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

Good morning. I'm Pedro Siguenza, CEO of Sacyr. Joining me today is Carlos Mijangos, the company's Chief Financial Officer. Thank you all very much for attending the earnings call of Sacyr for the third quarter of fiscal year 2025. Sacyr continues to grow in line with its 2024-2027 strategic plan, bolstered by the strength of our concession model and backed by the key figures reported in Q3. Revenue grew by 5% compared to the prior year, reaching EUR 3.412 billion. Net profit, excluding the effect of divestments in Colombia rose by 81% to EUR 132 million (sic) [ EUR 134 million ]. 92% of EBITDA comes from our concession activities. Operating cash flow increased by 11% to EUR 890 million, and we have invested EUR 232 million of new capital in the first 9 months of the year, bringing the total equity invested in our concessions at the end of September to EUR 2.017 billion. Among the most significant milestones of the year, I would like to highlight the 4 that are shown on the slide. The 4 new concession awards in Italy, Chile and Paraguay which I will describe later and which represent a clear success in terms of backlog. The investment-grade rating obtained from the global agency Morningstar DBRS, which will facilitate and increase our sources of financing. Next, our presence in tenders for the most relevant concession projects currently on the market, where we are confident that we will continue to win contracts. As a fourth milestone, I can announce that the divestment of our 3 concession assets in Colombia has already obtained all the necessary authorizations. So the transaction will be closed and payment will be received during the month of November. As I mentioned, in fiscal year 2025, we have been awarded 4 new concession projects, which implies a hit rate of 50% on the bids timely submitted. However, this ratio is actually higher as 1 of the 8 concessions tendered, the Red Deer Hospital in Alberta in Canada was canceled prior to its award. The 4 new concession projects include the Novara City of Health and Science project in Italy in the Piedmont region. This is a multifunctional complex that will comprise a new hospital and a university campus with an investment of EUR 525 million. This contract will be valid for 25 years and will consolidate our position in Italy, which is one of our core strategic markets. Next, the Antofagasta plant, the largest wastewater reuse plant in Latin America, a key project to ensure sustainable water supply in the arid region of Antofagasta in the Atacama Desert with an investment of EUR 300 million and a duration of 35 years. Next, the Asunci n elevated urban highway, which extends the Eastern route in Paraguay, a EUR 174 million project with a duration of 23 years. And last week, we won the tender for the construction of the Pie de Monte in Nahuel in Chile, a 20-kilometer section of highway that is key to the road modernization plan in the Biob o region in Concepci n. This investment totals EUR 330 million, and the project will be valid for 45 years. These 4 greenfield concession projects enable us to continue ensuring our commitment to steady growth. On this slide, you can see a map highlighting the main opportunities that we are currently bidding for, prequalifying for or analyzing. And these align with our strategic plans goal to strengthen our presence in English-speaking countries with a particular focus on tenders in North America and Australia, while continuing to prioritize our core markets in Italy and Chile. In the short term, we are awaiting the outcome of the tenders for the Ontario Science Museum in Toronto, Canada and the Coquimbo desalination plant in Chile, both concessions lasting 30 and 21 years, respectively. In the United States, as you know, we have prequalified for the managed lanes projects in Atlanta as well as for the I-285 and I-24 projects in Tennessee, where we plan to submit bids in the first half of the next year. And we're also in the process of prequalifying for the I-77 project in North Carolina. In Canada, we have prequalified for the Trans-Canada Highway concession, which bids will be submitted in the first quarter of 2026, and we are pursuing various hospital concession opportunities such as the Windsor Hospital for Ontario Infrastructure (sic) [ Infrastructure Ontario]. In Australia, we are competing in 3 major water projects, the Adelaide Desalination Plant for Northern Water Supply, the Wyaralong Water Treatment Plant, south of Brisbane, and the Aurora reuse plant in Melbourne. In addition, we are pursuing several hospital projects such as the Parkville Hospital in Victoria and several landmark buildings for the 2032 Olympic Games in Brisbane. In our strategic Italian market, we are preparing to submit our prequalification for the Brenner Motorway, the A22, which connects Modena to the Brenner Pass and Austria. And we're also monitoring the upcoming tenders for the Turin-Milan and Brescia-Padua sections of the A4 Motorway, which are expected to be launched soon. Finally, in Chile, in addition to awaiting the result of November 14 of Coquimbo desalination plant, we are pursuing several water projects and highway concessions on Route 5, such as the Caldera-Antofagasta Highway, which is a private initiative developed by Sacyr and the R o Bueno-Puerto Montt section. I'll now give the floor to Carlos Mijangos to report on the financial performance in greater detail.

