Obrascón Huarte Lain, S.A. (OHLA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Be very welcome to the presentation of results of OHL corresponding to year 2020, which we start giving the floor to our Chairman, Mr. Luis Amodio, who will give you a message about the situation of the company nowadays and how it's going to evolve in the future.

Good afternoon, ladies and gentlemen. Allow me to thank you all for your participation at this presentation of results of OHL corresponding to the fiscal year 2020. It is for me an honor to address you all for the first half time in this -- at this event, which we broadcast remotely due to the duration of the alarm state due to COVID-19. I'd like to structure my intervention on 4 reflections. First, I'd like to make a reference to the serious pandemic originated by COVID-19 with a worldwide impact. I want to convey a message of thanks to all the members of society that have allowed us to continue working, thanks to their activities and to help citizens. In this context, I'd like to thank all OHL employees for their effort and the commitment they've had during this pandemic with each one of the communities where we're present. And more specifically, I want to think those more than 10,000 employees that have provided essential services to citizens in homes, hospitals and helping roads, airports, urban areas and all essential services that have taken place during the alarm state. As for the company I preside, I have to say that under this framework, OHL has created a crisis committee in order to mitigate the situation and keep its workers' safe and sound and health by implementing actions with an impact in -- over the pandemics, its economic parameters that our CEO will explain later on, Mr. José Antonio Lopez Gallar, while he takes the floor. Secondly, I'd like to concentrate on the Amodio's family bet for OHL. In May 2020, my brother, Mauricio, and I enter in the capital of society, acquiring 16% of the capital of OHL. Then, as you all know, the Board of Directors held on July 15, appointed me as President of the company. Ladies and gentlemen, I'd like to share with you which were our reasons to take this decision to invest in this company becoming part of the history of OHL and being part of the footprint that this company is setting in 5 continents by developing projects of infrastructures, boosting the growth and welfare state of each one of the communities where we're present. Under this context, I have to say that more than 40 years already, my brother, Mauricio, and I, we founded Grupo Caabsa where we have developed -- where we have invested, exploited and managed different construction projects, services projects and real estate projects in Mexico and LatAm. That's why we do have a vast experience and the know-how necessary about the construction business model based on concession structures and real estate. We believe in the culture of efforts, well-done job. And we look ahead with optimism. Since we started analyzing OHL, we saw its potential, its great technical capacity in the different geographical areas where it's present, U.S., LatAm and Europe. That took us to be more than immersed in the global pandemic and ratify our decision to become long-term investors in this company, which is entering a new phase. In this sense, our objective, the objective of the family Amodio is to strengthen OHL, becoming a pillar for this company. And in the coming month of May, it will turn 110 years of history, and we will celebrate our anniversary with new milestones, which is the one I'd like to share with you right now. After the century of track records that have made us focus on OHL, I have to say that OHL is present in more than 30 countries. It is one of the main global groups of the construction industry, being among the 50 biggest construction companies in the world according to the ENR 2020 ranking. One of our subsidiaries in North America, Judlau, was appointed in 2019 best construction company of the year in the state of New York. Today, OHL is -- has an international presence in construction and managing infrastructure with more than 6,000 kilometers of road projects, more than 100 dams and 500 port and maritime projects carried out. It adds more than 6 million square meters of hospitals built. And we have got railroads in Europe, Asia and America, amongst others. And we're specialists in industrial turnkey projects. And if we concentrate on this year 2020, I'd like to give you and explain the milestones of the geographies where we're present. In United States, we have beat a record with more than EUR 100 million. In LatAm, where we work -- we've been working more than 40 years, we've inaugurated infrastructure projects, such as line 3 of the light train of Guadalajara, qualified as the railway line, which is the most modern and advanced in Mexico. Also, in Mexico, we've participated in the construction of the railroad, Mexico Toluca, an infrastructure, which is very challenging from the technical stance because it's very complex. And its third section is being built by Caabsa. In Europe, after more than 8 years construction -- building and managing, we have finished the Centro Canalejas in Madrid with the Hotel Four Seasons, the first hotel