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 Mr. Carlos Mijangos, the company's CFO. Thank you, dear analysts, media outlet representatives and investors, for attending Sacyr's financial results presentation for the first half of 2023. We are presenting these semiannual results, accounting for the discontinuation of our service activities into 2022 and 2023 due to the divestment process that we are undergoing. Therefore, the results for this period confirm what we already announced back in October 2022, the divestment of our service business that makes us focus fully on our concessional activity, with net recourse debt, therefore, not being significant. This is an exemplary process in time and form. Therefore, I would like to congratulate all the internal teams that have led this process, together with the coworkers that have helped us in this endeavor. We have completed this divestment process with an excellent result well above our initial expectations. Therefore, Sacyr is already and clearly a global company specialized in the development and execution of infrastructures under concession where value creation and profitability are at the core. This model, which we anticipated a long time ago and that we have been strengthening, is further consolidated through the award to a consortium where we participate in the State of Louisiana in the United States through the concession of I-10 highway. This is the first transportation infrastructure concession of Sacyr in the United States that will substantially improve the company's asset portfolio profile due to its high level of volume in terms of income, of portfolio, dividends and valuation. This is an award that we have been pursuing. So that coupled with other strategic decisions and the divestments that we have carried out over the past years in order to transform Sacyr, we can therefore consider our 2021, 2025 strategic plan to have been successfully completed. Sacyr, in 2023, continues with its sound profitable growth uptrend by commissioning concessional assets that enhance our value and investing in new future Concessions like the one I have just announced. In this first 6-month term, EBITDA climbed to -- 28%, up to EUR 645 million, with a gross margin that reaches nearly 30%, with 660 basis points above the previous year, therefore reporting a record high in our company. EBIT in term grew by 36%, up to EUR 579 million. EBITDA percentage coming from the concessional businesses already stands at 90%. Operating cash flows has also grown by 39%, up to EUR 360 million. Finally, net profit has increased by 52%, reaching EUR 64 million. Therefore, these are excellent financial results that we have reported, thanks to our strategic focus that makes profitability to prevail over volume, another driver that you already know has to do with the divestment of our service business that I mentioned at the beginning of my presentation. In June, as a matter of fact, we formalized the sale of Valoriza Servicios Medioambientales for an enterprise value of EUR 734 million, which accounts for 9.2x the EBITDA, above the market transactions that have been reported lately. This week also, as part of an exemplary process, like the previous one, we completed the sale of our facilities activity in the amount of EUR 87 million. That accounts for 6.4x our EBITDA. If we take into account the contracts that will be discontinued and will be left out of this scope, we can say that Sacyr's facilities valuation accounts for more than EUR 100 million. The resources obtained by the company from both transactions, amounting to EUR 500 million, will be materialized in the forthcoming months once we obtain all the relevant authorizations. And they will be used in order to reduce our net recourse debt quite significantly. We continued to make steady progress in order to complete the construction and commissioning of the concessional projects [ foreseen ] for this year, such as the Pedemontana-Veneta highway in Italy, the Pamplona-Cúcuta highway in Colombia and Ferrocarril Central in Uruguay highway as well as motorways [ 287 ] in Paraguay. This one has already been officially opened by the President of that country. So by commissioning these 4 assets, together with another 6 in 2022, the company's current portfolio of 69 Concessions, with 58 already operational and 11 under construction, we are improving our profile year-on-year with a growing value that goes well above EUR 3 billion in aggregate. Also and as part of our recurrent activity, we continue with our mature asset rotation in order to obtain resources that we can use in order to invest in our new Concessions. That way, we have completed the sale of 49% of the Autovía del Eresma in Spain by a multiple of 3x the invested capital. And we are about to formalize the sale of the N6 highway in Ireland. From a shareholders' remuneration standpoint, our focus in -- another focus in our strategy, we should say that 2 dividends were paid in January and July, as a scrip dividend, accounting for EUR 0.136 per share. That is to say nearly 20% above the amount paid last year. The yield per dividend, therefore, is around 5%, which is the commitment we undertook with the market. From an ESG standpoint, I would like to underscore our strong positioning on the key sustainability rankings and indexes as well as all the measures we have taken in order to improve our corporate governance, as a result, in the latest AGM. For example, we have increased the number of independent Board members, out of 50%, with 2 more female members on the Board, while reducing the maximum number of Board members down to 15. From an innovation perspective, I would like to highlight our development of artificial intelligence and its application to both production and in order to improve our corporate process efficiency. This chart shows all of the key financials I disclosed before as well as how they have grown compared to the first 6-month term of 2022. I believe that these are extraordinary results that mirror very clearly our commitment to profitability and value creation in the long term as a concessional group. Next, Mr. Carlos Mijangos will provide you with more data and color on the group's results and of the results of each of our business divisions and the holding.

