Sacyr, S.A. (SCYR) Earnings Call Transcript & Summary

Good morning. I'm Manuel Manrique, Chairman and CEO of Sacyr. Joining me today at this presentation as usual is Carlos Mijangos, the company CFO. Thank you very much, analysts, mass media representatives and investors for attending this financial results presentation of Sacyr for the first half of 2021. With this report, we are presenting today, the company has been reporting increased profitability for 14 quarters running, thanks to the strategic focus of our business plan. In context where there is still lingering uncertainty due to the evolution of the pandemic, mainly in some regions, and while we are still waiting for the European funds that will be allocated to increase productive investment in Spain, I believe that Sacyr's financial results to date are highly satisfactory. With regards to the highlights of the first half of 2021, I would like to point to a significant business cash flow generation up 29% compared to the previous period, reaching EUR 282 million for the entire group. And just as important are the EUR 63 million generated by the recourse activities, better to say, construction services, except for VSM and holding before investments, of course. So we are thus moving forward towards this key milestone, which consists in reducing our net recourse debt, which came down by more than EUR 100 million over the quarter. This is due to this increased business cash flow generation over the period that we have just mentioned, the same as the distribution of dividends from Concessions and the green financing transaction for Valoriza projects. Therefore, we ratify our commitment of reducing the corporate debt by EUR 300 million by the closing of this year net compared to March 2021. We also have other financial transactions that will be added to others that you're all well acquainted with and which are quite novel and sustainable in reaching this target. And we will keep you posted, of course, as these projects are closed. I would also like to mention from a corporate perspective 2 other highlights. First of all, we have fulfilled our commitment in terms of shareholder remuneration. Over the past half period, we made 2 payments in February and June by way of scrip dividend for the 2020 fiscal period, offering shareholders a 4.6% remuneration. With regards to our stake in Repsol, as you all well know, in the forthcoming months, some derivatives will mature. These are the derivatives we have contracted in order to hedge our balance sheet and P&L account from any share price fluctuations. I would like to say that these derivatives, as we have evidenced year after year, have fulfilled their purpose very effectively. In this respect, I would also like to convey that there is another maturity of derivatives in the amount of 75.4 million shares at Repsol that will be maturing before the end of 2021. Therefore, our stake will go from 8% down to 3% before year-end. This transaction will have no impact on Repsol's share price because it will not be a stock market transaction. Therefore, Sacyr will be able to simplify its balance sheet structure while facilitating the concentration of all of our efforts into fulfilling our strategy plan, with a concessional and sustainability focus. At an operational level, the highlights are and will remain so in the forthcoming quarters are the progress of the execution of some Concession projects, which are already underway and they're gradually commissioning. An increase in concessional revenue and dividends coming from projects lie at the foundation of our high profitability and future growth. Latent EBITDA in our Concessions backlog is in excess of EUR 22.5 billion. This will continue to have a positive impact on the P&L account of the company in the forthcoming years, year after year. But we are also adding new high-value concessional assets to our balance sheet, such as the A3 Naples-Salerno highway in Italy. This Concession contract was signed yesterday. And we are talking about an average traffic intensity of more than 90,000 cars. Next, the A21-A5 highway system in Turin in Italy as well. This is a project that was already awarded to the company and will be signed in the forthcoming months. And another milestone is the RSC-287 highway in the state of Rio Grande do Sul in Brazil, which we will start managing as of next month. So these 3 highways are already operational, and they will account for a significant increase in traffic revenue in the forthcoming quarters. In this respect, let me announce that on October 7, we will be holding our Investors Day. And at that time, we will provide you with more specific details and figures about our Concession business and the value that we attribute to this business according to our models. Furthermore, our Construction and Services businesses have been awarding increasingly more contracts in strategic markets such as the United States, Canada and Spain among others. So as you can see, we are fulfilling our strategic plan thoroughly, concentrating awards in Europe and North America so that our backlog can be balanced out, representing 1/3 in Europe, 1/3 in Latin America and 1/3 in English-speaking countries, respectively. I would also like to underscore some of novel financing instruments that are tied to some sustainability targets that we launched over the past half year. For example, the green financing for Valoriza Servicios Medioambientales of up to EUR 160 million, which is carried out in 2 phases and is directly tied to the payment of the sustainable agenda targets and the fulfillment of green KPIs. We also launched the first social bond in Latin America. This is tied to an infrastructure project in the amount of USD 209 million with a purpose of refinancing the Montes de María in Colombia road, which is very important due to the fact that it has a very significant positive social impact in the Caribbean region. With regards to ESG criteria, we should highlight the rating provided by one of the most important rating agencies that assesses sustainable performance of more than 14,000 companies globally. In its latest report about Sacyr, our company was given the best rating in our sector in Spain and the fifth in the world. So we keep on developing our sustainable Sacyr Plan 2021-2025 in order to become a carbon-neutral company by 2050. The key consolidated financials reported in the first half of the year amount to the numbers that you see here. We are talking about 4% more in terms of revenue compared to the previous period. EBITDA reached more than EUR 400 million, growing by 16%. Revenue was EUR 2.164 billion. As for concessional assets, we are talking about 82% in terms of EBITDA. EBITDA margin accounted for 18.6%, surpassing by 190 basis points the EBITDA reported last year, that is 16.7%. EBIT is standing at EUR 321 million, rose by 32%. Net profit totaled EUR 40 million, accounting for an increase of 233% compared to the previous period. If we do not consider the extraordinary or one-off items, which, in that case, would be 43%. As for operational cash flow, it amounted to EUR 282 million, that is to say, up 29%. And finally, we keep on growing in terms of our backlog, which up to date accounts for EUR 45 billion, growing by 15%. Next, Carlos Mijangos will provide you with further details about the group's results and those results reported by each of the divisions and the holding as a whole.