Thank you very much, Pedro. Let's move on to analyze the company's operational and financial performance. In the first 9 months of the year, revenue rose by 5% compared to the prior year, reaching EUR 3.412 billion. EBITDA also grew by 7%, reaching EUR 1.018 billion. And in addition, EBITDA margin rose, improving the company's operational efficiency. In terms of net profit, if we exclude divestments, there has been a very significant increase of 81%, reaching EUR 134 million. However, the sale of assets in Colombia had a one-off impact of minus EUR 72 million, reducing the final net profit to EUR 62 million. This provision of EUR 72 million has increased this quarter compared to the prior one as the contribution in this period of positive profit from the 3 assets held for sale also pushes the value of its equity up. However, the effect is neutral as a positive contribution to the income statement is offset by the increase in the provision for the sale. Operating cash flow grew by 11% to EUR 890 million, showing the company's ability to generate cash and the operating cash flow to EBITDA conversion margin reached 88% compared to 85% in the prior year. Another important point is the update of the valuation of concession assets carried out in June this year. As of December 2025, these assets are worth almost EUR 4 billion, and the trend is clearly upward. Our aim being to outstrip EUR 5 billion in 2027 and reaching EUR 9 billion to EUR 10 billion in 2033. With regards to shareholders, the company has fulfilled its cash remuneration commitment, paying a cash dividend of EUR 0.045 per share in July 2025 and maintaining the policy established under its strategic plan to remunerate shareholders allocating at least EUR 225 million in cash during the period of the 2024-2027 strategic plan. In the financial sphere, the company has obtained an investment-grade rating from Morningstar DBRS, a clear sign of strength and investor confidence. This achievement enables the company to diversify its financing sources, reducing financing costs and streamlining prequalification processes for new projects. In addition, it opens the door to issuing debt in the U.S. market through private placements known as USPPs. As we announced a few months ago, a significant milestone has been the sale of 3 motorways in Colombia for USD 1.6 billion, which represents a very attractive multiple on the initial investment of 2.7x and 12% above our internal valuation. All the necessary authorizations have already been obtained and at the closing a receipt of funds will take place during November, we're talking about more than USD 300 million. We continue to advance in our commitment to sustainability, both in project financing and in emissions reduction and social inclusion, aligning ourselves with the most demanding international standards. By way of example, we can mention the financing of the Buenaventura-Buga project that was closed in August, amounting to EUR 780 million with indicators for reducing polluting gases and hiring women in the areas of influence. As for the evolution of consolidated debt in the course of these 9 months, it has been reduced by EUR 400 million. It is worth highlighting the strong operating cash flow generated by business activity amounting to EUR 890 million, the financial result, which mainly contributes to project debt amounting to EUR 446 million, and the fact that we have invested almost EUR 500 million in our assets. And finally, under the heading of miscellaneous, we find the effect of the consolidation of Chilean assets that were held for sale in 2024 and the deconsolidation of Colombian assets amounting to minus EUR 215 million, which together with the exchange rate effect of EUR 302 million on leases and dividends generates a total impact of minus EUR 439 million. That's how we came to EUR 6.489 billion as at September 2025. In terms of recourse debt evolution, the most remarkable event reported over the quarter is the payment of a dividend to our shareholders amounted to EUR 36 million, together with the cash working capital recovery of EUR 15 million. We have invested EUR 33 million, of which EUR 24 million corresponds to equity in our concessions, the rest being machinery. And once the cash inflow from the divestment in Colombia is obtained, recourse debt will be reduced markedly. Now Pedro will give you more color on the performance of each business area.

