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Edited Transcript of ABG.MC earnings conference call or presentation 24-Sep-19 1:30pm GMT

Half Year 2019 Abengoa SA Earnings Call

Seville Oct 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Abengoa SA earnings conference call or presentation Tuesday, September 24, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gonzalo Urquijo y Fernández de Araoz

Abengoa, S.A. - Executive Chairman

* Gonzalo Zubiria

Abengoa, S.A. - Head of IR & Capital Markets

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Presentation

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Gonzalo Zubiria, Abengoa, S.A. - Head of IR & Capital Markets [1]

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Good afternoon, ladies and gentlemen. Thank you for joining us today for Abengoa's 2019 First Half Results Presentation. My name is Gonzalo Zubiria, and I'm Head of Investor Relations and Capital Markets for Abengoa.

Today's presentation will conclude with a question-and-answer period. You will be able to write your questions via the webcast application. (Operator Instructions)

I will now pass it over to Mr. Gonzalo Urquijo, Executive Chairman of Abengoa.

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Gonzalo Urquijo y Fernández de Araoz, Abengoa, S.A. - Executive Chairman [2]

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Hello. Good afternoon and good morning to all, and thank you very much for joining this call.

If we go to Page #5, which is the introduction and the highlights for the period. First of all, I would like to share with you that safety continues to be our #1 priority. Our Lost Time Injury Rate is down from 3.1 to 3.0. Unfortunately, we did have a fatal accident in Brazil. I'll come back to that point in the next page.

Bookings have been EUR 644 million, including the world's largest reverse osmosis desalination plant, Taweelah, with capacity of 909,000 cubic meters per day.

Total backlog stands at EUR 1.8 billion. Revenues are EUR 709 million versus EUR 552 million first half 2018. EBITDA EUR 137 million versus EUR 87 million of last year's first half. Net income EUR 2.2 billion, including the effect of the financial restructuring. As you all recall, financial restructuring was completed in April, that is around 5 months ago.

Next page, Page #6. The Board, the management and all employees, we are fully committed to constantly improving our health and safety. As I said before, our Lost Time Injury rate improved to 3.0. But, sadly, we had a fatal accident in Brazil in May, where tragically one of our local employees lost his life while performing maintenance works on a field line. Overall, our target has not changed. It is 0 accidents.

Page #8. What are the key consolidated figures? Revenues increased by 28% in comparison to the first half of 2018. And they have increased on both businesses, Engineering & Construction and concession revenues.

In terms of Engineering & Construction, the increase has been of 19%. Due to what? This basically means projects in Chile, Morocco, U.S.A. and Saudi Arabia. In terms of concessions, the increase has been 73%, but this has been mostly due to A3T, our operations in Mexico, which started operations, as we'll go into later, and that has meant EUR 70 million of more business. Without the A3T concession -- or more revenues. Without A3T concession revenues, the revenues would have been in line with last year's.

EBITDA. It increased both in EC and concessions. Concessions increased mostly due to start of the operations in A3T. So it's had the same, let's say, impact, we've had the increase in revenues and of course, in EBITDA.

Net income reflects the impact on P&L after registering new financial instruments at fair value due to the financial restructuring. The total amount of this has been EUR 2.4 billion. We'll enter into this later.

As you remember, the previous year, we did have the negative impact. And in 2017, we also had, due to the first restructuring, the positive impact.

Now the gross financial debt has been reduced by 41% after restructuring and amortizing New [Money debt], bookings EUR 644 million and backlog EUR 1.8 billion.

Page #9. Revenues breakdown. Revenues by segment in line with previous quarters. That is 80/20 split between EC and concessions. Geographic diversification, as you can see, has been South America, Africa, Middle East continue to be the main markets and are practically 60% of the revenues followed by Mexico. And in the case of Mexico, it is impacted by A3T. After that, it's followed by Spain and U.S.

I do think it's important to tell you here that going forward, we do expect that Middle East will increase the percentage as recent bookings in the region to generate more revenue. We expect the figure to reach or close to 40% of our revenues going forward.