Thank you very much, Mr. Chairman. Okay. So we are going to analyze the operating performance of the company. As for revenue, we can say that Engineering and Infrastructure accounts for 57%, Concessions 39% and then 4% coming from Others. They contribute to revenue of EUR 2.164 billion. As for EBITDA, Engineering and Infrastructure provide 31%, Concessions 68% and Other 1%. As for backlog, out of EUR 55 million (sic) [ EUR 55 billion ], 86% comes from Concessions, 13% from Engineering and Infrastructure and 1% comes from Other activities. Let's take a look at the breakdown of EBITDA. Compared to the previous first half, we can see that Engineering and Infrastructure contributes another 5% (sic) [ EUR 5 million ], Concessions 131% (sic) [ EUR 131 million ]. So we moved from EUR 505 million to EUR 645 million all in all. And if we take a look at the breakdown of concessional assets, out of EUR 645 million, [ EUR 429 million ] comes from Concessions and [ EUR 151 million ] comes from the Italy concessional license that we have recorded in the construction division's records. So we reached EUR 576 million in EBITDA from concessional assets. That account for 90% of the total of the group. This is net debt evolution for the first half on a consolidated basis during this period. We can see that it has gone up by EUR 257 million and EUR 81 million for the recourse debt, even though recourse debt has improved over this quarter. As for funds from operations, we reported EUR 360 million, with financial result standing at 357 million, net investment almost EUR 400 million. And then we have financing flow, ForEx and other accounting for EUR 45 million. So we were able to grow from EUR 7.49 billion to EUR 7.828 billion. This is the result of EUR 360 million coming from cash flows and EUR 390 million in investments in concessional assets. This is our operating performance regarding recourse net debt evolution that has come down by EUR 17 million, EUR 66 million accounts for funds from operations. We received EUR 34 million from our concessional assets, EUR 17 million from financial costs related to recourse net debt. We invested EUR 35 million, EUR 29 million coming from equity contributions and the remaining corresponding to machinery in order to [ cover ] our concessional activities. Then we have the scrip dividends accounting for EUR 3 million that were paid in January, and then we have other adjustments. So we were able to move from EUR 644 million to EUR 627 million. That's how we have been able to reduce our recourse net debt, which will be further reduced as we complete our divestment process, as the Chairman pointed out. If we now analyze the Concessions business unit. Profitability went up quite significantly, reaching almost an increase of 30%, with Concessions and Infrastructure growing by 41%, 13% in the case of Water. And the execution of Concessions under -- concession or under construction have come down quite significantly because we have been able to complete 6 major projects already and then another project this year, whereas others are already well advanced, as we shall see in the next slide. So revenue has gone up, as you can see, and this is mainly due to the opening of different highway sections or the commission of sections. We have been able to conclude some projects like, for example, Los Vilos-La Serena and the 78 Motorway. And we have been able to index our tariffs to inflation rates, and that's why you can see such an increase in revenue. In the case of Water Concessions, we have been awarded several contracts such as Guadarrama, Tordesillas or Moralzarzal in Madrid. Therefore, we have reached EUR 1.5 billion in equity invested in all these assets. We have received almost EUR 50 million on account of distribution, whereas the life of these contracts accounts for EUR 44 million. Then we have EUR 1.4 billion coming from Infrastructure Concessions and more than EUR 120 million coming from Water Concessions. If we now take a look at the 4 major concessional assets that we want to commission this year. First of all, we have Rutas del Este, which has already been commissioned. It has just been officially opened by the President of Uruguay. Then, as for Pedemontana, this project is almost completed. We are now waiting for the green light by the [indiscernible] administrations to officially open this project. And then we have the Pamplona-Cúcuta project that is going to be completed shortly. And Ferrocarril Central that has been completed by 97%, with the road section, the final one, to be completed in the last quarter. So all major projects are making steady progress over this fiscal year, and we are therefore meeting our expectations. And they are being executed right on schedule. Now let us take a look at the breakdown by country, taking into account Italy. As you know, they have been recorded in the construction and engineering division. However, as for concessional assets, this is accounted for on a pro forma basis. The major weight comes from Italy and Chile, Colombia and Spain, followed by Uruguay with railway projects. So Italy is contributing EUR 222 million, Chile EUR 240 million, Colombia EUR 214 million. This is the total amount of EUR 576 million in terms of EBITDA and 69 for assets. If we now take into account Engineering and Infrastructure. From a revenue perspective, there has been a fall of 9%, but we want to underscore once again that we intend to focus our efforts in order to increase profitability over volume. So profitability has shifted. And EUR 198 million has been the final result, with an increase of 2%, whereas EBITDA margin has also gone up from 13% to 15%, reaching more or less the same levels of last year. In U.K., the Edinburgh tramway has just been commissioned with great success as well as the Belfast interchange that has been finalized, all [ the metal ] rooftop. In Texas, we completed another project, together with another project in Florida. And we have also completed the Quellaveco mine project in Peru. Regarding concessional activities and construction activities for this division, here's the breakdown. As for EBITDA, all in all, we are talking about [ 105 ] that corresponds to construction. Basically the revenue is 105 (sic) [ EUR 1.105 billion ], EUR 47 million in terms of EBITDA. And therefore, we've had this margin of 4.3%. Out of these figures, we should say that 55% of the portfolio corresponds to concessional assets of Sacyr Concesiones accounting for 33 months of activity. These are our main awards. For example, in Colombia, the study, design and construction of Canal del Dique accounting for EUR 560 million; also the construction of section Line 8 in Barcelona accounting for EUR 300 million; the construction of several real estate projects in Spain totaling EUR 228 million; the construction of section in Palermo tram, Italy, accounting for EUR 110 million. Then we have the construction of the Bilbao Metropolitan Railway; the total renovation of the track and line of Zafra-Huelva section in Spain, totaling EUR 13 million. So these are some examples of our key contracts. And without any further ado, we have already covered the main operating performance of our company.