Thank you very much, Mr. Chairman. Now we are going to analyze the operational performance of the different business units at the group. As you can see here, all units have grown markedly. The aggregate numbers account for EUR 402 million, growing by 16%. EBITDA margin stood at 18.6%, growing by 190 basis points. EBIT EUR 321 million, growing by 32% over the period. Talking about Sacyr Concessions, there was an increase in EBITDA, reaching EUR 212 million, growing therefore by 55%. EBIT being 176% (sic) [ EUR 176 million ]. As for Infrastructure, it went up to 11.3% (sic) [ 12.3% ], reaching EUR 158 million; and EBIT EUR 140 million. Finally, the Services unit, it also went up to 9% in terms of EBITDA margin, reaching EBIT in amount of EUR 19 million and EBITDA EUR 44 million. With regards to the contribution of each of these 3 divisions, with regards to revenue, we can say that Engineering and Infrastructure accounts for 55%, Concessions 24%, followed by Services with 21%. With respect to EBITDA, the one making the highest contribution is Concessions with 51%; Engineering and Infrastructure 38%; and Services 11%. With respect to the backlog, it's highly concentrated in Concessions, spending at 80%; Engineering and Infrastructure with 14%; and Services with 6%. With regards to the composition of the EBITDA concessional assets, we're talking about EUR 331 million, which accounts for 82% with EUR 109 million in the case of Engineering and Infrastructure, thanks to the Pedemontana highway; EUR 212 million in Concessions; and EUR 10 million for Services. That's the composition of EBITDA by business division. If we now take into account the backlog of the main projects awarded over the past period, it's already in excess of EUR 45 billion, 86% stands in Concessions and the main projects that have been awarded can be seen here. For example, in Europe, Latin America and North America. In the case of Europe, we have some significant awards in Italy, like A1 highway. Or for example, the Tremezzina project in the Como lake. We also have other railway projects. And in Spain, we have some high-speed tranche projects and different real estate developments in the construction area. We are involved in the -- in some significant projects. And finally, in the case of Services, there are many projects to be highlighted. Like for example, urban waste collection, also home assistance contracts and conservation of roads and highways. In the case of the United States market, we were awarded 3 projects: one in Florida and another one in Texas. And then we are entering into the Canadian market with some railway projects. In Latin America, we continue to operate in Chile. There, we are building a hospital as well as a wind farm. And we also have different conservation projects underway, both in Chile and Peru. And finally, we have been awarded the construction of the 287 highway in the south of the country. With respect to net debt evolution, in aggregate terms, we went from EUR 5.212 billion to EUR 5.679 billion, but operational flow was EUR 282 million with some working capital coming in and some in the amount of EUR 194 million. Therefore, there was a positive result and there was a debt decrease due to operating flow, therefore, of EUR 282 million. Financial results standing at EUR 183 million, and we continue to invest in significantly the amount of EUR 426 million. And we also paid EUR 95 million. That cost increased due to the -- our situation with the Panama Canal and it was, therefore, a debt variation of EUR 45 million. With respect to the performance of the net recourse debt, we were able to have an improvement of EUR 108 million, standing at the beginning at EUR 291 million and we came down to EUR 183 million. This is very important because operational cash flows accounted for EUR 67 million, minus taxes, it was a bit less. Therefore, the financial amount was more or less the same. We also invested EUR 45 million in equity and EUR 8 million to invest in Engineering equipment. Here, we're not including VSM because it's not longer within the perimeter. And finally, as for financing flows, we cut off EUR 90 million, EUR 40 million, EUR 85 million correspond mainly to VSM not been in the perimeter any longer because they do not have any more resources therefore. Then we have another EUR 40 million that will be paid when the last contracts that have been awarded become operational and this will be posted to our results accordingly. Now let's talk about performance by business area. First of all, let's talk about Concessions. Revenue in this case went up by 1%. But here, we have to draw distinction between the activity -- the Concession activity, which went up by 21%, if we include the 20% coming from Infrastructure concessions and Water concessions. Construction revenue went down by 25% due to the closing of many works and a slowdown in activity because we are completing several stretches of some of our Concession projects. There was an increase in activity and the Montes de María was commissioned, the same as the University of Idaho. These are some projects that were commissioned already, and they'll start making their contributions. And