Page #10. We do the breakdown of our EBITDA. As I mentioned a couple of pages ago, the increase in EC EBITDA is of 16%. Due to increase in execution in projects in Chile, Chuquicamata, Humos Negros; Morocco, it's Agadir; U.S.A., which is Fulcrum; and Saudi Arabia with 2 projects, WAS and Shuaibah. And continued reductions as we'll see later in overhead costs. Increase in concessions of 81%, mostly due to start of operations in A3T. This, in terms of EBITDA, has represented roughly around EUR 41 million. If we were to exclude A3T, it would be roughly in line with the same period in 2018.

Total EBITDA has increased from EUR 87 million to EUR 137 million. That is 57%.

Page #11. Overhead costs. As you can see, we're doing constant and permanent efforts to reduce general expenses. Every stone has been removed, I would say. Our long-term target is 3% of sales. We believe that will be a real benchmark in our sector. As of today, we are still a bit above 4% or somewhat above 4%.

Now we are down in terms of the first half of last year 17%, as you can see from the graph. But if we compare to 2015 and we annualize our first half, we are down around 86%, which is an enormous amount. I would like to insist here we have done this in a socially responsible manner. That means avoiding strikes. At the end, we've reached agreement with our workers, with our unions.

Last and not least, you see in terms of reduction of personnel, in August 2015, we were 32,000 -- somewhat above 32,000, and we have reduced our personnel or employees by, as you can see, 54%. However, I think it's important to review here that our figures really reduced, and what we believe touched bottom in 2017. Since then, we have increased the number.

What does that mean? In December 2017, we were 12,400 in round figures. And as of today, we are practically at 15,000. That means we're having more business, new projects, which is increasing our demand for personnel.

Additionally to that, I think it's important to share with you here that our administrative and corporate staff has been reduced since our lowest point in December '17 by 16% from 4,000 to 3,400 round figures, while the number of operations staff has increased by 37%. So we have seen a decrease in administration and corporate of 16% and an increase of practically 40% in the operational teams.

Viability plan. Where are we then? Our revenues are near the target, and we have had a slight delay in certain projects. Our EBITDA and EBITDA margin are well above those projected in the viability plans. That is clear. It is also like this that we have been helped by this due to the delays in the sale of the concession projects. Of course, the other big factor has been the reduction in the general expenses.

In terms of overhead costs, as I've just mentioned, we are below the expected in viability plan. And if you see the bookings, they are below target. But this is basically due to the restructuring that took much longer than we would have liked. And if you remember, we finished it in April. And that meant we had less availability of bonding lines and that meant a delay.

Next page, page -- financial debt. As you can see, the gross financial debt has been reduced by 41% in comparison to December 2018 due to registering the new financial instrument at fair value. Remember, before we had them at nominal value. Now New Money 1 is fully amortized in April. We are very glad and proud of that, because we are able to repay it and it was extremely expensive money with very high cost.

Taking out debt of companies held for sale and project debt. Gross corporate debt stands at EUR 1.5 billion versus 1 year -- at the end, sorry, in this case, it's the end, it's December 2018, which it was EUR 4.4 billion. Taking into account cash and short-term financial investments, total net debt stands, as of midyear, EUR 1.2 billion.

Restructuring effects. At the end, as you have seen in the bottom part of our P&L, we have this in the last 3 years permanent movement. The first year was a positive. Last year was negative. And this year, it becomes with the second restructuring as positive. So all restructured debt and newly issued debt is booked at fair value at initial recognition. Positive effect in the income statement are approximately EUR 2.4 billion under financial expenses income due to restructuring. In addition, after booking Abenewco 1 mandatory convertible as an equity instrument, the total effect in the net equity was EUR 2.5 billion.

Page 15. Profit after nonmonetary adjustments equals EUR 86 million. If we go down this cash flow, variations in working capital are minus EUR 81 million, net of discontinued operations, mostly due to payment of suppliers and advisers. Once more, we had to pay too much to advisers, EUR 25 million.

