Vinci SA (DG) Earnings Call Transcript & Summary

Hello, everybody, and thank you for attending this conference call. I am not in the office, I am currently traveling. And therefore, the connection on my side may be bad. So excuse me in advance in case of difficult connection and Gregoire the team will be in backup if necessary. As usual, I will try to be brief in order to have more time for the Q&A session. So first, what are the key takeaways for this publication? First, we can say that it's a solid operating performance overall in the first 9 months of the year, particularly with the dynamic business level in the Concessions business line and the Energy Services business line. The 9-month 2024 total revenue stands at EUR 52.3 billion, up 3.3% actual and 2.5% like-for-like. International revenue, 57% of the total is up 3.8% and up 2.7% like-for-like. Changes in scope mainly come from the integration of Edinburgh Airport by VINCI Airports since 1st of July, with a contribution of EUR 123 million in the Q3 revenue. We should also mention the recent acquisitions made by VINCI Energies, which boosted the revenue by around EUR 135 million in the first 9 months and also by VINCI Construction with 4 acquisitions in North America, contributing for almost EUR 90 million in the 9 months revenue. On the other hand, exchange rate variations had a very marginal impact on the figures. Now France. France, which represents 43% of the total, was up 2.6%. And I will come back more in detail on the trends for each business line later. Second, group order intake were slightly up to EUR 48.4 billion for the 9 months, supported by a good momentum in flow businesses, particularly in Europe. As a result, the order book of VINCI maintained a high level of almost EUR 67 billion at the end of September, up 6% year-on-year. Actually, France is plus 5 plus -- 5.5%, international, plus 5.7%. So the order book represents almost 14 months of average activity overall. International made up 68% of the total order book, which is a stable figure since several quarters. So such a robust order book gives a good visibility to VINCI and enable the group to remain selective in terms of new business. Then regarding the financial position. The net financial debt of VINCI at the end of September is well under control. It amounted to a net amount of EUR 22.2 billion, up EUR 6.1 billion versus the end of last year. And obviously, the increase is mainly due to the numerous and significant acquisitions that we completed since the beginning of the year. This liquidity remains substantial with a managed net cash position of EUR 10.1 billion at the end of September. And in addition, we have EUR 6.5 billion unused credit facilities at [ VINCI a Salado ]. As a result of such a sound financial position, the group is well prepared to continue its development with serenity. Let's now have a closer look at the main divisions. First VINCI Autoroutes. VINCI Autoroutes, Q3 traffic was stable versus Q3 of last year. As a consequence, in the first 9 months, overall traffic was only slightly down, minus 0.6% despite the negative impact of the farmers' blockade, which took place in the first half of the year. So despite the fact that the traffic is slightly down, the revenue is up by almost 4% to EUR 5 billion. And this is obviously thanks to the toll increases implemented in February. VINCI Airports revenue, EUR 3.5 billion plus 15% on actual basis, plus 11% like-for-like. You have already seen the Q3 traffic figures, which we published 10 days ago, boosted by strong summer demand and high aircraft load factors. Keep in mind that tourism and visit friends and relatives account for the majority of our actual -- of our activity in most of our airports under management. In addition to the out performance Portugal, [ Hana ] and the Belgrade Airport in Serbia, where passenger numbers continue to break records. It is worth noting that one, a strong growth at recently acquired platforms, Edinburgh, Budapest, Cabo Verde. Second, passenger numbers in the U.K. rose above their pre-pandemic levels for the first time since 2020. And finally, the fast recovery of Japan, driven in particular by connection with China. So overall, in the 9 months, VINCI Airports will come 240 million passengers, plus 9% versus 2023, plus 2% versus 2019 pre-pandemic. Now VINCI Energies. VINCI Energies revenue, EUR 14.5 billion, up 5% actual, 3.5% like-for-like. To take away, business trends in Q3 were broadly similar to those seen in H1, both in France and international. VINCI Energies revenue in Q3 rose by 4.5% versus Q3 2023, so no deceleration. 9 months order intake remained strong, plus 7% for the first 9 months versus last year and even accelerated in Q3, plus 14% versus Q3 2023. Hitting a new rolling 12 months record of EUR 22 billion. As a result, VINCI Energies order book at the end of September amounted to EUR 16.7 billion plus 14% year-on-year, which represents 10 months of average activity of VINCI Energies. Furthermore, please note that VINCI Energies remain active on the M&A front, having completed 21 acquisitions in the first 9 months, which represents a cumulative annual revenue of around EUR 418 million, of which EUR 450 million outside of France. And the most significant acquisition, which was completed in September was Fernao, expected revenue of around EUR 260 million, is a leading provider of cybersecurity services in Germany and Switzerland. So in a nutshell, again, a