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

Good morning, my name is Manuel Manrique, President and CEO at Sacyr. Here with me in this presentation, as usual, we have Carlos Mijangos, CFO of the company. Thank you very much, dear analysts, members of the media, and investors for being here with us in the presentation of the economic results of Sacyr for the third quarter 2022. The evolution of our financial results, which I dare to say are spectacular, show that our approach as a concession group and also show that our strategy was to show about these great results. Even more important and more special in an environment of macroeconomic uncertainty like the one we are going through that's still not showing clear signs of improvement with high inflation, rising interest rates and signs of recession in many countries. And that is why despite the situation, we should highlight that the results show that we have a solid business model and offer high profitability and continuous value creation. Both our turnover and EBITDA grow strongly by 24% and 47%, respectively, in the first 9-months of this fiscal year. And margin -- EBITDA margin got to 22.6%, which is absolute record in our history and also in the sector. In this year so far, we have met with the expectation of our clients on the market. Also putting service of our most important concession assets, which are the base of the high valuation of these assets, thanks to the cash flow that they started generating, Ruta 78 and the Americo Vespucio Oriente roadway in Chile, also Mar 1 and Rumichaca Pasto in Colombia and also the A3 in Italy. With all these assets in production, we can confirm that the valuation of our concession portfolio is already above EUR 3 billion. And it is still generating value every day. We are close to finishing the construction of our main asset in Italy, the Pedemontana-Veneta motorway. And also along 2023, the Central Uruguay Railway, the Rutas del Este in Paraguay and the motorway Pamplona-Cucuta in Colombia. We are also complying and meeting our growth objectives. In this year, we won 2 very important contracts. The hospital of Velindre in the U.K. and the Buenaventura-Buga-Loboguerrero motorway in Colombia. We will give you more detail on these new 2 concessions that we are now including in our portfolio. We feel, say, thanks to the excellent evolution of our business, and that's why we have accelerated the reduction of our net debt -- recourse net debt. So the value of our assets can clear or can have -- can be seen better in the stock markets. And that's why the Board of Directors decided to start exploring the reinvestment of 49% of the service business to be able to reduce debt. And 49% of Sacyr [ AVO ] to be able to find a partner with whom we'll be able to share and push forward the growth opportunities of this subsidiary. And we decided to make sure that by the end of 2023, these operations allow us to get recourse debt to zero. And so we'll be able to have more growth opportunities in the concession sector. This process that we have already started is starting, and the future looks bright. We see a lot of interest among investors, and I am sure that soon, very soon, we'll be able to communicate clear steps within our roadmap. Amongst these corporate milestones, as many of you know already, I would like to highlight that we are back in the IBEX 35 in the Spanish stock market. Thanks to the fact that we have refocused our company towards a concessional model and getting out of the equity of Repsol, and you already know the details of this operation. With the 2 dividends that we have already paid off as scrip dividend, the profitability for shareholders is almost at 5% as we had committed. And we kept on going forward towards our bet on sustainability. We once again are the best in the sector and fourth in the world for Sustainalytics, one of the leading agencies in ESG ratings. And taking a look at the most important figures. Well, we got to almost EUR 4.1 billion, which is 24% higher than the ones we got in 2021. EBITDA EUR 924, 47% higher. And concessions already account for 85% of all of the EBITDA of the group. On the other hand, our EBITDA margin reached 22.6%, which is actually 360 basis points higher than the same period last year. And net of operating profit with EUR 762 million with a growth of almost 50%. Net profit grew by 13% and reached EUR 68 million, which -- and operating cash flow is EUR 427 million, which is 6% higher than last year. And last, our backlog is now at 53,122 which is 16% higher than the backlog we had at the end of 2021. I would like to finish my intervention with highlighting once more that the success of these financial results and also the results of the sustainable balance of the company, is only achievable, thanks to all the people who work with total commitment, giving all their effort and professionally at Sacyr, which helps us be better each day. And next, Carlos Mijangos will give you further detail on the results of the group and each of the areas and business areas of the business and the holding.