Net financial interest of EUR 66 million, which includes the back-end fee and interest due when we amortized New Money 1. In total, this brings the operating cash flow to minus EUR 61 million. The investing cash flow totaled minus EUR 20 million, mostly due to the CapEx invested in the A3T to finalize the project.

The finance and cash flow, EUR 67 million, which includes the positive effect of A3T debt disbursement in April as well as the debt amortizing of the New Money 1. This brings the total variation of -- in cash to minus EUR 14 million for the period versus minus EUR 33 million for this period of last year.

Page 16, bookings. Where are we there? We have, as we said before, EUR 644 million of new projects awarded, includes Taweelah project in the Emirates, the world's largest reverse osmosis desalination plant with a capacity, as we said before, of 909,000 cubic meters per day. Also includes Jebel Ali (inaudible) project in the Emirates, a seawater reverse osmosis desalination plant. And the total backlog starts as of today at EUR 1.8 billion as of June 30, 2019.

Next page, Page 17, the pipeline. We [are always in the pipeline]. We have EUR 29 billion. It's more or less what you've seen in previous presentation. The geographical diversification is focused mainly going forward in Middle East and North America. If we would split this by EC and concession, 92% EC. The concessions are only the ones that have coming through AAGES. As you all remember, our AAGES is our 50-50 partnership that we have with our Canadian friends and partners, Algonquin.

In terms you can see, there's an even distribution between water and T&I, rest between power and services. We continue to focus on projects. In terms of risk, 55% of our projects are under EUR 100 million, 41% are from EUR 100 million to EUR 500 million. So that is, as you can see, the vast majority, to limit financial risk and in line with our strategic guidelines.

One figure that you've seen interesting. Approximately 4% of the pipeline is converted into backlog, and roughly 20% of our bids turn into bookings. We do believe that is an [acceleration]. We don't -- it won't be easy to keep that going forward as the average in our sector is more around 7% to 8% in terms of benchmarking.

Where are we in terms of asset disposals? On one hand, A3T project finalized construction. It become operations in December. Over 85% of capacity of the PPAs was signed. We have a bridge finance and A3T convertible notes issued in April utilized to repay New Money 1 debt. A3T is expected to be sold in the following months.

Second, which I think it's important, and I would like to review with you, is the arbitration. As we published in September '17, we have reached an initial agreement with certain reputable funds for the partial monetization of the arbitral claim against the Kingdom of Spain. The deal includes an upfront payment up to EUR 75 million, plus the possibility of sharing an upside in additional recoveries. The upfront payment will be divided in 2 parts. Now the first one, an original payment paid at closing the transaction, and the second one would be on the award once the payment -- once the award is granted in favor of the legal entity that has filed the claim, CSP Equity

Investments. The exact details of the payments including amounts and percentages to be shared in the upside remain as confidential information, given that we have signed a confidentiality agreement with the purchaser. The deal is pending the approval of various creditor groups, New Money 2, new bonding, restated debt and so on, as well as the closing of the financial documentation. We believe there shouldn't be any issues on that side.

In terms of the asset sales, what can I tell you here? Look, A3T in Peru, an agreement was reached with AAGES and is pending on approval of local authorities and the creditors of A3T project.

Ténès in Algeria, agreement reached with Atlantica Yield, partially monetized via the agreement reached. And the waiver obtained from the creditors in July. This amount was EUR 17 million. Final closing pending on several key piece, including the approval of the local government. San Antonio Water, in the U.S.A., monetizing of asset completed and funds disbursed, whatever was obtained from the creditors in July 2019.

In Ghana, the process is ongoing, but has been delayed due to government approvals being delayed. We are negotiating, but it's not easy for our Ghana colleagues.

Last and not least, the conclusion. I think as you can see, there's a recovery of the business with EUR 644 million in booking, EUR 1.8 billion backlog. We are increasing our revenues and profitability in both EC and concessions, even though we had it very clear our business and our strategic, our core business is the EC business. We believe it's going better and better. The EBITDA reaches EUR 137 million, increasing in both those chapters I mentioned before. Continued improvements in overhead costs. Financial restructuring successfully completed in April. Gross financial debt reduced by 41%, including full repayment of New Money 1 and its interest.

