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

Good morning. I'm Manuel Manrique, Chairman and CEO of Sacyr. Joining me today in this presentation as usual is Mr. Carlos Mijangos, the company's CFO. Thank you very much, dear analysts, media outlet representatives and investors for attending this presentation of financial results of Sacyr for fiscal year 2022. On the first page, you can see that Sacyr's economic and financial results for fiscal year 2022 were spectacular. Our business performance over the past years adjusted to a well-defined and well-executed strategy has resulted in a self-evident context in the light of the results we are presenting today. Sacyr has a very strong concessional enterprise model with high profitability and continuous value creation. Both the company's revenue standing at EUR 5.852 billion as well as the company's EBITDA, EUR 1.502 billion, grew strongly 25% and 63% respectively year-on-year. EBITDA margin reached 25.7%. That is 600 basis points more than in the previous year, reaching therefore a record high figure both in our history and in the industry. The company's EBIT went up by 73% up to EUR 1.303 billion with the EBITDA percentage coming from the concession business accounting for 88%, that is 500 basis points more than in December 2021. Such outstanding results have been possible, thanks to the huge efforts and good work of our people and collaborators. We are a unique company in the world as to our capacity to commission our greenfield projects regardless of the circumstances. In 2022, we met all of our goals of commissioning some of our concessional assets considered to be the most relevant ones, such as Route 78, the Américo Vespucio Oriente motorway and the El Tepual Airport in Chile as well as the Mar 1 Rumichaca-Pasto highway in Colombia and the A3 highway in Italy. Furthermore, over the past days, we were awarded a final work completion certificate of the Pedemontana-Veneta project in Italy. This highway will be open to traffic shortly after the facilities are tested and this is a work in progress. Based on all these production assets, we confirm that our concession portfolio is already worth more than EUR 3 billion and that we continue creating value day after day. Another very relevant commitment that we fulfilled last year has to do with reaching EUR 200 million distributed by our concessions. This is a very significant figure in terms of our future sustainability. 75% of EUR 1.5 billion that we invested in concession projects are already delivering the relevant cash flows in some projects underway. In addition, we continue delivering on our growth targets, and we have already been awarded 3 new major projects. So far, the Velindre Hospital in the United Kingdom, the Buenaventura-Buga-Loboguerrero Hathway in Colombia and the regeneration of degraded ecosystems of the Canal del Dique project in Colombia. This happens to be a unique project in the world that is intended to combat climate change while improving the quality of life of 1.5 million people in the area covered by the project. Regarding our recourse debt reduction plan is evolving as planned. We have invested more than -- we invested more than EUR 20 million compared to what we had planned in 2022 and some price revision payments that are already consolidated were carried forward to 2023. On the other hand, some potential investors are already keen on 2 divestment plans that you are already acquainted with. I'm talking about Valoriza facilities and Valoriza Environmental Services. In the upcoming ways, a formal proceeding will start for Sacyr water. We are determined so that by the end of 2023, all such transactions will enable us to bring the recourse debt down to 0 and therefore, be able to aim at more growth opportunities in the concessional sector. As for the corporate milestones, as you very well know, I would like to emphasize the fact that we are back to the IBEX 35 Stock Exchange Index, thanks to the company's reorientation towards the concessional model and the fact that we have exited Repsol as you very well know. Based on both dividends already paid, charge to 2022 results under the scrip formula. The shareholder remuneration is almost 5% as we had committed to deliver. In January this year, we paid the first scrip dividend of 2023, where 91% of the company's shareholders decided to collect shares of the company. We continue to make progress in our focus on sustainability. By ratifying our best position in Spain and the fourth position in the world according to Sustainalytics, one of the leading ESG rating agencies. Among other ratings and indexes place us as a highly committed company from a sustainability viewpoint and that is internationally recognized for that. Well, as you can see, revenue went up by 25% and EBITDA 63%. EBITDA in the case of concessions accounts for 88% of the total. We have also mentioned that almost 26%, which is the EBITDA margin, which is a unique milestone both in our industry and also in our history. As for EBIT, it went up by 78%, reaching EUR 1.303 billion, BDI stands, 111. And the operational cash flow has also gone up by 17%, totaling EUR 738 million. We are now reporting our best backlog figures in our history, reaching EUR 55 billion approximately, therefore, growing 19% year-on-year. So as I said before, such outstanding figures reported in 2022 have enabled us to be one step ahead in reaching most of the goals contained our 2021-2025 strategic plan. And as you can see on the screen, virtually all of our targets have been outperformed. Now the completion of our recourse debt reduction objective will enable us to start designing a new strategic plan for multiple years that will take into account the renewal of the business approach of the company as well as the new targets that we are going to assume from an ESG perspective. In closing, I would like to say that this has been a spectacular fiscal year with outstanding financial results. And I'm sure that they will continue into the forthcoming years, thanks to our strategy and all of the actions that we are cutting out in different spheres. Now as usual, I would like to give the floor to Mr. Carlos Mijangos, who will throw more color of the group's financial results, and he will talk about the results delivered by each of the business units and the holding as a whole.