Thank you very much, Mr. President. If we take a look at the operation -- operating performance in terms of contribution by activity in the group, we can see that in terms of revenue, we have engineering with 50%; next concessions, which account for 32% and then services that account for 18%. In terms of EBITDA concessions, one that contributes with most of it with 59%, engineering 33%, and services 8%. But if we include all the concession assets in the 3 divisions, we can see that we reached an EBITDA of EUR 787 million, which is already 85% of all of the Sacyr Group. In terms of backlog, over 80% accounts to Sacyr concessions, 13% engineering, and 6% services. If we analyze a bit more in depth, the evolution and the contribution of each of the activities, we can see that in terms of revenue, concessions contributed with EUR 1.4 billion, which is 66% higher; engineering of EUR 2.2 billion, 14% more; services almost EUR 800 million, which is 4% more; and with holding adjustments, we reached this almost EUR 4.1 billion, which is 24% more than the previous -- the same period last year. In terms of EBITDA, concessions contribute with EUR 542 million, 65% more; engineering over EUR 300 million, that's an increase of 25%; services almost EUR 80 million, with a slight increase, which get us to EUR 924 million, which is a 47% increase in the first 9 months of or compared to the first 9 months of 2021. If we take a look at concessions, we can see that in Europe, basically in the U.K., Sweden, Portugal and Spain, and in Canada, we have already opened the second contract after the Lakeshore railway, which is a Pediatric center in Ontario; in the United States to new highways, one in Texas and the other one in Florida; and in Latin America, 2 concessions, one in Chile and another one in Colombia and several additional contracts that I will detail afterwards. In terms of our portfolio, well, 43 for concessions, 6 for engineering and 3 for services. If we take a look at the evolution of the net debt of the group, we saw that we were almost at EUR 6 billion, and we are now at EUR 7.6 billion in September, which is an increase of EUR 1.6 billion, basically due to, well, several things such as, for example, the drop due to the operating flow, which is EUR 470 million less. We see the evolution of cash flow, then financial result from the concessions, also the investment, we still invested heavily in our concession assets, the 58 that we got from Repsol, and this also EUR 392 million due to several aspects, basically exchange rates. If we really take a look at this increase of EUR 1.6 billion, there are 2 things that we should highlight, such as investment in the A3 in Italy, EUR 500 million, and it's a one-off investment. We have already made all the investment in these assets, so that was generated in the first quarter in the year and exchange rates, which will be compensated in the future with income that come from these concessions. They also increased this year, in this 9 months, and they account for EUR 380 million. So that's almost EUR 900 million. So if we take them away from the EUR 1.6 billion, we'll be investing about EUR 250 million per quarter, which is what's normal in concessions. If we take a look at the operating performance of our recourse net debt in the third quarter, by the end of June, we were at EUR 767 million. It's important to say that we have generated over EUR 110 million from which concessions have also generated some cash flow. And we got some decision from the concessions and which account for almost EUR 100 million coming from operations. And, well, we are putting into the stagnation that we have seen in the first quarter. And we have EUR 40 million which is our financial expenses and EUR 32 million investments and EUR 70 million in machinery and together with other adjustments get us to this EUR 689 million of recourse net debt in September 2022. If we analyze each of the businesses areas in depth, starting with concessions, the revenue increased by 66%. As we mentioned earlier, operational revenues come purely from