very strong print of VINCI Energies, and this achievement confirms the excellent position of VINCI Energies companies in the very brilliant energy transition and the digital transformation markets. VINCI Energies' decentralized organization and its M&A-driven development model are enabling it to make the most of these major trends, and we will tell you obviously more about that during our upcoming Capital Markets Day on the November 22. Then Cobra IS. Cobra IS revenue amounted to EUR 4.9 billion, up 4.5%, actual 3.9% like-for-like. Trends varied between regions, with a strong growth in Europe but declined in some countries in Latin America. In Spain, which represents 50% of the total, the revenue was up 12%, which reflects a fair momentum in the Spanish economy at present. Outside Spain, revenue was slightly down, minus 2% on a natural basis, minus 1% on a like-for-like basis, [ eventually ] after correction of the currency variations. Apart from the impact of Cobra IS selective policy that we already mentioned in the 3 quarters, the slight decrease was -- this increase was due to the phasing of several large EPC projects in Brazil with the completion of certain works on electricity transmission lines, while new contracts are in a start-up phase. Conversely, business levels in Europe outside of Spain rose sharply, driven by the Dragados Offshore subsidiary which, as you know, builds offshore wind farm energy converter platform for German operatives. Order intake fell but to put things into context, remember that the level reached last year was outstanding, and that decline was due, in particular, among other EPC projects was due to the timing of entry into the order book of various offshore -- new various offshore energy converter platforms which we won recently. Around EUR 3.7 billion of such entered the order book in the first 9 months as opposed to EUR 2.5 billion this year -- or excuse me, around EUR 3.7 billion of search contracts entered the order book last year in the first 9 months, as opposed to EUR 2.5 billion this year. But it's worth mentioning that the EUR 1.7 billion contract with 50Hertz, which was announced in mid-July, has not yet been added to the order book. The momentum remains very well oriented in flow business. The order book at the end of September amounted for Cobra IS to EUR 16.4 billion, up 10% year-on-year and represent nearly 2.5 years of Cobra IS average business activity. Finally, VINCI Construction. VINCI Construction revenue fell slightly in Q3, mainly due to the phasing of certain large projects, both in France and outside of France. I'm thinking, for instance, in France, we were recently awarded a very large contract for the Grand Paris, the line [ 15 ] and I'm also thinking of several large contracts in Americas and in Oceania. But it's also worth mentioning the lower business levels in Africa because of geopolitical instability in several countries of the continent, like Mali, Niger, [ and Gabon ]. So despite that, 9 months revenue stabilized at the high level, as VINCI Construction revenue stabilized at a high level of EUR 23.5 billion, up 1%. A bit of color by geographies, worth to mention outside France, business levels we have [ varied ] in the U.K., in the Americas and also for Soletanche Freyssinet, our specialty key networks division. In France, business levels remained firm in roadworks and networks, which means hydraulic and railroads, offsetting the decline in some civil engineering activities caused by the phasing of works, in particular on the Grand Paris Express. In the building sector, business was driven by rehabilitation projects and by the construction of public buildings, particularly hospitals. Overall, order intake rose by 4% compared with last year. It increased in the U.K. of Oceania, North America and also Soletanche Freyssinet. In France, order intake rose in roadworks and networks, which fell in the building sector. And in addition, like for Cobra IS, please note that some projects won and announced recently are not yet in the order book, of which a significant contract infrastructure project in the United States and some roads and rail contracts in Australia. The order book at the end of September amounted to EUR 33.7 billion, which is stable year-on-year. I'm talking of the VINCI Construction order book stable year-on-year and represents 13 months of activity. Finally, VINCI Immobilier. VINCI Immobilier revenue declined minus 11%, but the number of housing units reserved increased by 29% to 3,247 compared to last year. This improvement was driven by bulk sales to social housing providers. So maybe it's too early to open champagne, but it's a welcome positive inflation, though. Especially considering the recent decrease of interest rates. In conclusion, you will see we have fine-tuned our guidance for 2024. And we gave also an indication regarding a possible change in taxation, applicable to large groups in France according to the French Finance Bill for 2025. Article 11 of the bill provides for an exceptional levy on the profits of large companies generated in France. Initial analysis suggests that if the bill were passed in its current form, this exceptional levy would represent for us an additional tax charge of around 400 million, which obviously would impact negatively our net income. But this additional cash would be paid in 2025. So thank you for your attention, and I am now ready with my team to answer your questions.