Thank you very much, Mr. Chairman. Okay. So now we are going to talk about the company's operating performance. As you can see as for contribution by activity, you can see then from a revenue perspective, Engineering and Infrastructure accounts for 50%; Concessions, 33%, and Services delivers 17% of the total. As for EBITDA, Concessions accounts for 58%, 34% comes from Engineering and 8% comes from Services from an EBITDA perspective. But if we take into account EBITDA from concessional assets from all 3 business divisions, we are talking about EUR 1.3 billion to EUR 3 billion, that is to say, 88% over the total of the Sacyr group. As for the EUR 55 billion in backlogs, 80% comes from Concessions, 40% from Engineering and 6% comes from the Services division. If we now take a look at each contribution. Concessions accounted for more than EUR 2 billion, Engineering EUR 3 billion. All in all, we are talking about EUR 5.852 billion, therefore more than 25% increase year-on-year. From an EBITDA perspective, concessions accounted for almost EUR 900 million, Engineering, EUR 518 million, services, EUR 110 million. Therefore, the total is EUR 1.502 billion, that is to say 63% increase year-on-year. As for the main awards, you can see on the map that there are 2 key projects, 1 in the U.K., another 1 in Portugal and many construction projects for both urban developments as well as railways and motorway construction projects and some Services projects as well. In Latin America, we were awarded 3 projects, 2 in Colombia, 1 in Chile as well as different projects in Peru and Chile, respectively, for Engineering and Service projects. 1 hospital in Canada, that's another example. So as you can see, we are gaining market share in English-speaking countries increasingly more. If we take into account net debt evolution, net debt has gone up to almost EUR 1.5 billion, but this is concerned with project-related projects. So we are talking about net debt coming down by EUR 135 million. So if we take into account EUR 6 billion, we have been able to generate EUR 738 million in terms of cash flows. We have paid EUR 500 million in finance costs. We have invested EUR 1.6 billion this year. We should highlight that in -- as for the A3 project, we invested EUR 500 million at the very beginning because that was a project that entailed a payment of some royalties at the beginning, then the Repsol sale accounted for EUR 73 million in inflows and then there were others. Therefore, we reached EUR 7.490 billion. As for the net recourse debt, it has come down by EUR 135 million outstanding from EUR 681 million, finishing at EUR 546 million. Well, we have reached this goal because EUR 242 million have come from some actions and then EUR 50 million that were recovered in working capital, and together with concession distribution of EUR 220 million that over the past quarter was EUR 104 million. Then EUR 57 million and an investment of EUR 200 million, therefore, we're talking about EUR 190 million in equity and concessions and EUR 30 million in machineries and engineering and service-related activities. As for dividend distribution concerning shareholders, I did not yet to scrip dividend distribution. We obtained EUR 83 million from the financing of Pedemontana, therefore, reaching EUR 542 million all in all. If we now take a look at the performance of Concessions specifically. You can see that revenue has gone up by 40%, but mainly operating revenues went up by 54%. Infra concessions accounted for 61% and the water activity stood at 21%. As for EBITDA, it was up 74%, whereas margins went also below 70% for concessions and infrastructure and in excess of 20% for the water activity. Thanks to the great operational performance of most of our assets, the Tepual project, for example, the commissioning of different tranches of the Colombia and Paraguay motorway projects, these are projects that go from East to West. And then all this revenue is tied to inflation, which is very important and somehow accounts for such a spectacular growth. In terms of water, thanks to the good progress made of our contracts and the finalization of some projects in Chile, we see that the results have also gone up quite markedly. We have mentioned already that we have almost invested almost EUR 1.5 billion in equities. 75% corresponds to projects already in progress, leading to distribution in the amount of EUR 201 million from Concession assets. These are the main milestones in the Concessions area: 3 new contracts, the completion of 6 projects plus the completion of the works in Pedemontana. We always say that 2022 was a critical year in order to finalize several projects that had been under construction for 4 or 5 years. Then we have other refinancing milestones such as the A3 projects, the refinancing of the Rumichaca-Pasto project, the financing of Pedemontana and Pedemontana dividends, the Buin-Paine project for EUR 144 million (sic) [ $144 million ], that is among others milestones. Here, we see some of them in awardings. We are talking about EUR 350 million investments in the Velindre