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

Good afternoon, ladies and gentlemen. My name is Tomás Ruiz, and I am the Managing Director of OHLA Group. In the room with me are Mr. José María Sagardoy, CFO; and Mr. Pedro Arellano, Head of Investor Relations. 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 the operational results are in line with the forecast to reach the final year objectives we have set. At the operational level, all our total sales amounted to EUR 1.7 billion, 21.8% higher than in the same period of the previous year. EBITDA stands at EUR 57.5 million, 13.2% above the figure of the same period of the previous year, with margins in the Construction and Industrial divisions of 4.2% and 4.3%, respectively. This set of results demonstrate the good performance of the business and serve as a basis to continue working on the consolidation process of the company. 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 2024. EBIT amounted to EUR 19.3 million. That is plus 37.9%, driven by the group's main activity, the Construction division. 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 a direct link with the group's future production as they are converted into sales. In the first semester of the year, the order intake amounted to EUR 2.5 billion, a plus 62.4% higher than the order intake for the same period in 2023, which amounted to EUR 1.5 billion. All the new contracts have been awarded on the 3 main regions in where we operate. With respect to the cash consumption for this period, the total activity cash consumption of the period is EUR 128.7 million. This means that the company has generated EUR 40.5 million during the second quarter of the year 2024, offsetting partially the first quarter cash consumption. This generation will help the company to deliver our target of being at a generation point before investment and divestment by the end of this year, which will also be highlighted reducing the indebtedness deleveraging the company is still a high priority for OHLA. For this reason, during the period, we have carried out a mandatory redemption over the outstanding notes with the funds collected from the deferred payment from Old War Office. As announced to the market, OHLA has reached an agreement in order to sell its stake in CHUM, the Montreal Hospital, which is expected to be concluded during the last quarter of the year. In addition, OHLA continues to work towards the sale of its noncore assets. Let's now go through the main operational results of the first half of the year in more 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 1.5 billion, a 16.5% higher than in June 2023. Sales in the Construction division represent an 88.6% out of the total sales of the group, out of which less than 21% are made in Spain with almost 40% being in the U.S. Construction EBITDA reached EUR 64.5 million, a 5% more than the one obtained in the same period in 2023, which represents a margin of a 4.2% over sales. Construction order book totaled EUR 7 billion as of June 2024, higher than the value in December 2023 and representing 26.7 months of sales. Out of the total construction order book, roughly 42% of it corresponds to North America, 38% to Europe and the remaining 20% to Latin America. Related to the Industrial division, this one has registered sales of EUR 176.2 million, a 94.9% higher than in June 2023. This demonstrates a positive effect of the reorganization of the Industrial division to focus on renewable energy projects that supports this division return to profitability. Altogether, the EBITDA figure in the Industrial division totaled EUR 7.5 million, more than doubling the figure for the same period of the previous year. In the Industrial division, the EBITDA margin was 0.43%, which again further expands the division back to its values. Before starting the Q&A session, I would like to highlight a few key points. First, the performance at the operational level confirms that the ordinary activity runs according to the guidance provided to the market. As we just released today, there has 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 levels is the key to boost the group's profitability. Second, at the same time, it should be noted that OHLA has generated EUR 40.5 million during the second quarter of the year 2024, resulting in a year-to-date cash consumption of EUR 128.5 million. Third, the deleverage of the company continues to be a priority for the group during the second quarter of 2024, and OHLA has carried out a mandatory redemption of the outstanding notes with the proceeds collected from the deferred payment of Old War office. Additionally, OHLA has announced to the market that has reached an agreement to sell its stake in CHUM, the Montreal Hospital. The company is expected to receive a total of EUR 54.9 million from this transaction. These proceeds will be used to reduce -- to further reduce leverage. On June 26, 2024, the company has announced a capital increase of around EUR 100 million in order to strengthen the balance sheet. OHLA continues working towards the rotation of the Service division. The main target of the company is to strengthen the balance sheet, and this is where we stand today with a clear focus on the leverage reduction. 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]. Now we have the first question coming from Ethan Garber.

This is Ethan from Imperial. I had one question I had already submitted. I'll just ask that now as well. You mentioned in your comments that you started the mandatory redemption of notes. Is that related to asset sales? And are you referring to the 9.75% notes that are partly due in March of '25?

Yes, that is correct. We are referring to the rotation of assets, particularly in this case, is a deferred payment of the Old War Office. And we also announced in June '25, the closing of the deal to sell the Montreal Hospital that will be executed by the last quarter of the year.

This is Pedro Villanueva from the IR department. It's early to resume what Tomas just said. Yes, the mandatory payment was carried out during the first half of the year, taking into account the Old War Office last election. The last one is a small reduction of, I think, I'm correct, EUR 7 million, splitted in the old notes that we had at that point. And the second one is the transaction what we have already announced to the market related to CHUM, which is expected some figure, around EUR 50-something million that we just explained and you have the read-only event in the Spanish regulator. So basically, it's that. Okay?

Sure. Are you saying that the $54.9 million proceeds from CHUM? Will 100% be used against the 9.75% notes or just some proportion of that?