then there are other roadway projects that have also been commissioned. EBITDA, therefore, went up by 26% as a result of all such improvements. As for the most important projects, we should say that the A21 highway has been awarded. And the Buin Paine Hospital, that contract has already been signed. And also the 287 Highway Concession in Brazil and the A3 Naples-Salerno Highway, that's another project that has been, therefore, awarded. So we are at EUR 1.214 million invested equity, EUR 1.120 million invested equity in Concessions. In the first case, we're talking about Concessions and Water and invested equity, therefore, is EUR 93 million all in all. So the Pedemontana-Veneta opened another section -- another 35-kilometer section from -- to Montebelluna from Bassano Ovest. Therefore, there are already 68 kilometers of secondary roads and 60 kilometers of main road already opened. By year -- by the end of 2022, this project will be completed. In Chile, we have 78% of the Américo Vespucio project already completed. We are studying the breakthrough with the next section of the tunnel. And also, there is some progress in terms of the El Salto viaduct project, which will be completed by 2022. In Colombia, the President has already officially opened the Puerta de Hierro - Cruz del Viso road that runs all the way to Varela and Carreto. Then we also have the Mar 1 highway; 90% of this project has already been completed. The second Occidente tunnel union of the bridge over the Cauca river has also been completed. This is a very long tunnel of about 5 kilometers. And then we also see that the degree of progress is very high. When we check and pass this another project in the south of the country is right on the border with Ecuador, there are 3 functional units already up and running. And it should be completed by year-end. And finally, the Pamplona-Cúcuta, this is another project in Colombia that was awarded 2 years afterwards. That's why only 45% has been completed so far. But we have already been able to do the breakthrough of one of the tunnels. With regards to projects in Uruguay, the Ferrocarril Central project has been completed by 45%. It's within schedule. And in the case of Paraguay, a new 20-kilometer section was opened throughout the country's main corridor. Here, we're talking about 54.7 kilometers. And therefore, we can see that there are 4 sections that have already been made operational along 170 kilometers all in all. As for the breakdown of EBITDA by country, there are 3 countries with the most important weights are Spain, Chile and Colombia. But we also see the United States becoming increasingly more relevant, thanks to the University of Idaho project and other countries. So all in all, we are talking about EUR 212 million all in all. As for the backlog, how it's distributing? There are 62 assets, 48 are operational, 14 are under construction. And they are mainly located in Southern Europe, Spain, Italy, Portugal, the U.K., the United States, Mexico, Colombia, Peru, Chile, Uruguay, Paraguay and recently Brazil also was added. If we now analyze Engineering and Infrastructure division, revenue, therefore, grew by 5%, reaching EUR 1.283 million. EBITDA, however, went up, reaching 158% (sic) [ EUR 158 million ], thanks to more profitability from projects. So the backlog also went up significantly over the period by 14% to EUR 6.421 billion. There are 2 sections of the LSEW rail corridor in Toronto that were added, that's one of the highlights. We should also mention that in United States, we were awarded 3 roads in Florida plus another contract in Texas. Next, we want to consolidate other awards that we had with respect to A3 in -- and other projects, such as Tremezzina construction project in Italy or different developments in Spain. And finally, we have the Buin Paine Hospital, which also had an impact -- positive impact on construction. Therefore, we see that 50% corresponds to the backlog for Concessions and our international backlog already accounts for 82%. This shows activity over the 30-month period. If we do not take into account the Pedemontana concessional results, the Engineering amount would have stand at EUR 1.06 billion and we would have had 4.6% all in all in terms of EBITDA margin. With regards to the division -- the Services division, there was a slight decrease. The same will continue to remain solid in the Environmental area. In Villalba, Melilla, Santurce, San Roque, we still have very significant projects. And by year-end, we are planning to close some landscaping projects as well. As for Multiservices, there were sort of a slight construction because there are not many offices are fully operational again, but this has been offset by the improvement in profitability of the business and infrastructure maintenance and facilities. EBITDA went up by 9% all in all compared to the previous half year. And as for the main contract awards, we should highlight the cleaning and waste collection services in Reus in Tarragona. Another one in Madrid, that has been an extension of waste collection services. Also the clean and waste collection services in Santurce in Vizcaya. And this is all.