Hospital. These are more than 30,000 square meters. This is an oncological hospital that provides cutting-edge technology in order to carry out its activity. It's located in Wales, and this is one of our target English-speaking markets. Then we have the Buenaventura-Buga Corredor. This is a part of a Colombian project. There the investment amounts to EUR 800 million, EUR 3.0 billion in EBITDA and 27 years in Concession with EUR 1.2 billion in terms of distribution. Then we have the Canal del Dique. This is another project accounting for EUR 1.2 billion in investments, EUR 700 million in EBITDA, 15-year concession and 1.5 million people being benefited from the project. What we're trying to take actions in order to prevent floods in the area, creating all the necessary infrastructure so that the quality of life of people in the area can be enhanced. Okay. This is a breakdown of the different projects. We embarked upon over the year. You can see that there are 3 contracts already in place and in progress in Colombia, Puerta de Hierro, in the Central Northern part of the country, Mar 1 and the Rumichaca-Pasto project in Southern Colombia, right on the border with Ecuador. Then the Pamplona-Cúcuta airport that has been completed by 82% in the Norte de Santander of the country. As for Chile, we have opened the Route 78 and the Vespucio Oriente project. And as for Italy, we have already opened the A3 highway to traffic. This is in Southern Naples and it's a highway between Naples and Salerno. And we have completed the Pedemontana project, and we have other projects that are well advanced. For example, the Ferrocarril Central, another 120-kilometer route that covers about 80% of the total projects. If we take a look at the contribution of each country in terms of EBITDA, and you know that the figures in Italy are reported under construction for administrative reasons. So more than EUR 1.3 billion in EBITDA has been obtained. The main contributors being Italy, Colombia, Chile and Spain. All in all, we have 69 assets within the portfolio of our Concessions division. If you now take a look at Engineering and Infrastructure. This division also performed on very sound grants despite of some developments over the year. Revenues went up by 19%. Awards of new contracts in different countries should be highlighted. These are considered to be reference market projects. EBITDA went up by 52% with a special contribution by the 2 Italian concession projects. If we eliminate the effect of such concessions, EBITDA was EUR 90 million. Therefore, the margin was 3.7%. And as you know, commodity prices went up over the year. But despite that, we were able to deliver very sound results. We were able to recover EUR 42 million in terms of prices in some countries such as Chile, Spain and other reference countries and some others that will be collected during 2023. As for the main milestones, we can say that this division had plenty to point out. Apart from the Pedemontana project, we completed the Gregorio Marañón project in -- hospital in project. And also, we completed some construction projects concerning concession that I have already mentioned. Also, 2 logistic warehouses were completed for Amazon in Badajoz and Girona, respectively. And then the Edinburgh tramway last section was completed and will be opened shortly. More than 50% of the Construction and Engineering portfolio corresponds to the Concession division. As for the main awards, we should highlight the construction projects of some awards. In Peru, the extension of the airport accounted for EUR 350 million; also another project in Chile for EUR 456 million; then another project in Peru, the Lima Airport Partners. All in all, we're talking about EUR 400 million of projects there. We also have another project in Belfast called the Weavers Cross Belfast, just to give you a few examples. And finally, taking into account the Services business area. It also went up quite considerably in terms of revenue, grew by 8%. EBITDA went up by 9%, going beyond 10% in terms of margin. The backlog also rose by 12%. We continue to be awarded very significant projects and we have already commissioned different projects that we had been awarded at the end of 2021 and in the first half of 2022, like in the cities of Barcelona and Madrid. From a competitive perspective, in 2021, we had a positive effect due to some additional contracts we were awarded due to the Filomena storm and some other energy projects. As a result, margins went up quite significantly. Now as for our way of working, sustainability is at the very core of all of the services that we render through this division. As for the main awards, we should highlight one project in Madrid for EUR 211 million in Toledo. There was another important project, the containerization, collection and transport of waste in Madrid in the amount of EUR 211 million; the Terminal 1, 2 and 3 airport terminals for EUR 36 million. So without any further ado, Mr. Chairman, let me hand it over back to you. Now we shall be available to answer any questions that you may have.

