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

Welcome to OHLA First Half 2023 Results Presentation. The management of the company will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions] I will now hand over the call to the OHLA Management team.

Good morning, ladies and gentlemen. My name is Tomas Ruiz, and I am the Managing Director of OHLA Group. In the room with me are Mr. Jose Maria Sagardoy, CFO; and Mr. Pedro Villanueva, Head of Investor Relations. I am pleased to be here one more year, but this time, under my new role as the Managing Director of the company. Before going through the operational results of this quarter by division in detail, I would like to share some key points regarding the group's performance during this past semester. Let me advance to you that this set of results are satisfactory and in line with the forecast to reach the final year objectives we have set. At the operational level, OHLA total sales amounted to EUR 1.4 billion, 11.8% higher than in the same period of the previous year. EBITDA stands at EUR 50.8 million, 48.5% above the figure on the same period of the previous year, with a margin in the construction unit of 4.7% and 3.7% in the industrial division. These results demonstrate the good performance of the business and serve as a basis to continue working on the turnaround process of the company. We have been working on improving margins at operating level, and we will continue working towards improvement of these margins in the coming years in order to boost the profitability. These figures allow me to confirm that the company is in line with the business plan and the objectives shared with the market for the financial year 2023. It should be noted that the guidance announced to the market for the year 2023 does not consider the potential rotation of the services division. Even after taking into consideration the interruption of the service divisions in the company's numbers, we are today above the guidance, which is not affected by such factor. EBIT amounted to EUR 14 million, driven by the group's main activity, the Construction division, where the North America and Europe Latin regions have contributed equally. OHLA has ended the first 6 months of 2023, with a positive attributable net profit of EUR 0.6 million. Apart from the good performance at the operational level, sales, EBITDA, and EBIT, especially important is the order intake achieved in the period, which has direct link with the group's future promotion as they will be converted into sales. In the first semester of the year, the order intake amounted to EUR 1.5 billion, lower than the order intake for the same period in 2022, which amounted to EUR 2.3 billion. But it is important to notice that the order intake for the year 2022, included an extraordinary award, which is the Purple Line project in Maryland for over EUR 2.4 billion, in which we hold a 40% stake in the JV with ACS. The concessional activity continues to be a strategic pillar for the company's growth. OHLA has signed a new concession during the first 6 months of the year. The Instituto National del Cancer in Chile, thus reinforcing the growth of this division. This strengthens the company's backlog and underlines our previous experience in the construction of hospitals. Thanks to this new concession, OHLA continues to expand its concession business and will continue to grow in this area during the second part of the year and beyond. With respect to the cash consumption for this period, I would like to mention that it's only EUR 7 million, an amount almost identical to the activity cash consumption of the first quarter of the year. This means no cash consumption during the second quarter of the year, resulting in a 41.2% reduction or saving of cash if we compare it with the consumption of EUR 119.3 million in the same period of 2022. This saving will help the company to deliver a target of being at breakeven point before investment and this investment by the end of this year. It should also be highlighted that reducing the indebtedness, the leverage of the company is still a high priority for OHLA. For this reason, during the period, we have carried out a partial tender offer of the outstanding notes for EUR 33.5 million after the Old War over-office collection, reducing the principal nominal amount to EUR 412.2 million. In addition, OHLA continues to work towards the sale of its non-core assets, expecting to conclude the sale of our services division in CHUM, the hospital in Montreal, by the end of the year 2023. With respect to the operational results, let's now go to those results of the first half of the year in detail, providing more explanations on the performance of the different divisions of the group. I will start with our core business, Construction. Sales of the Construction division totaled EUR 1.3 billion and 8.4% higher than in June 2022. Sales in the Construction division represented 92.7% out of the total sales of the group, out of which less than 20% are made in Spain, with almost 40% being in the U.S. Construction EBITDA reached EUR 61.4 million or 4.7% margin over sales, a 23.3% more than that obtained in the same period of 2022. It should also be mentioned that Construction margins have been above 4% since September of 2021. Construction order book totaled EUR 5.8 billion as of June 2023, similar to the value in December 2022 and representing 24.7 months of sales. Out of the total Construction order book, roughly 44% of it corresponds to North America, 32% to Europe, and the remaining 24% to Latin America. Related to the Industrial division, the Industrial division has registered sales of EUR 90.4 million, a 103.1% higher than in June 2022. This demonstrates the positive effects of the reorganization of the division to focus on renewable energy projects that support the Industrial division returns to profitability. Altogether, the EBITDA figure in the Industrial division totaled EUR 3.3 million. In the Industrial division, the EBITDA margin was 3.7%, which again further expands the division back to its past values. Before starting the Q&A session, I would like to highlight a few key points. First, the performance at the operating level confirmed that the ordinary activity runs according to the guidance provided to the market. As we just released today, there have been an improvement in margins at the operating level in the Construction and Industrial divisions. For OHLA, this is our main priority, and the improvement of margins at the operating level is the key to boost the group's profitability. Two, at the same time, it should be noted that cash consumption in the second quarter of 2023 was practically new, resulting in a year-to-date cash consumption of only EUR 7 million. This figure compares very favorably with the EUR 119.3 million cash consumed in the same period of the previous year, that is 41.2% reduction. And 3, the deleverage of the company continues to be a priority for the group. During the first quarter of 2023, OHLA carried out another partial redemption of the bonds for an amount of EUR 33.5 million. OHLA continues working towards rotation of our stake in CHUM and our service division, we foresee to close both before year-end. Thank you all for your attention. We can now start the Q&A session.

Ladies and gentlemen, the Q&A session starts now. [Operator Instructions] Ladies and gentlemen, there are no questions by phone in the call, so we are now open for your questions via the webcast platform, via the speakers. Back to you. Thank you.

Good morning all. This is Pedro Villanueva. Thank you all for your attention during this call. As we cannot -- we don't see any questions via e-mail, via the webcast, or directly here,. I only want to thank your attention. Thank you very much for being here and supporting OHLA. And of course, yes, if we [ do ] do a talk [ each other ], have a really good holidays and a great summer. Whatever it's needed, please do not hesitate. Contact me directly or in the department, and we will do our best in trying to solve all your questions. Thank you all, and have a nice day. Bye.