concession increased by 49%, a high increase of both revenue and EBITDA. Basically thanks to the good operational performance of our assets and put in practice, well, the opening some new motorways. Of course we have opened [ Ruta 77 ] in March. And due to the fact that we have finished some of the projects that we have been working on in 2022. And of course, all these revenues are linked to inflation, and we have already started updating our tariffs. And in terms of water, well, there was an increase of 25% business and EBITDA by 15%. And that's thanks to the good performance of our assets and also new acquisitions, both in Chile and Australia. And having said that, the margins of concessions reached almost 70% and water around 20%. And our portfolio increased by 18%. Some important milestones, 2 new awardings as I already mentioned the Velindre hospital in the U.K. and the Buenaventura-Buga in Colombia; and also the completion and commissioning of Vespucio Oriente, the 78 Ruta, and Mar 1, Rumichaca and the A3 in Italy. In terms of financial aspects, we issued a bond for the A3 for over EUR 500 million. We refinanced the Rumichaca-Pasto with EUR 800 million. And we financed dividends of Pedemontana-Veneta for EUR 450 million and also the hospital in Chile with EUR 140 million. We have invested over EUR 1.4 million in our activities. And this year we have already invested EUR 121 million. And in terms of concessions, just to show the description, we've got the Velindre Hospital in Wales in Cardiff, EUR 350 million investment, 25 years, 32,000 square meters will generate over EUR 300 million of EBITDA throughout the whole concession. It's an important milestone given that it's the first concession in the U.K. And it actually shows that we are expanding in English-speaking markets, but it makes us a true reference in the hospital. Concessions, it's the ninth in our portfolio already. And it's hospital that has very high standards, both from a technological perspective, health and sustainability and energy efficiency as well. In terms of the Buenaventura-Loboguerrero-Buga corridor, we are going to invest EUR 800 million, it's in the Valle del Cauca in the South, in Colombia. It's -- well, it's 27 year term, will generate almost EUR 3 billion EBITDA and it's the fifth country that we get in Colombia. And we are clearly the biggest infrastructure investor in the country. And it shows the focus of the group in long-term concession assets. It also has a very high social and environmental importance because it joins over 12 communities. And we will carry several social and environmental programs throughout that corridor. If we now take a look at the evolution of our main assets throughout the year, well, more of them are operational. If we take a look from -- well, it was this, we have got Colombia, 3 of them already, Puerta Hierro, Mar 1, Rumichaca Pasto. We've got the fourth one that we won much later, which is at 80%, over 100 kilometers have opened. We started in Ruta 78 in March and also Vespucio Oriente in July, it's a especially complex trench. In -- well around Santiago, 10 kilometers underground with tunnels and with the highest technology and a free flow toll, so nobody is stopping. And which is a true milestone given that it require the important engineering efforts to carry out the construction. In Uruguay, the central railway already -- 88% is ready. So over 200 kilometers of track are already. And we are finishing the construction of Rutas del Este, which is the main artery in Uruguay, from punta del este and is ready at 84% and many of the tranches are already open, out of which, well, actually over 100 kilometers. And we are going according to schedule. In terms of Pedemontana, we are getting ready the last tunnel done, still to be opened and will be ready shortly. And in the A3 in the south of Italy, it was what we started working on it in April and it's already contributing to the financial results of the group. In terms of the contribution of concessions by country, both in terms of revenue and EBITDA, all the main countries, Colombia, with