Good morning, everybody. First, we are going to answer the questions that we get through the conference call. And next, we are going to address questions posted via chat or through the webcast.

[Operator Instructions] The first question is by Luis Prieto. Please Prieto -- Luis, you have the floor.

Actually, I have 2 questions. The first question is what's the timing of the divestment plan that you have in terms of the concessional assets? Do you think that the other transactions might be enough in order to deliver on your net recourse debt reduction target? In that case, divestment might not be necessary. And the other question is the following. The company is making steady progress. And therefore, maybe you can be more flexible in terms of capital increase, dividend distribution, et cetera. When can we expect the next update to take place?

Well, as for the first question, we'll have to wait and see what happens with divestments. We should first carry out the 2 divestments we mentioned. We have the VCM and the facility in place for that. And next, we will continue with the Water area. Of course, we take certain steps as usual and other steps, of course, will be taken after we complete all the necessary actions regarding what you have just mentioned. Now after we complete all those divestments we are planning, and I mentioned that, but let me repeat. The company will have a new shape. It will stand on new assumptions. And therefore, we are going to prepare a new pure annual strategic plan, where we should set out, as in the prior 2021-2025 plan, we are going to include our new pipelines for the period until 2027, including our dividend distribution or remuneration policy.

Next question is by Joao Safara from Santander.

Congratulations for such good results. I have 3 questions. I understand based on your answer that you're not going to give us much color as to your expectations for 2023. However, I imagine that maybe you can give us some heads up as to dividend distribution and equity contribution. And specifically, I would like to know based on the projects underway what's your equity commitment that is pending. So that's question number one on my side. The second question is the following. Just to understand the concept better, in Q4, there was a huge contribution that was virtually the same as the one reported during 9 months from the Italian highways. Is this due to any special effect? Or what should we expect going forward by way of reference. Could you please help us understand this better? The last question is concerned with something that Carlos mentioned. I did not understand how much of the construction backlog response to concession projects?

Well, as for our 2023 expectations, they are good. But we are just in February as of now, but they shall remain just as good. We deliver on our goals quarter after quarter, year after year. So we are planning to deliver on the same targets this year. As for dividends, we have to wait and see how this is -- how this plays out. The Board of Directors will analyze shareholder remuneration as part of a strategic plan. There will be a general remuneration plan in place. However, the Board of Directors will ultimately design, which is the most suitable policy we should implement. Carlos, would you like to answer the second question?

Okay, let me supplement the answer. As for yearly investments, we're talking about EUR 150 million in equity, similar to the expected amount. Total contributions or contributions that are already committed, they account for EUR 550 million in the next 4 to 5 years, some of them will be within the next 4 years. And regarding the Pedemontana-Veneta contribution, inflation in Italy was 11%, and Pedemontana is an account receivable. This is a financial asset. So the revaluation of this account receivable during 39 years means that we will have to do the necessary recognition in our accounting records. That's why you see that number in Q4. More than 50% of the Engineering backlog corresponds to concession, as I mentioned during the presentation.

The next question is by Fernando Lafuente from Alantra.

I have 2 questions. The first question is concerned with growth options. I'm aware that you are about to launch a new strategic plan at some point in 2023. I understand that your target was to change the invested equity balance, allocating about 1/3 in Latin America and another share in other countries. Are you planning to increase the weight of ranges outside of Latin America? And in that context, I would like to know your opinion about the current competitive context due to interest rate rises, that has some financial investors are no longer very strong. So what do you think about the current context in terms of concessions going forward? And now the construction margin. This has been a tough year that you were able to work out quite well. What about your outlook for the next year taking into account more than 50% of the backlog is in the construction area? And could you give us some color as to your activity? Do you think that revenue might go up in 2023 compared to 2022. I'm talking about revenue coming from construction-related projects, specifically regardless of the accounting adjustments coming from Italy that you mentioned before.