[Operator Instructions] Your first question comes from the line of Luis Prieto.

Christian, thanks a lot for your introduction. I have two questions, very brief ones. The first one is at Cobra IS. Should we expect a revenue catch-up in the fourth quarter after the completion of projects, a new contract start-up phase that you mentioned in Brazil? Or should we expect that to happen more into next year? And the second question is regarding the report in the French Senate that we have seen about the future of French toll roads in which various views on the length and duration of new concessions or even regulated returns. And reading through it, it seems to leave the door open to even higher shares of concession revenues contributing to investments in public assets or transport services. Should we -- do you think -- should we pay much attention to this? Or regard it this mere noise of little significance at this stage so many years away from the event?

Okay. Thank you, Luis. For the first question, it's very clear. We -- I think when we made this Capital Market Day in December last year for Cobra IS, we announced a target -- a revenue targets for this year, which was something around, if I remember, at EUR 7 billion. We have no reason to change this objective. So the revenue evolution in Q3, it does not jeopardize this objective, it's very clear. And also, it doesn't jeopardize the forecast for next year. I think we announced also during the Capital Market Day, possible revenue of around EUR 7.5 billion next year. Okay. For the second question, I must say it's quite a positive. I don't know if everybody read the [ Lesico ] because the article was published this morning. It's quite a positive sign. It's not obviously at the end of the story, it's maybe just the beginning. But the senator, the member of the Senate which are people which are much more reasonable and more looking into the future than sometimes the member of the Assembly National, the parliament have made some analysis of the situation of the toll road in France and try to imagine what could be things to be done at the end of the contract. The first positive thing is that they recognize that the contract in force have to be applied until the end. This is still something which is positive. Second, they say that it would be stupid not to continue operating those motorways with a toll because if you don't put a toll, like I think it's a case in some countries next door, at the end of the contract. It means that the user won't pay anymore, which is not good. So the principle of user paying rather than taxpayer paying seems to be privileged, which I think is also a good news. And then what they say is that they could imagine at the end of the contract, we could imagine to organize a tender for operating, maybe not so large network as it is the case now. For instance, [ ICF manager ], if I remember well. Nearly 3,000 kilometers they would contemplate smaller networks, around 1,000 kilometers or something like that, 1,500 for shorter duration, 10 or 15 years, whereas at present, we are managing contracts we started a long time ago. So all that is obviously not the end of the story. But at least, they put it -- they saw some principles that are, I think, wise, and it's quite positive now. Again, we have gone a long way until the end of our existing contracts. But the reason is getting [ drawn ]. I'd say, at least we can hope that. So it's rather positive, but it's not the end. It's not the end of the story.

Your next question comes from the line of Elodie Rall.