EUR 307 million and EUR 170 billion; then Chile with almost EUR 300 million over EUR 150 million in EBITDA; Spain, EUR 224 million and EUR 101 million and Uruguay with EUR 363 million and EUR 51 million. It is also true that the figures in Italy are included in the construction company for legal reasons because Italy contributed with EUR 351 million in revenue and an EBITDA of EUR 233 million, which is the most relevant country for this group. If we take a look at the Engineering & Infrastructure business area, we see a strong growth of 14% in the activity and 25% in terms of EBITDA. We're at over EUR 300 million margin, gets close to 14% and backlog increased by 8%, thanks to the execution of the big projects we've got in Chile, Colombia, the United States, Peru, Paraguay, Uruguay and also the contribution of the concession activity of the 2 Italian assets such as Pedemontana-Veneta and A3. And as you can see here, if we eliminate the effect of the concession which is EUR 351 million in EBITDA, EUR 233 million, we can see that we still have generated EUR 81 million of EBITDA over the EUR 1.9 million, it's a margin of 3.7%. And in fact this quarter is a bit better at 3.8%. And we have -- well, it's an important activity within the very complex year. In the construction sector, main milestones, well, we have already started works in the hospitals of Sotero del Rio and Cordillera. In Chile, we are the main hospital construction company in that country. We completed the second runway at the Lima Airport. And we'll help them double the activity of the airport, which is the most important one in the country. We have already completed the [ A6 ] in Northern Ireland. So we have paved all the A6 motorway. And, well, the Tram in Edinburgh is almost ready -- was quite complex from a technical perspective. So we got to almost EUR 7 billion in terms of backlog and 50% for backlog concessions which guarantees 27 months of activity. Well, main concessions, we have the 2 concessions in Buenaventura-Loboguerrero-Buga in Colombia and Ruta 78 in Chile, the first one is about EUR 500 million, and the second one is EUR 450 million, then several construction such as the railway bridge over the Biobio river in Chile, the new Vanderbilt road in Florida, different promotions for different developers here in Spain that account for over EUR 190 billion and different supply and maintenance for track and catering systems and many other things. In terms of the service business area, it grew by 4%. All the different subsidiaries and services grew as well. We still have a very high margin of around 10%. And from the -- well, in terms of the evolution of these 9 months, we -- well, the performance very good, taking into account the last year, they were both extraordinary seasonally, thanks. And this year, an increase of expenses of over EUR 10 million in fuel, but we still -- we were still able to keep our margins and our EBITDA is very similar, EUR 3.2 billion in our backlog and main milestones, we have, well, significant contracts that have already started, both in Madrid and Barcelona and other cities such as [ del Rio ] and Melilla. And now we have already signed last week, in fact, we signed the EUR 211 million contract for Waste Management in Madrid, and we are waiting to sign other contracts such as waste management in Cadiz as well, that's EUR 149 million contract or in Toledo, with EUR 35 million contract. In terms of facilities, we are ranked first with EUR 135 million in the cleaning services for the Madrid subway stations. And main awards, well, we got lots 2 and 4 of Home Assistance Services in Madrid, that's over EUR 100 million. The Cleaning, Monitoring and Security services for Santiago de Chile Subway, EUR 38 million. A 2-year extension of the street cleaning and Urban Solid Waste in Melilla, EUR 26 million, and several cleaning of public educational centers and other public spaces and private spaces and as well as the maintenance of green areas and also maintenance of different roads in different areas. And having said that, Mr. President.