Okay. Regarding growth options concerning contracts, in 2025, our target was to near 1/3 of English-speaking countries, 1/3 Europe and 1/3 Latin America. We continue to uphold that target. We are now carrying out the Velindre Hospital project. As you have seen, we are already in the Americas, specifically in the United States and Canada, where we are finalizing some other processes underway. So that will remain a target under our next strategic plan. As for the competitive context, we believe that it does not vary that much compared to the previous one. In terms of construction margins, we expect them to be even better. We -- in our strategic plan, we will certainly emphasize that results are more important than volume or size. We should bear in mind that this year, we have completed 7 concessional projects. So we should not expect much greater revenue increase in terms of projects, but yes, in terms of margins. Thank you.

There are no further questions in the conference call.

So now we are going to move on with questions coming in through the webcast. Álvaro Navarro from Bestinver Securities has 3 questions. First, he would like to get some details as to the impact of inflation on the growth reported today. Second, he is asking about Colombia since the inflation rate has been secured. He would like to know whether that might have an impact on any potential increases in 2023. Thirdly, he would like to get an update about the current status or the potential risks coming from the Panama Canal project. Okay. In answering question number one, the impact of the inflation rate and the revaluation of financial assets accounted for EUR 220 million due to high inflation mainly in Chile, Colombia and Italy, respectively. Regarding question #2, in Colombia, the public administration will undertake the differential of not updating or reviewing rates. They are trying not to pass on the impact of inflation to users but we are going to collect the same from a contractual perspective. There are no differences. As for the Panama Canal proceedings, they are evolving as scheduled. We believe that in the first half of 2023, a final decision will be handed down. We are not worried about this, about -- after our performance as a company. The worst case scenario -- the very worst case scenario would have an effect of EUR 40 million in terms of cash. We are talking about a 3- or 4-year term. So we're not really worried about how this will play out. Of course, everything is actually on our side in Panama. And of course, the upside may be very significant.

The next question is by Filipe Leite.

I believe that some questions have already been answered. What about dividends coming from concessions this year and equity.

Carlos has already answered that question.

Okay. After reaching your goal of reducing your net recourse debt down to 0, are you expected to change your dividend distribution policy? Could you please give us some visibility about this policy? He also asked for an update on the Panama Canal proceedings.

I believe that, that question has already been answered.

And then as for concessions that are tied to inflation rate rises, are you going to review all of them on a monthly basis, on a quarterly basis or annually? And finally, with regard to growth potential, there are some relevant projects in the pipeline for 2023. Are there any, that's the question.

But I believe that the Chairman has already answered that we are finalizing some time processes.

Well, I think that we have basically addressed all questions, but let me summarize them all. As for the company's dividend distribution policy, we said that once we complete the 3 most important processes, we are going to put in place a new strategic program and which we will have a new dividend distribution policy, then it will be about 5%. Up until now it was 4.8%. We are going to move along these lines. Every year, the Board of Directors decides what's the most suitable policy to the best interest of the company. As regards the concessions pipeline, it's quite broad. And we are about to finalize several tender processes, about 3 or 4 to be specific. So we expect that about 2, 3 projects will be awarded in 2023. As for the consumer price index, in fact, Filipe, you always index your CPI according to the prior year's base. This, however, there are some contracts where this is done in January, September. But actually, you always use an annual basis and you take into account the accumulated inflation over the period.

There are no further questions, and now let me give the floor back to the Chairman.

Well, if there are no additional questions, I would like to finish off by saying that the such economic results as the ones we have presented today and the sustainable balance sheet of the company is the result of all those who work with great professionalism effort and full engagement with Sacyr that enables us to be a better company every day. Finally, thank you very much for having joined us today, and thank you for your interest, and we'll forward to meeting you again at the next presentation where we will be presenting the results for Q1 2023. Thank you very much, and have a very nice day.