Thank you very much, Carlos. We shall now be at your disposal to answer any questions that the analysts may have at this point.

[Operator Instructions] The first question is by Luis Prieto from Kepler.

I am Luis Prieto. I have 3 questions, if I may. The first question is the following. Do you think that the rest of the derivatives on the Sacyr shares could be terminated in order to avoid a negative impact on the stake in that company? Could you provide us with some guidance as to the evolution of the recourse debt? When I see numbers over the quarter, I see that it falls short by EUR 35 million. There was -- so the reduction was actually lower than originally estimated. So could you please clarify that further? And the next question has to do with committed equity. According to my calculations, we are talking about -- well, what you reported during the Investors Day back in 2019, I see that the company wants to reduce its recourse debt by 2025.

I didn't understand the third question because there was a connection issue apparently. Could you please repeat the third question, sir? We didn't understand the third question. Could you please post your question through the webcast? Now in answering the question, yes, we can right off debt, but it will depend on the related costs. We still have 3 years. As for our levers to reduce debt, they are exactly the same levers that we already mentioned during our presentation results in March. The operational cash flow reported excellent results over the quarter, coupled with dividends coming from Concessions and also some other derivatives we have in Repsol complementary financing, for example, Valoriza Servicios Medioambientales and some other financing facilities that we are using. And as they are received, we will be keeping you posted just as we did with VSM.

The next question is by Fernando Lafuente from Alantra.

I have a couple of quick questions. The first question about Panama. Could you please give us an update as to the current situation in Panama, the timings we should expect with respect to the next rulings? And what about the current remaining debt of the consortium? What's the amount that should be repaid after the rulings are issued and to which extent those amounts may be expected to go down? Another question. It has do with the assets portfolio. As Luis said, you are going to make significant investments going forward. Are you considering to dispose off any assets? Some competitors that are considering some service mergers. Are you considering anything of this sort?

Well, with regards to the situation in Panama, unfortunately, we can't provide any accurate data on the future timings, as you -- well, history tells us that the timings there are quite slow. But we hold that by the closing of 2021. And in early 2022, there will be already some response to the next ruling having to do with the canal gateways. As for our double investment approach, this is making some slow progress, but is on track. It's not possible at this point to say exactly when that will happen. With regards to debt, that's already included in our financial statement. So no surprises should be expected to occur. If you need any further details, you can contact Carlos directly. With regards to the assets portfolio, right now, we are not considering the possibility of selling Services. As you can see, this unit provides us with increasingly higher profitability. We don't know about the future. And with regards to Concessions, assets are very significant. And we have key assets, and we also have an appetite to buy. Of course, we always have an appetite to buy. So if we ever need to do so or if we ever materialize this, because we believe that we have reached the right situation to do so, we will proceed and, of course, we will disclose that as usual.

The next question is by Alex Vigil from Investment Securities.