of this chain in Spain. All these we advanced of -- in the help of our departments of services, concessions and construction. And that is where we have got great expectations of grow -- of growth for these coming year. OHL has a great position and it's supported in its business model, which is responsible and sustainable because it exports economic value, environmental value and social value. In those communities where it's present, it contributes to the increase of the welfare state growth and progress. It's commitment for innovation as a pillar for its construction processes, implementing new designs, new materials and very demanding solutions, always having in mind sustainability. And number four, I want to -- this is thanks to its main asset, the human team of -- with more than 20,000 employees that I'm proud of representing. Without them, OHL success would have never been possible. Before our CEO takes the floor and talks about the results of 2020, I'd like to now talk about my third pillar, which is focusing on transformation, and the internal renewable OHL is going to live and -- which started 3 years ago, a process that ends with an -- our entering the capital of the company with the agreement of the refinancing reached by Amodio and Villar Mir families with the first main bond keepers and banks that had to be ratified and approved in the general shareholders' meetings. This process of refinancing is complemented with the recapitalization process. This will reinforce the company strongly. In this sense, I'd like to use this intervention to stress our firm commitment towards OHL with our investment, our current investment and the current and the future capital increase. After this operation, the capital will have a financial structure, which will be strong as its balance sheet, reinforcing its equity with a minimum of EUR 147 million. All that will allow OHL to face its business plan, confirming OHL's commitment and its management team to be back in the track of recovery and growth. In order to finish, I'd like to focus my reflection on the new commitment for OHL's future in the new OHL. Ladies and gentlemen, our commitment, the commitment of Amodio family for OHL's future goes beyond the support to refinance and recapitalize the company. It is a commitment on the long term, a commitment with you, a commitment for the growth of the company. We're certain that with your trust, with the support of our stakeholders and above all, with the human team -- great human team OHL has, we will lead this great project, which will be based on the pillars of sustainability, transparency and good governance. We will all work together to face the challenges that are coming ahead for OHL and the current ones with maximum guarantees. I will now give the floor to Jose Antonio Fernández Gallar, our CEO, who will give you the details of OHL's results for 2020. Thank you for your attention.

Thank you very much, dear President. Today, here with me, we have Mr. Tomás Ruiz, General Corporate Director; Mr. Manuel Álvarez, General Infrastructure Director also for Industrial and Services; Mr. José María Sagardoy, General Economic and Financial Director; and Mr. José María del Cuvillo, General Director of Legal. The first three ones are here on the stage with me. So before I mention and explain how it has been in OHL, a year characterized globally by COVID-19, I'd like to give our condolences to the families affected by the pandemic, we join the grief given by the President of OHL to all those people who, with their daily work, are being able to care for the needs of the citizenship. And of course, the OHL team, the more than 12,000 employees, the ones again, and in such a very serious circumstances, such as ones we're experiencing, have shown a great professionalism and firm commitment with all the communities where we develop infrastructure projects. Regarding 2020, I'd like to explain the achievements of the company, our operational, financial and strategic levels. Operationally, the year has been marked by the evolution of COVID-19 pandemic. The construction division in the regions of Europe and Latin America has been the most affected by a drop in activity and contract. We estimate that the total impact of COVID-19 has been approximately EUR 35 million in EBITDA. Likewise, and as our President advanced, OHL has created a internal Crisis Committee, whose main measures are in social and health care, giving individual protection equipment to employees, caring about the recommendations of the health authorities as well as labor flexibilization and promoting remote working. In the labor area, agreement with the legal representatives of workers in Spain to apply a temporary redundancy agreement. We also applied the voluntary reduction of salary of the members of the Board of Directors, the top management, executives and managers. Financially, we have reinforced the liquidity of the company with the signature of a syndicated credit using the mechanisms available by the government through the ICO that I will mention later. But ladies and gentlemen, despite the impact of the pandemic operationally, OHL has made important achievements. The contract of the revision of construction have grown to EUR 2.359 billion, 11.8% more