Thank you very much, Carlos. Now I will provide details on the performance of our 3 business areas. The Concessions division posted revenue of EUR 1.266 billion, representing an increase of 2% year-on-year. The positive contribution of Chilean assets, especially the Itata Route and Route 68, reduced the negative accounting impact of financial assets on both operating income and EBITDA for the division, which fell by 8% and 9%, respectively. Revenue from construction grew by 37%, thanks to the contribution of major greenfield projects such as the Velindre Hospital in Cardiff, the Buga-Buenaventura Highway in Colombia or the Fruit Route in Chile. Our concessions have distributed EUR 114 million in the first 9 months of the year. So far, we have invested EUR 225 million, bringing the total equity invested in our infrastructure concession assets to EUR 1.889 billion. This year, we have also brought 3 assets into operation, all of them in Chile, the Atacama Airport in January, the Itata Route, the North Access to Concepci n in April and Route 68 on July 1. As I mentioned earlier, we have been shortlisted for 2 managed lanes projects in the U.S., the I-285 in Georgia and the I-24 in Tennessee, and we are currently in the prequalification phase for the I-77 in North Carolina. On the other hand, we have received further recognition for the I-10 highway project in Louisiana in the U.S. This being the seventh award received by our concession. Let me remind you that this is the largest financing in terms of volume and complexity carried out through a public-private partnership in the state of Louisiana. In the Engineering & Infrastructure division, revenue grew by 12% to EUR 2.205 billion, thanks to the significant growth of our activity in Italy and particularly the contribution of the A21 motorway. For this same reason, EBITDA rose to 42% up to EUR 407 million. If we analyze the construction activity in isolation since, as you know, Italian concessions are included in this division, the EBITDA margin remained stable, standing at 4.8% over revenue. The division's backlog has set a new record, climbing by 15% in the first 9 months of the year, reaching EUR 12.151 billion, of which 71% of the backlog corresponds to activity for our own concessions. Some of the highlights of the last quarter include the completion of a 32-kilometer road in Sweden, the execution of a contract for the Dublin Airport underpass with an investment of EUR 265 million and the completion and opening to traffic of an 11-mile section of the SR23 highway in Jacksonville, Florida, our largest construction project to date in the U.S. And finally, our Water division continues to post double-digit growth in 2025, both in terms of revenue, which rose by 17% until September and now exceeds EUR 200 million and in terms of EBITDA, which reached EUR 46 million, up 23% year-on-year. The backlog grew by almost 50% to EUR 7.148 billion, largely thanks to the award of the Antofagasta reuse plant. Total equity invested in the concessions of this division reached EUR 128 million. A major milestone this quarter was the fact that our Perth desalination plant in Australia reached its first million megaliters of water produced since operations began in 2011. This facility is the largest producer of desalinated water in Australia, the seventh largest in the world and is recognized as a benchmark in the industry. To conclude this presentation, and by way of conclusion, I would like to express our confidence in the successful attainment of our 2024-2027 strategic plan, thanks to the highlights we have just explained. First, our success in securing concessions with 4 new awards in the first 9 months of the year. Second, the manifold growth opportunities we are bidding on in our strategic markets, where we are confident we will continue our successful track record in terms of backlog. Third, the 11% increase in operating cash flow to EUR 890 million. And finally, achieving investment-grade rating and delivering returns to our shareholders through the first cash dividend payment, thus fulfilling our commitments. We are now available to answer any questions you may have.

Good morning, everybody. Next, we're going to start with the Q&A session. We are going to start with the questions coming through the telephone line. And next, we are going to continue with the questions posted via chat in the webcast. Luis Prieto from Kepler Cheuvreux, you have the floor for the first question.

I have 2 questions -- 2 quick questions. Thank you very much for answering this question. As for the earn-outs of Colombia, in terms of some pending offsets, how likely it is for Sacyr to receive the full amount that was timely agreed during the sales agreement. And the next question, and I don't mean to be impatient. I would like to know which is the current situation with Pedemontana in terms of rebalancing. Could you give us an update on how the situation evolves with regards to Pedemontana?

Okay. We are going to answer in just a moment, please.

Okay, Luis. As for Colombia, according to the purchase and sale agreement, we agreed that the result of the arbitration award will go to the construction consortium where we hold 60%. The amount has not been ultimately agreed. This has to be decided upon by the arbitration award, but the proportional amount will correspond to Sacyr, and this is what we announced as a relevant fact that was timely disclosed. Luis, as for Pedemontana-Veneta rebalancing, as we mentioned in the past, as our Chairman mentioned in the past, we have no concern whatsoever. We have made steady progress with our technicians in Pedemontana-Veneta. We are also making steady progress with the financial adviser in the region, KPMG, in order to rebalance their financial and economic plan that is tied to this concession project.

Luis, do you have any additional questions?

Yes. Let me go back to what Carlos answered as for Colombia. You cannot provide any degree of certainty as to the final numbers, right? Do you think that you can provide any numbers as for the final earn-outs?

Luis, as you may understand, we have submitted all the necessary arguments when our construction works were halted. But for the moment, we cannot actually provide an answer. However, we stand very high chances.

The next question is by Miguel Gonz lez Toquero from JB Capital.

I have 2 questions. Actually, I have 3 questions. The first question is, as for the evolution of the first 9 months, I have a question as for FFOs, even though cash conversion was a little bit weaker this quarter compared to the prior year. Is this due to the effect of intangible assets? Could you give us some more color in this regard? And also, I would like to know whether you can mention certain Colombia aside where your estimates are in terms of growth for Q4? And along these lines, now that you have officially closed the project in Colombia, can you give us some information as to the loss in terms of FFOs that this could represent and whether this is going to be offset by the new projects that you have won? And lastly, concerning the Water division business, you are performing very well, but margins have come down slightly over this quarter. I don't know whether this is due to the mix between concessions and other integrated businesses. I would like to know whether you can give us some more color as to what you expect in terms of sales growth in 2026 and how you think the margins might evolve into the future? And finally, I would like to know whether any value should be continued to be materialized in this division going forward?

Thank you very much, Miguel. We will answer in just a moment.