I'm Alejandro Vigil. I have a couple of questions concerning the Concession business. I understand that you're going to provide more details during the Capital Markets Day, but could you give us more details about the business significantly after the recent awards? What about the size of the contribution to the company's EBITDA? Can we expect Italy to have after these new contracts? And the next question has to do also with Concessions. We saw some volatility, Latin American currencies. So how do you think this will impact your business?

Well, with regards to Italy, the A3 contract is reporting between $90 million and $100 million and the other one, $250 million. Therefore, these will, therefore, add up to our figures as soon as they transfer from the former Concession to the new Concession takes place. And this will account for about 90% on the Concession side. Now talking about impact. The impact on Latin American currency fluctuations over this 6-month period in terms of revenue, we were impacted by EUR 35 million in terms of revenue, EUR 6 million in terms of EBITDA. So it wasn't very high. But of course, it may have some other effects in terms of net conversion. But with regards to business as such, we are talking about a limited impact for the time being.

We have concluded with all questions coming in via telephone. Now we're going to start with questions coming through the webcast connection. The first question comes from Filipe Leite from CaixaBank BPI. So he has 5 questions. The first question is the following. What about the evolution of the revenue from construction and its waste -- weight, excuse me, within the company? Second, in terms of working capital, how much corresponds to the recourse activity and how much to the nonrecourse activity? Next, I believe this has already been answered by the Chairman. But do you still consider that you're going to keep a recourse data of EUR 700 million. I think the answer has already been cleared. The next question is about the impact of foreign exchange rate on the dividends we may earn. So how many dividends from our Concessions are we expecting to get? And as for the Pedemontana project and after this project is analyzed, is it going to be recorded for following the equity method or it will be reported according to the subsidiaries on a consolidated basis?

Well, by year-end, we're going to be below EUR 700 million. We're going to stand at more or less EUR 600 million. We announced that in March, and we ratified that figure today. Yes. In fact, the construction figures, as we said before, we closed -- we finished different Concession projects. Some others have reached 90% completion decrease. So last year, there was a lot of activity in terms of execution. This has all been adapted to the completion of other construction projects. So once the new projects are put into place, that figures will go up accordingly. As for working capital for this quarter, we're talking about EUR 42 million coming into our cash flow, so we were able to recover from the negative effects of the first quarter. As for foreign exchange affecting dividends, we haven't analyzed what that exchange rate is. When completing the projects at year-end, we will have to see where the exchange rate we should apply in order to bring dividends in. There might be a 3% or 4% variation, we don't know exactly. We'll have to assess that when the time comes. It will depend on how the currency behaves at the time. And as for the Pedemontana project, we continue to consolidate -- we continue to report that on a consolidated basis as part of our consolidated financial statements. There are no other news about this.

We also have another question from Santander. There are 3 questions. The first question has to do with the price environment affecting raw materials and how they're affecting the project pipeline? Whether there are any examples with regards to our clients putting off some of their projects?

So the second question is connection with this because you asked whether the latest projects, A1 or A23 (sic) [ A3 or A21 ], whether we are duly covered in the current context of raw materials. So we can blend those questions into one. And finally, could we provide an update as to the amount of dividends? We are expecting to get from our Concessions and the payment schedule. I believe that all such questions have already been answered. Well, in answering the question about commodities, we believe that this had an effect in prior fiscal periods. And now this is varying from country to country. We have some price review clauses as part of many contracts in place so that increase will not affect us. We also have long-term contracts with many suppliers. We are doing more and more open book where any increased risk is also borne by the administration. So today, this is not something that we should worry about in our company. We already have all the relevant guarantees, collaterals and insurance in order to cover that. As to how these affects the A3 or A21, these are contracts that have to do with the rehabilitation of some roads. And there, we have some key contracts that are tied to contracts with suppliers in the long term. So no significant impact should be expected. As for dividend forecast, we are still at EUR 130 million, EUR 140 million. And at the end of the quarter, several contracts will be completed. That's where we will know exactly the amount coming from each of their Concessions.

There are no further questions from the webcast. So now we go -- we hand the floor back to the Chairman.

My apologies. Well, once again, I would like to wish you the best of health. Thank you very much for attending this results presentation. Our next results presentation will correspond to the first 9 months of fiscal 2021. Thank you very much and enjoy the summer hot. [Statements in English on this transcript were spoken by an interpreter present on the live call]