Can I just come back to those questions. First of all, on Cobra, were you surprised by the decline in activity in Q3? I mean I know you said it was due to the phasing of some large EPC projects. But when we talked to you at H1 results, we didn't -- we have the feeling that we were going to have a big drop in activity. So were you surprised? And how would you quantify the normalized growth to expect at Cobra going forward? Is H1 still something you could achieve again? Or was it just exceptionally high? My second question is on construction. Again, you're blaming the phasing of some very large projects, but what kind of normalized growth would you expect in this division going forward? And lastly, on the motorways topic, are you actually having some discussion with anyone at the government at the moment?

Excuse me, Elodie. Can you repeat the last one?

Just to know if you're actually having some discussion with anyone at the government since maybe now there is a transport minister that could be willing to have discussion with -- towards at this stage and given the articles that you just mentioned?

On the last question, I'm sorry, is no. We have no discussion with the government regarding the items which were published in the article of [ Lesico ] this morning. So now on question 1 and 2. We -- you can talk about normalized revenue when it's time to talk about flow business, and that's true for Cobra, but that's true also for VINCI Construction. What is -- when it's time to talk about large project activities by definition and by nature, you cannot talk about normalized level of activity because the activity depends on the contract that might have been signed a long time ago. Like, for instance, in the U.K., we have a [indiscernible] which is contract we entered in the order book in 2020. It's true also for the Grand Paris. So -- and in the meantime, we have signed new contracts, but we try in a study phase. So you cannot -- maybe it's a bit frustrating for you, but we cannot talk about normalized revenue for this type of activity. And you know that Cobra approximately 40% but in the past, it was less. It was 1/3 or 30% when we acquired Cobra in '21. The EPC part can vary from 1 year to the other. So it's quite sensitive for Cobra IS, even more sensitive for Cobra than it is for VINCI Construction because VINCI Construction has also a large project activity. But in relative terms, it represents much less for VINCI Construction compared to the share that the EPC projects represent for Cobra. What is important is for Cobra to highlight the fact that the flow business activities are doing very well and are increasing, specifically in Europe and in Spain. And for currency construction, it's worthwhile mentioning that the international operations, excluding large project, is also performing well. Overall, obviously, you can have some variation from one area to the other, and particularly Africa is down at present for obvious reasons. But overall, is doing well. And in France, depends on the type of activity. Building is obviously suffering, considering the real estate situation. The roadwork business, the railway business and the network business is doing well. So there's a variety of activities which can perform differently depending on the economic conditions. But overall, I must say that we are in a good shape in overall, but with some pluses and some minus. So nothing which would worry us compared to what we could say when we published the H1 figures. I don't know if Gregoire, [indiscernible] do you want to add something.

No, it's clear.

Okay. Another question?

We will take our next question. Your question comes from the line of Gregor Kuglitsch.

So a couple of questions, please. I wanted to get some help to disentangle the movement of net debt in Q3. I guess, specifically, if you could tell us how much M&A spend there was in the quarter? And then I guess in the other, I guess, buybacks and the likes. I guess what I'm trying to figure out is the cash flow performance basically underlying, maybe it's simpler. If you could just give us a sense of what Q3 cash flow was and where you're trending, I guess, at this stage. I appreciate Q4 is always very volatile with working capital. And then on Energy, so you flagged, I think, in your introductory remarks an acceleration in order intake in Q3. Was there anything specific, anything going on? And does that point to an acceleration in organic growth in the future? Or do you think it's premature to call that out?

No, I think it's premature because we are just talking of one quarter. So it's a positive sign, but I wouldn't draw a definitive conclusion about VINCI Energies, except the long-term trends, which remain the same and which are really positive. Regarding cash flow, we don't disclose neither the results nor the cash flows in the intermediary quarters. What -- and you have, I think, all the necessary -- most important information to try to draw your conclusion yourself. But if you do with what you have, which are the disclosure we made about acquisitions. We made some very significant acquisitions since the beginning of the year, not so many in the third quarter. But overall, the main figures are known. The same for share buyback because we publish, I think, every week or every month, I don't remember. [indiscernible] is every week. The share buyback we make and the amounts are quite significant. You know also the dividend payment. So you have the main items which commit you to try to figure out what the cash flow generation since the beginning of the year. Well, to help you a little bit about that. I would just say that we are quite close to what -- to the situation we were last year at the same period of the year. It doesn't mean that it would be safe at the end of the year because you know that the last part -- the major part of the cash flow of VINCI is generated in December and sometime even in the last week of the year. But the signs so far are positive, are good since we are very close to the level of cash flow over last year at the end of September, but the year is not completed.