Thank you very much, Carlos. Now we are at your disposal in order to answer any questions the analysts may have.

Good morning, ladies and gentlemen. We are going to open the Q&A session. We are going to start with the questions coming through the telephone line and, afterwards, those coming via webcast. [Operator Instructions] The first question comes from Luis Prieto from Kepler Cheuvreux.

The first question is the following. There has been a significant increase of working capital over this quarter. Now what amounts are included in this figure? Because you're saying that you have indexed these figures to inflation. And what are the figures can we expect for the remainder of the year? So how are you going to report working capital increase by year-end? And as for I-10, do you think that you will be able to increase your tariffs and tie them to inflation after the concessional period?

Just 1 minute, Luis. And we will get back to you shortly.

Luis, let me answer your question. During this half yearly period, the construction has collected more than EUR 57 million in terms of working capital because we have reviewed prices. This has already been normalized, and we shall keep on collecting these amounts periodically. Our target, of course, is to have [ neutral ] working capital. So far, we have an impairment of EUR 80 million. And due to seasonal reasons, you know that the last quarter tends to be the one with the greatest cash inflows. As for I-10 or the I-10 project, we cannot provide you with more data, but I can say that rates or tariffs are tied to inflation.

The next question is by Joao Safara from Santander.

I have 2 questions. Based on your presentation, I believe that you will not answer my first question, but all the same, let me try. As for the I-10 project, could you provide further figures in terms of traffic volumes that you're estimating or the average tariff or the starting point or any estimated revenue? Anything that could help us really understand the true value of this project. And in connection with this, and this is a straightforward question, there were 2 consortia. You were selected as one of those consortia, so I would like to know which criteria were applied in order to choose you as a consortium against the competitor's consortium? And that's all.

Thank you, Joao, for your question. We apologize for not being able to provide you with much detail at this stage, upon the customer's request. So upon signing the financial agreement and contracts, we will be able to disclose full information. Nonetheless, I can actually give you some heads-up. In my opinion, this project marks a turning point for Sacyr. Through this project, we are striking a geographical balance for our portfolio or backlog. According to our strategic plan, we wanted to reach 1/3 in [ Latin ], 1/3 in Anglo-Saxon countries and 1/3 in Europe. That way, we have been able to deliver on our target once we have -- or put this plan into operation just 5 years ago. So halfway through, we have already delivered our target. As for equity, we are going to continue increasing it by 2028 [ until full ] operation. Therefore, I can summarize my answer by saying that this is one of our iconic projects, one of the most important projects in Sacyr's history. And sorry if I'm not being more explicit, but this is so upon the customer's request. Regarding the tender conditions, I can say that there are 2 very powerful groups or holdings involved. And I believe that we were quite close in our proposals, but again I cannot give you many details as to the criteria applied in order to choose us. But I believe that the other tenderers also submitted wonderful proposals.

The next question is by Fernando Lafuente from Alantra.

Congratulations for selling the service business. You made it right on time, and it was not easy. I have 2 questions for you. The first question is about the company's strategy in the medium term. You have been able to deliver on your nearly 0 debt target at a corporate level, so I believe that now the company [ persists ] to focus on the Concessions business, while increasing your investment speed in the Concessions area. Now in connection with the I-10 project, I would like to know about the potential pipeline of similar projects. I understand that this is the first project that you are carrying out in this country. Now are you planning to carry out similar projects? Because other competitors argue that there is plenty of competition in the United States to be awarded, highway-related projects. And finally, as to the estimation of dividend coming from Concessions for this year, do you have any estimates for this year and 2024?

Fernando, regarding your first question, if you would allow me, I'm not going to disclose the answer fully because that's some of the pending work we have to carry out as of September, but we shall remain as a concessional group. And let me insist that this is one driver in addition to Water. After September, we shall examine whether we are going to buy any stake in any fund or any group to execute this strategy between September and Christmas, we intend to decide about our new strategic plan because the prior strategic plan has already been fulfilled. We have already met all of our targets 1.5 years beforehand. So in early 2024, we shall disclose that strategic plan. Concessions and Water, let me insist, will be key drivers supporting the next strategic plan. Regarding dividends, we are talking about 200. And next year, that amount coming from Concessions will be even higher.

The next question is by Miguel González Toquero from JB Capital. Okay, let's move on to the next question by Luis Prieto from Kepler Cheuvreux, once again.