No, according to the terms and conditions of the notes and the integrated agreement that have reached with note holders and the banks. It's the waterfall, it's the designated assets proceeds in where 80% of that will go automatically to reduce outstanding notes and this is the intention of the company. Today, if something has changed, we will announce it. But by the moment, we have to stick to the recommendation that it's already in place.

Great. And can I ask one other question that was already in the submission?

Yes. Is that one that you asked regarding the New York City contract?

That's correct, yes.

Yes. We received your question via e-mail. I have to tell you that I have to check it. I have no information regarding any problem in New York City. I will check it, but let me -- and today, the feedback that I have, and I have here, seated with Tomas and José María is that there is no problem with any contract in New York City that is red flag or something like that, but I will check it for you, and I will contact you in the next coming days, okay?

Great. Thank you very much.

Right. So there seem to be no more questions by audio in the call. So we are now open for your questions via webcast platform.

Okay. Give us some seconds because we have received some questions via the webcast platform. Give us some time, please. Hold on.

Ladies and gentlemen, please hold on the line just for a few minutes. [Operator Instructions].

I have checked the 20 questions that we have received. Please, if you have anymore questions, we will try to answer them live. So basically, the first question, but it's -- we received some of them related to the capital increase. When is going to the company expected to announce the price of the rights? When is expected to accomplish the capital increase. And basically, I'm checking now, but this is the resume of the different questions.

Okay. Here, what I would say is that we are still in negotiations to close and formalize the major amount of underwriting of the capital increase that we can achieve. That's why we are still talking to the potential investors that have shown interest in such underwriting. So we believe that this should be closed and executed at the latest by the end of the year. And we are still analyzing with our advisers, not only the proceedings, but also the price at which the new shares will be issued. And this -- all of these will be notified to the shareholders and the stakeholders in the call for the extraordinary general meeting.

Yes. Related to today -- we have received another question related to that, if the company will make any routes on the Investor Day, any Capital Markets Day, something, I don't know, the adjective, but regarding these kind of topics...

Yes. I mean the answer is yes. We are planning that once they define the transaction and its structure, we will be getting in touch with the market to some sort of Investors Day or Roadshow. That's for sure.

Jose Maria, we have received some questions related to the guidance of this year if we stick when we maintain the guidance of this year and also related to the losses that we just released on the CNMV. I have to tell you that in case something is pending on any detail, I will be available to answer the questions. But of course, may I know if you want to...

So in relation to the losses, I would say that those losses shouldn't be a surprise because if you remember, the first quarter results of the company showed losses bottom line. A part of those losses accumulated as of 31st of March, it's true that in the second quarter, what we have had is a negative effect of the exchange rate against the Colombian peso plus the impact of EUR 8 million of the agreement signed with IFM. So those 2 things have increased a little bit the losses accumulated by the first quarter. That in relation to the results of the first quarter. In relation to the guidance, I mean, we still maintain the guidance we provided to the market when we did the presentation in the month of February. And because as you have seen in the numbers, the performance of the company in terms of sales, EBITDA, backlog are in line with internal budgets of the company and, of course, in relation to this guidance.

So the answer is yes, we stick to the comments that we maintain the guidance. We have received some other questions related to cash generation regarding to the guidance, delays in the capital increase announcement, just cover that. There is another question related to the delays or -- yes, the question is delayed regarding the investment plan. If we see if there are any red flags, anything that we want to raise today.

Well, I would say basically that the rotation of assets of nonstrategic assets is still a priority to deleverage the company. The only reason why the sale of the Services division was postponed last year is because we were in a negotiation directly with one potential buyer who then did not make a reasonable offer in our view. So we decided not to sell it at the price that was over and open for a competitive procedure, which is now going on. So we have, in principle, the intention to continue with the process and the selling of the services division should take place next year.

I think the ones related to potential [indiscernible] on this, we already have over them. I'm checking right now the different questions. We have received plenty of them. I don't know if I'm missing some of them or any of them. If something is pending, I will cover. Oh, here, I see one of them. We have received one from some of the note holders saying that it's expected that the company will contact advisers to start conversations to attend the maturity of the debt.

Well, that I would answer in 2 parts. First, I would say that as part of our day-to-day business, the company engaged numerous advisers. However, for confidentiality reasons, we are not permitted to disclose the name of them. The second part of my answer would be that as we have announced, we are carrying out a capital increase to strengthen the company's equity. That's our main goal. However, in the ordinary course of business, we are continually analyzing alternatives to maximize the company's value. And so the possibility of contacting the bondholders is still on the table.

Let's see. I mean -- I don't see any new questions. I think we have covered all of them. Again, I have to repeat that in case something with spending you want any other detail or something, the Investor Relations team will be available for you and attend the questions. If you take some holidays, enjoy them this August summer. And firstly, thank you so much for your attention today. So I'm trying to [ large ] this call, but there is no other questions that we are receiving. So thank you so much, all. Have a nice holidays in case you take it. And we will be available from the company to attend your next details question or whatever is needed. Have a nice day. Bye. Thank you very much.

Bye. Thank you very much.