than 2019, which I'll especially mention the good evolution of the U.S.A. market representing 57.4% of contracts. We also highlight the design construction project on the South Corridor Rapid Transit in Florida, to which we are in the larger contract to improve accessibility of the New York underground. Our entry into Panama, we award all the works to extend line 1 of the underground under Villa Zaíta and the recovery and growth trend shown by the areas of industrial and services that have finished 2020 with margins higher than those they had in 2019. Financially, I quote, first of all, the modelization of EUR 73.3 million corresponding to the bond issued in 2012 maturing in March 2020. We also need to add to that the reinforcement of liquidity that I've already referred to, to the signature of our syndicated credit on April 30 for the amount of EUR 140 million. Of those EUR 140 million, we have amortized in 2020 EUR 10 million and EUR 35 million are still available. We have also signed an agreement for the sale of our share in new Hospital of Toledo and Mantohledo for EUR 76 million. The closure of the operation is estimated for the first half of this year. This new Toledo Hospital is considered to be the largest hospital complex in Europe. Finally, the milestones reached strategically are the following: the entry into the capital of OHL of the Amodio family becoming the reference shareholder; the agreement reached in January 2021 between a group of bondholders and the majority shareholders of OHL after researching the alternatives for the improvement of the balance sheet and financial structure of OHL in long term. This agreement has already had the out support of more than 90% of the bondholders and the main relationship banks. Without a doubt, this transaction is a turning point in the final normalization of the company. As a last strategic landmark, I'll refer to the opening on September 25 of the Four Seasons hotel in Madrid. First of that chain is in Spain. This great hotel is part of the Canalejas project where we've made an investment of more than EUR 600 million and we have employed more than 5,000 people. Next, I'll focus on the 2020 results. Comparing the figures that we shared with you in February last year, the company has been within the ranges we advanced. Besides the negative impact of COVID-19, our sales have exceeded EUR 2.8 billion, being in the high part of estimated range, which was between EUR 2.5 billion and EUR 3 billion. EBITDA has been EUR 67.5 million despite the impact of the pandemic and approximately EUR 35 million. Without effect of COVID-19, it would have met our expectations easily. With global tenders being smaller and despite the difficulties, we managed our guarantees and bonding lines. We have been close to achieve EUR 3 billion in contracts. On the other hand, our structural costs have been EUR 129 million, lower than our forecast of EUR 140 million. We should remember the reduction of the 46% of those costs since 2018, which confirms the effectiveness of the austerity measures that we have set as a target. Regarding the main figures, our sales have been in line with those of the year 2019, reaching a total figure of EUR 2.831 billion. The EBITDA, confirming the consistency of the profitability operationally since the last quarter 2018, is EUR 67.5 million. Our total contracts that in the year 2020 have reached EUR 2.761 billion, 3.5% higher than in 2019, have allowed us to finish with a long-term back book of EUR 4.962 billion. Despite the obvious operational improvement, the net result has been negative for an amount of minus EUR 151.2 million. This parameter has been impacted besides EUR 35 million of EBITDA corresponding to COVID, but the tourism projects of development and the attrition of the debt of Grupo Villar Mir and Pacadar with OHL. Next, we're going to mention the sales, EBITDA and back book per geographical areas. Sales and back book show the consistency with our strategy to reduce the risk profile of the company, working in the continents where we have higher technical skills and a better knowledge of the market. Europe and rest. With sales of EUR 1.107 billion has represented 39% of the total with a negative contribution to EBITDA due to the pandemic of EUR 7 million, finishing the year with contracts, representing 6 -- 46% of the total back book. In North America, with sales of EUR 1.188 billion, it has represented a 42%, given an EBITDA of EUR 57 million with a final back book of 37% of the total. And Latin America has reached sales of EUR 536 million, representing 19% of the total with contribution to EBITDA of EUR 35 million, and the portfolio represents a 16% of the total company's back book. The back book represents, therefore, 19 months of activity, and it's concentrated in 99% in the regions that we have that's highly to be the strategic ones for the company. With all the business divisions contributing positively operationally, it's remarkable that both services and industrial have continued the improvement trend, finishing with margins higher than in 2019. Construction has reached sales of EUR 2.347 billion and EBITDA of EUR 62 million, representing 2.6% of sales. Industrial had sales for EUR 166 million and EBITDA nearly