We will take our next question. The next question comes from the line of Eric Lemarie.

I got three questions, please. First one, you mentioned roadworks business in France. You said that the business is firm and I can see that the order intake are well oriented for roadworks. Do you expect an acceleration next year, so in 2025 in roadworks in France because of this local election we will have in 2026? Second question, regarding the building sector in France. You mentioned that the order intakes are declining. When do you expect an improvement in the building cycle in France? And the last question on a more long-term perspective, when do you think VINCI will benefit from the nuclear relaunch in France?

Okay. So roadworks, I think it's premature to talk about acceleration, especially we have elections taking place at the local level in probably June '26. What we show is that '26 should be a very good year for roadworks because it would be just before at least the beginning of the year, so it will be just the election and the mayors don't like to have the sites work on the cities in their cities at the time of the election. But normally, yes, the year before, is generally quite a good year. Okay, except that we are in a situation in France at present, which is not very favorable for spending more public money at any level of the organization, including at the local level. So I won't say that we can anticipate an acceleration of the order intake of roadworks business next year. I don't know, but it seems to me quite unlikely. Building, honestly, who knows when the real estate market and including the office building market, the modernization market will recover. Nobody knows. There's probably some mysteries even if the commissions are more favorable in terms of interest rates, it takes time to get the permits, et cetera. So probably not before '26, but I don't have a crystal ball. Except maybe for the rehabilitation work, which, as I said before, drives the activity at the moment. And finally, nuclear. Nuclear, I think it's a very long-term story. Our order book, as you know, is to the high level at present in construction, like in other businesses of VINCI. So we don't really chase volume, to be honest. And if the nuclear business takes a little bit of time before being transformed into new orders, it would be a good news for us. And I don't expect we should have something significant before '26 or '27. But again, I don't have any precise visibility on that for the time being. It's also a matter of financing, even the situation over there is improving significantly. We are talking of billions and billions of investment for this, and they cannot afford to spend the equivalent with several nuclear plants at the same time. They have to organize the order intake all along the next 10 or 20 years. So it would be a very long-term story and that's good for us. You know that our colleagues are a bit more successful [indiscernible], although defer to them. For us, it will be by the deal after or the deal after the investor. So it's not a problem.

Your next question comes from the line of Marcin Wojtal.

Yes. Firstly, I wanted to ask you about a new asset. You recently were awarded a new motorway in Brazil. Could you please say if you see Brazil as an interesting country for future capital allocation? We understand there will be numerous other assets coming up. So is this your strategy to become even larger in Brazil and Latin America going forward, please? And my second question, if I may. It's on the outlook for core construction in the context of the budget draft that was presented in October. Are there any areas that you believe could see some spending cuts, whether it's from the central government or perhaps some reduction in transfers to municipalities? Is there any risk of, let's say, austerity measures that could impact your business in France in 2025?