Thank you very much, Carlos. We are now open to the questions of the analysts.

[Operator Instructions]

I have 3 questions, if possible. First, and sorry if I didn't get it, but which is the net dividend for the -- expected for the fourth quarter 2022. Second question is if you could give us an idea on the compensation by inflation in cost and what's the working capital you're expecting for the end of the year? And third, it's more common than anything else. The company is going forward fast. And so it seems that we need to shorten all the visibility on capital increases and dividend and your backlog. So my question is when can we expect the next update, by the end of this year? Or could it be done before that?

Well, we also agree on the fact that we are going at an important speed. And we expect that by the end of this year or early next year, we will be able to update the value of construction in terms of data. Well, Carlos?

Yes, net dividend expected by the end of the year, we expect to get about EUR 38 million in dividend and we'll invest another EUR 30 million or EUR 40 million, depending on how projects go forward. So we'll leave about $50 million to $60 million in the table. Yes. And about competition in different countries where we can update prices. Well, normally in December, there's budget left in the different public administrations, and we hope we'll be able to start getting significant payments for these compensations that we have -- that have been recognized in the different certifications. And of course that will also increase the operating cash flow, sorry, the working capital this year.

Next question from Fernando Lafuente from Alantra.

2 questions. First on your EBITDA outlook. It's -- this is a good year. Many assets are coming into operation. So if we think about 2023, when all the assets are operational and contributing, I don't know if you could give us an estimate on what the EBITDA should be next year? Or what is the growth expectations taking into account that you are going to review these contracts and inflation? And second, on your construction business, are you being able to keep your margins? It's true that they are a bit lower than last year, but they have been quite solid throughout the year. So your view on this margins and if this 3.8%, 3.7%, 3.8% is going to be able to be achieved throughout next year? Or what do you think about the evolution of these margins?

Well, yes, about the EBITDA trend, we believe and seeing the evolution of this EUR 924 million, we believe that by the end of the year we'll be comfortably above the EUR 1 billion we mentioned. And next year, well, the growth will continue. In the General Shareholders' Meeting, we already mentioned that due to the evolution of all of our figures, we will review it. And we'll update the information. We focused on debt. But we will also provide some estimates on how we are going to end the strategic cycle in 2025. In terms of construction, well, we have made a big effort and we were able to maintain our margins slightly lower. And we expect to finish the year that way. We are -- yes, that's the order of magnitude we're actually expecting.

There are no more questions on the phone. And so we are going to start with the webcast questions. First one from Filipe Leite from Caixa Bank. Well, Filipe, I will answer to the first question via e-mail because given that it's a very detailed information, figures, we'll answer to you through Investor Relations. Second one is what we think about the increase of interest rates for our financial costs. And second one is whether or not we will keep the objective of having EUR 500 million on recourse net debt by the end of the year and how to get to that figure? And which -- expected dividend from concessions throughout this year and along 2023? Well, first of all, the impact of the interest rates on our -- on the concessions. Well, inflation is actually buffering it. So it has no impact, quite the opposite. In terms of recourse debt, well, a bit lower than EUR 10 million for every 100 basis points of increase. And the objectives of EUR 500 million of debt, I can say that, yes, we can confirm that, that's the objective. And according to our expectations in the fourth quarter, as you know, the income is better. And the contribution from concessions, yes, that's a commitment we've got despite the difficulties that we already mentioned. In terms of the dividend from the concessions, yes, this year we will get to EUR 180 million, EUR 190 million, which is a figure that's already going to be recurrent as you can see in our Investor Day documents and other models are at your disposal. Next question [ Manuel ] [indiscernible]. And he's saying that given that we have some business in Colombia and Chile, what do we think about the situation in both countries with the political changes in those countries and whether or not we are concerned? Well, in terms of Chile, well, they've been there for a while already, almost 7 or 8 months. We have seen now the decisions. I think they've been cautious, and we feel safe. We are not -- I mean, the Minister in our sector, he had been working in public construction and public works. For some time the minister of economy had been working in the Bank of Chile. And I think, well, they're clearly betting on concessions and stability is going to be similar to what we have in the -- well, with previous comments. And in Colombia, we're not very much concerned really because all the decisions they've made, a lot less, because they've only been in power for -- or since August, so 2 or 3 months. Well, they're also betting on the concession system, and we hope -- we still are watching, but we are more or less -- we feel more or less safe. Investors are asking about the news on the selection of advisers and banks for the selling process of our water and services. Are there -- is it the ones that have been published in the press? Are there any other names? And how is the process going? Well, we have already started the process internally. And I mean we are working on it strongly. We have -- we got everything ready. We have identified a number and different types of contracts, the status of these contracts, their evolution, the evolution in the past few years and the forecast for the future. And in the next few days, next few days, yes, we'll probably choose investment banks that will help us in this process. And what's been published, well, it's always biased piece of information, this happens in this process and in many other process, well, probably from some of the advisers that, I mean, they don't think they have the right competition and they try to get us looking the other way. And, well, in just a few days, we will inform you on which other banks that will work with us in this operation. Of course we try to choose the ones that can give us the best counseling in the investment process. Thank you very much. There are no more questions. I would now like to give the floor to the President.

If there are no further questions, we want to thank you for being here with us, and thank you for your interest. And see you next time in which we will present the results of fiscal year 2022. Thank you very much, and have a good morning.