nearing EUR 11 million, representing 6.5% of sales. Services had sales growing to 9% up to EUR 300 million and generate an EBITDA of near EUR 16 million, representing 5.2% of sales. Next, I'm going to mention the evolution of the liquidity with recourse. We have finished the year with a liquidity recourse of EUR 664 billion, representing a annual consumption of EUR 118 million. EUR 86 million of them have gone to unprofitable projects. The company has reduced total consumption of cash flow in EUR 86.7 million regarding 2019 as consequences of the higher control and monitoring of the floating capital. The items that had the most impact in the year are the EUR 86 million mentioned in loss-making projects. And we keep the goal for -- cash flow forecast given to the market in 2018. And we estimate that by the end of this year 2021, we only have pending the 10% of the total amount of this forecast, which was EUR 330 million. The usual activity of the business has generated cash flow for an amount of EUR 124 million. The structural costs, including the cost of projects and research, were EUR 129 million, in line with the objective set by the company. We should highlight that without the effects of the COVID-19, just like in 2019, we would actually cover the structural costs with the cash flow generation. And EUR 27 million have been invested mainly in Centro Canalejas Madrid and EUR 30 million have been received due to the divestments. For all that, I'd like to highlight that OHL is a company that is profitable operationally in all the business units. The target in the budget and discipline and risk control is still there. Despite being a very difficult year, OHL has shown resiliency during the pandemic, thanks to the active management of each contract and the measures mentioned at the beginning of the presentation. Likewise, we have kept the criterium of the cash flow control in decision-making with a contract policy according to the risk profile. And all that, with a firm commitment in terms of good governance. Our growth is sustained on the good corporate governance, transparency and sustainability. Sustainability from the economic, social and environmental perspective that we try to implement in all those communities where we are present, contributing to increasing their welfare, revitalization and progress. We actively are participating in initiatives geared towards fighting climate change. In turn, incorporating methodologies that favor energy efficiencies in a secular economy and our belief in innovation. And we try to achieve the sustainable development goals in the 2030 agenda. All that has led us to have nearly 40 construction projects with sustainable certificates, reducing energy intensity of our emissions and offsetting more than 10,000 carbon dioxide tons through the investment team reforestation projects certified in the last 4 years. And in terms of compliance, we have renewed the certifications of the anticorruption management system and the criminal compliance management base on the criminal prevention model. Likewise, our company is part of the global compact of the UN, and it is committed in working around the world against corruption and following the recommendations of international organizations, such as the OEDC (sic) [ OECD ], and those practices of good corporate governance published by the Spanish Commission for markets and securities. Next, I'll mention the operation announced on January 21, there will be a transforming milestone for the company in its relaunched. The market has informed the main OHL shareholders, the Amodio family, Grupo Villar Mir and a group of bondholders, representing 57% of the bonds currently in circulation, have reached an agreement of recapitalization or refinancing. Currently, a percentage of bondholders adhered to the agreement exceeds 90%. In your screens, you may see more in detail the operation snapshot. And next I'm going to focus on its key points. With this transaction, the company manages to extend the maturities of the bonds to years 25 and 26 as well as reducing the leverage in EUR 105 million. On the other hand, we will reinforce the company's equity in a range between EUR 147 million and EUR 176 million, depending on the demand in the capital increases. With all that and with the support and the interests of the stakeholders aligned, OHL takes yet a further step towards the full normalization of office business. In agreement with the shareholders, the operation will be completed next May after the approval of the General Shareholders' Meeting and the Spanish Securities Commission. Before I mention the objectives for 2021, I'd like to refer to the process of reorganization, transformation and resizing that OHL has experienced since 2018 to 2020. Operationally, we have reviewed the portfolio of back book; we have managed the contracts versus project management; we have focused on our main 3 geographies, Europe, Latin America and the U.S.A.; and we have developed an active management of the capacity of the guarantees and bonding lines in the U.S.A. Financially, we have prioritized the cash flow criterium management, and we're looking for strengthening -- to strengthen the balance sheet structure, we keep being cautious in accounting