Well, Marcin, for the second question, not really at the central government level because it's not really our clients. The Grand Paris, the client is not the central government, the client is associated with Grand Paris, which is a specific purpose vehicle, which benefit from specific financing resources. Maybe tomorrow, the state of France will have to be refurbished, it will be a concession. So not really dealing with the central government. There are a few exceptions, but it's really marginal. So the main bulk of the construction business in France comes from the local municipalities or the department or the regions. But all these guys at the different level of the organization of France, administrative organization, they generally share the burden of financing projects. So when you have let's say, a road to be built or refurbished or whatever. It's generally a mix of financing between region, department and local cities. So for sure, these guys will be more under pressure considering what is happening in France at this moment. Their budgets might be flat or even decreasing, we don't know. It's not decided yet. Apparently, there's differences between what the people say and the actual facts because when they talk, they all say we should decrease the spending, et cetera. But in reality, they don't really cut the spending. It will probably finally attend, but maybe not in '25, I don't know. So if we are affected by the situation, it would be more likely at the local government level. There was this morning an article in the French press, since you are already in the French press, which was a letter written by the President of the Civil Engineering Union, a professional union to the -- I don't know if you want us to [ Mr. Barni ] to the Minister of Transport and Equipment, join its attention about the importance of investing, not cutting the spending for investment because investment is really preparing the future, and it's also important for the companies involved [indiscernible]. So I don't know what will happen. And your first question was -- what was the other question? [ Budgets ]. So Latin America, it's a continent. It's not one country. So Latin America, clearly, we have put more emphasis on Brazil and maybe less emphasis on other countries. Because Brazil is by far the largest country. It's a country with a lot of resources and a lot of needs for more equipment, both in the power area, so electricity production and transport and also in the mobility area. So we started some years ago being present in Brazil through their synergies. We acquired a company maybe 10 or 15 years ago in Brazil, in VINCI Energies businesses. Then we made some acquisitions in the -- through tenders in the Airports business, and we won [ the right to do 2 ] concessions, one in Salvador, the other one [ in Amarina ]. We have been quite selective because the prices may fluctuate quite a lot between one tender and the other. And more recently, we took a stake of 55% stake in a company running 2 motorways near São Paulo. It was the first attempt we made in the toll road area. Since this experience was positive, we decided that we were capable of taking more risk and we won recently, as you mentioned it, this new concession for refurbishing nearly 600-kilometer long section between Belo Horizonte and a city close to [ Brasília ]. It would be a story that will last for some time because we have to invest in the refurbishments for almost 6 years. We have to do some work. So we will finance partially this work out of the revenue, which [ we can get ] on some existing toll road. And I think it should be a good operation. And finally, obviously, through Cobra, Cobra has been present for a long time in Brazil and very successful in Energy Transport Infrastructure area. They have built, I think, 20,000 or something like that, kilometer-long network -- electricity networks in Brazil and they continue from time to time to bid for new projects, and they are sometimes successful, some of the time not successful. But overall, they have a very good and strong experience and knowledge of the market. That's why we are comfortable with taking maybe more risk in the future in Brazil. It doesn't mean that we do the same in all the Latin America [ that I can say ] because some of them might be of interest for us and other not [ the same as ] Brazil to that extent.

Thank you. We will take our next question. And the question comes from the line of José Arroyas.

A couple of questions, please. First, on the dividend. You have adjusted the net income expectations today due to the likely change in the tax in France. Is the dividend going to be adjusted accordingly? Or do you expect to increase the payout to make up for the higher tax? And my second question is on the latest highway acquisition in Brazil. I wanted to understand why VINCI opted to bid directly for this highway instead of using [Foreign Language]?

Well, the second question is very simple. [Foreign Language] was not interactive to [ hear us ] and I think we were comfortable enough with the experience we had acquired before with them to go on our own. It's not because you have a partner that you always join with him for any tender. GIP is a partner in Gatwick and in Edinburgh. It's also a partner in [ Paris ]. It's not a partner in Brazil, it's not a partner in other countries. So we try to set up the most efficient structure, bigger structure and shareholding structure, which gives us more chances to win. For the first question, obviously, I will not answer. I am not the Board of Directors of VINCI and the decision about the dividend will be taken in the -- during the meeting, which will approve the figures of '24 in February '25. So I will not answer on behalf of my Directors. What can I say? We have a rule in VINCI, which is to pay 50% plus on dividend on the net profit, okay? In the past, it happened in exceptional situations, I remember the COVID, where the rate was much higher because at that time, the profit was decreasing because of the COVID crisis. So we can, on an exceptional situations, make some adjustment. But this will be a decision of the Board. Next question?

[Operator Instructions] The next question comes from the line of Graham Hunt.