBITDA in 2021, when in the previous year, it was only EUR 7 million negative.

First of all, in capital, we have some [Audio Gap] not related with concession but we don't consolidate in terms of turnover or EBITDA consolidation. What is -- here is mainly the facility services, the landscape company that we have, which are -- which were initially integrated in construction area but are not anymore. So basically, this turnover are coming from that is some real estate that we still have, which is not expressive as you know. And the margin that -- the difference of intercompany-others, I really don't know. I would check and send to you later on. Because, of course, when we are doing change in the perimeter and the way that we aggregated the businesses as we are doing now, perhaps some difference higher for that reason, but I will check and share with you as soon as possible. Sorry for that.

[Operator Instructions] The next question comes from Daniel Gandoy from JB Capital.

Two, if I may. The first one is if you could provide us with more color on the guidance for 2022 either by geography or by division? And the second question relates to the working capital trends in 2022. If -- what should we expect in terms of working capital to revenues if we should expect something similar to this year close to breakeven and then a further increase of the confirming, leasing and factoring lines?

Thank you for your questions. First of all, related with the guidance, it's much more -- much less that we have here on the Slide 22. Of course, depending on regions and depending on markets, we will be more focused in turnover of margin to be totally clear. Of course, for instance, in Europe, we'll be much more focused on margin and consolidated these good margins that we are having in such a mature market than in turnover. Of course, we have a large backlog to perform in Africa. So in Africa, I hope that we can increase our activity and surpassing for sure the EUR 1 billion turnover next year. And Latin America, we will be more focused, of course, in consolidated the good margins that we had this year rather than grow expressively, I would say. Basically, is that, I don't know if you want more details, then that because it's -- our indication is that we are going to have a sound activity going further next year. All the indicators that we have, we have already the first month of the year closed and is at what indicates. Basically, we are -- we have more activity to perform in Africa than we have in the other 2 regions. But of course, we have to consolidate the margins that we have in the other 2 markets. I mean the other 2 regions, Europe and Latin America. The second question was about [Audio Gap] I think will be -- the ratio will be a little bit worse than [Audio Gap] year because we are going to speed up the activity in Africa and normally the -- and an effort of working capital more than we were able to manage this year. Just you to know that, as you know, we have an indication in our business plan of 7%, but let's see if it is less of working capital on turnover. So I think that will be different and -- that this year.

The next question comes from [ Joel Safara ] from Banco Santander.

Yes. I have two. The first one regarding the down payments this year. Can you quantify how much have you received in down payments you have? You started some very large projects. So could you give us an idea of how relevant that was for the sound working capital performance? And then the second question, I just wanted to have your view on the backlog, specifically on countries that are oil-driven? And this I'm thinking mostly about Angola and Mozambique. And -- I mean, if you're seeing an uptick in terms of the backlog in those 2 countries? And specifically, in Mozambique, if you could give some color on the LNG project, the project -- has it restarted? Are we seeing more potential new contracts coming in? And are you bidding for also for those projects? So any color on this would be very helpful.

The first question is the amount of the down payments of -- received last year was around EUR 390 million, something like that. I don't have the precise figure, but was on that level. Regarding the second question, of course, we are -- this crisis, this new crisis that we are living in with this war in Europe, of course, will affect dramatically the balance between the demand and the offer in the oil and gas market. What will happen with Russia [Audio Gap] will change a lot the chance of the energy market in the world. And of course, new sources of oil and new sources of gas, mainly gas, will be very, very important [indiscernible]. As you know, in the north of Mozambique are the biggest proven reserves of natural gas in the world. And of course, the project was suspended by Total, it's one of the major players, because of the rebels and the attacks of the rebels and the small war that is going on there. Of course, now it's much more controlled. Total last week reinforced their full interest on the project and how that project is important because everyone -- all the Western companies, oil and gas, are selling their assets and their stakes in the oil and gas business in Russia. So they will [Audio Gap] of gas, for instance. So -- but of course, the request of Total was that [Audio Gap] happen in the 3 months. I don't remember exactly the period, but they fixed to the Mozambican government, very clear conditions, safety conditions in order to reassume the project. As you know, there was a total change in the Mozambican government this week. They changed a lot of ministers, inclusive of the Prime Minister, in order to create, I don't know why, but some of them was the state or the government was not satisfied with the creation -- the speed of the creation of conditions for reassume the gas project. You know we have a project which is suspended, a big one. We have -- the project was not canceled. The contract was not canceled with ourselves and our JV. The project was only suspended. So we are very keen to understand that the project could be reassumed and going on with more, of course, workforce because we have a very specific conditions, special conditions to address that big, big project. If -- of course, we signed important contracts of energy in Uganda in the beginning of the year, January and February already for Total as well. So we have -- we are having a very good relation with Total as a client, which is important. And of course, as you can imagine, the budget in Angola was then based on the oil price of $40 per barrel, is in more than $220 now. The barrel -- the oil delivered in May is already selling -- is -- selling price of the oils to be delivered in May $221 now. So of course, that will provide much more capacity of those countries to invest and to -- and of course, to have a much more sound but -- public budget for the coming years, I would say. So of course, the war is not good. It's a terrible thing to happen. But of course, there is a lot of collateral damage and consequence of those terrible events. And of course, one of them is changing in the energy sector. And of course, they will generate a lot of work. Not even perhaps here in Portugal, as people are discussing, in [indiscernible] and other places. So a lot of things will happen in the near future.

[Operator Instructions] There are no further questions. Ladies and gentlemen, I will now pass the floor to our speakers.

So thank you for all the questions. We will make the final stage of this presentation. Looking to the Slide 22, where we can see the outlook, the guidance for this year, '22, with the turnover expected to increase high single digits for the full year, with the EBITDA margin in line with historical margins with -- we increase. Considering the strong development of our backlog, we increased the goal for 2022 for stand a backlog level above EUR 7 billion with relevant projects in pipeline. The CapEx in a range of EUR 250 million to EUR 300 million, in line with what we presented in the strategic plan, Building '26. And we will maintain our focus in our financial strategy to have a focus on organic cash flow generation and debt reduction, proceeding with strengthening of the capital structure and diversifying funding sources and extending debt maturities. In the final slide, the Slide 23, is a sum up of the year of 2021 and '22. And we want to leave you the main message that we would like you to retain, that our operations are back on track after the pandemic and with the challenging crisis, the company achieved a very important strategic agreement with CCCC to operate globally with one of the leaders worldwide of the industry. We presented in November the new strategic plan, Building '26, and showing in the second half of '21, a strong performance that supports a positive outlook for -- from 2022 onwards. In this sense, in this year of '22, the company will be focused on executing the backlog. Nevertheless, always looking to good opportunities that could promote synergies and profitability to the group. Considering [Audio Gap] a long period of preparation of the new strategic plan, the company and our teams are prepared [Audio Gap] target with sustainability as a priority in our agenda. Thank you very much for your presence.

Thank you. Thank you all. Bye-bye.

Ladies and gentlemen, thank you for your participation. You may now disconnect your lines.