criteria and we continue the reduction of the structural costs. Strategically, we have believed for the launch of Senda Infraestructuras, the enhancement of the nonstrategic values, retention and retaining talent and we're growing good governance. All these aspects have allowed us to position ourselves firmly to being a new and hopeful stage in 2021. And following the road map implemented at the end of 2018, OHL has gone over a turning point in 2020. The recapitalization of the company and the promotion of its reference shareholder set a new stage towards growth beginning now in this year 2021. From this moment on, I'd like to advance the action lines and targets for the year 2021, which are the following parameters: sales in the range of EUR 3 billion, EBITDA higher than EUR 80 million, keeping the structural costs at 4% of sales, improving the contracts, placing our position above EUR 3 billion. I'd like to finish by focusing on this year 2021. In a year that as our President announced, this company will celebrate an important milestone, its 110th anniversary. And we celebrate that, supporting ourselves on the historic pillars of a centennial company that has seen its more than 20,000 employees, its main asset, a sustainable and profitable company that will create its future, thanks to the belief in business model that combines incorporation of the building trends that are the most modern with innovative processes that allow us to have a sustained growth with construction with new contracts in the U.S.A., Europe and Latin America. Industrial and services, consolidating their operational parameters, concessions through Senda Infraestructuras is ready to have new assets in its back book that will promote the company's profitability. Regarding OHL developments in projects as important as Mayakoba or Centro Canalejas Madrid will work availing office know-how to get future contracts within the real estate area. We have decided to focus OHL with a renewed hope towards the next challenges that are to come in infrastructures from the next-generation funds to the infrastructure plans that will be launched in Europe, North America and Latin America to promote its growth and development. And that surely will contribute to the growth of this company in all geographies. Thank you very much for your attention, and we now begin the Q&A session.

I'd like to start saying that there are some questions we have received in blank, but I've got an e-mail. So from the relations with investors department, we will try and contact these -- send these to answer these questions. First from Mr. [indiscernible]. Here are several questions. First, update about the special plan. How the disinvestment plan foreseen for this year, I guess?

Well, with regards to the disinvestments foreseen for this year, there are two. Hospital -- the Toledo Hospital. It's already been signed, and we're in the process of closure. And with our office, we're advancing in that disinvestment, but as it's a matter which is confidential, I will apologize and will not give more information.

Another question. Expectations for 2021 that are reflected in Slide 18 of the presentation differs the strategy in key markets going forward. So I think these questions are -- have been answered in this slide. Now from Singular Bank, Gabriel Castro. And I quote, "Could you explain how you treat in the books the Villar Mir debt? It was recognized for a period of the year, but you reach an agreement. Do you expect to collect the whole amount of that debt?" Mr. Jose María Sagardoy, the CFO, will provide an answer.

Yes. As for the operation related to Grupo Villar Mir, there was a loan granted to Pacadar with collateral given by -- a guarantee given by the Grupo Villar Mir. What we've done, we canceled those operations with providing actions -- giving the action as a payment. So that is not in the company. Included in the Pacadar value has been provisioned by the difference.

We have a question coming from Atlantic Capital. Let me just say -- read it. Excluding the impacts of COVID, EBITDA in 2020 would be around EUR 97 million. And the guidance for next year is more than EUR 80 million. Don't you think that it's too conservative, this guidance?

Well, conservative, it's always subjective as any adjective. Of course, this year, we've have had a EUR 77.5 EBITDA. EUR 35 million is COVID impact. We are above EUR 100 million, almost at EUR 100 million. It's just an estimate. So the EBITDA we are having for EUR 80 million is a consequence of the forecast we have -- from the works we have in all the geographies. Maybe I would say that EBITDA of 2021 is going to be affected, first, by the hiring of 2020 that has been affected by COVID; and secondly, we are in 2021 with the month of March, and we still have COVID. So it's clear that is going to be an effect in the P&L of the year. That's why we do have that forecast. In that same sense, and just to a bond, it is true that the impact of COVID is different in the different geographies where the company is present. And this is more specific in 2 regions, Europe and LatAm. And estimates done have taken into account. As the CFO was saying, the impact of the pandemic in 2021, which, of course, we expect, will be overcome shortly.