Last and not least, before we end and start the Q&A session, I would like to share with you that we are having an Investor Day to be held on October 15 in Madrid. Now through Investor Relations, Gonzalo Zubiría will tell you full details on this.

Now if you bear with me a few seconds, so I can get a chance to see the questions and we'll start answering the questions. Thank you very much. Just a second.

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Questions and Answers

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Gonzalo Urquijo y Fernández de Araoz, Abengoa, S.A. - Executive Chairman [1]

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A question from (inaudible), sale of A3T. What is the likely range of sale of A3T?

We are reluctant to give a figure, given that it may affect the negotiations for the sale. However, we can say that our objective is to obtain enough to repay the debt associated to the asset. It's clear what we want to do is repay all the debt that has been associated to that. We have had interest on this asset, and we are starting now this process. We do think it will [last] -- I believe we are trying to have this finished by the end of the year.

The second question from GWI. What is the current situation in each case with regard to the sale of the Ténès, Accra and Chennai desalination plant?

As mentioned in the presentation, you remember on Page 16, the following assets are pending the finalization of the sale. A3T, I think, I believe, and actually mentioned it, we do have an agreement with AAGES and it is pending the approval of the local authorities and creditors.

In Algeria in Ténès, the agreement was reached, as I already told you in Atlantica Yield, partially monetizing via the agreement with Atlantica of EUR 17 million to the date, and the waiver obtained from the creditors in July. Final closing is pending the [CPs]. San Antonio, I believe I mentioned and Ghana also. Okay.

Question from (inaudible). Does the current cash balance include any proceeds from the Polish or Kenyan arbitration award? If not, what is the expected timing and net proceeds?

No. I have to tell you, look, since those arbitrations are still subject to appeals, we do not know when we will receive the funds. We have not included a single cent of this in our EBITDA as of June 30.

Next. Can you provide an update on AAGES?

AAGES is currently looking at several assets and business opportunities. I have to tell you they have now a fully fledged team, 25 people. They are working, traveling a lot. They have a lot of -- I would say, in the pipeline, a lot of projects. They are very focused, I also have to say, in Latin America. They have identified already a pipeline, I would say, between EUR 1.5 billion and EUR 2 billion, and we have reached an agreement, as you know, on the Peruvian asset. Additionally, we are working on different operations with them. I can tell you in Peru, Chile, Uruguay and Colombia, if I have not forgotten anyone. Now I think they are doing a very good work. And I think this has to be very positive for AAGES and for the 2 partners, that is for our Canadian friends and for us.

Question from Blue Mountain. Is overhead already reflected in EBITDA?

The answer is yes. All overhead reductions have been already included in the EBITDA.

Second one, Blue Mountain. Is there any overhead related to concessions?

No. All overhead, I can answer to you, are considered as EC.

The third one -- a lot of questions here. [Will] the H1 working capital outflow reverse in H2?

No, we don't expect it to reverse. Why? In the second half mostly due to the legacy payments. Different is we wouldn't have them and our situation would be completely different, but here you see the legacy influence.

What is the third one? What is the average estimated contribution margin for your EUR 644 million awards in H1?

We can say that roughly margin is in line, what was included in the viability plan, which were roughly between 8% and 9%. We are working as an internal target to go ahead and try and to be closer to 10%, but I think it's more prudent to leave it at between 8% and 9%.

Additionally, I have some other questions in terms of suppliers.

Can you give us an update as where we are with the overdue suppliers?

Look, the suppliers payment plan is in line with what we projected in the viability plan. We are managing the cash inflows and outflows of the assets. Let's not forget, and I think we all have a short memory maybe, that we started 3 years ago with EUR 1 billion. As of today, we are at EUR 500 million. So for us, that has become a day-to-day business, where we manage those. And at the end, we look for agreements with those suppliers and that's what we've done up to now.

Any other question? I believe that -- yes. I do have another one. What is the status of Brazil?

Look, the Brazilian transmissions assets are currently undergoing the recuperation judicial process or (inaudible). The plan has been approved by the court and the creditors. We expect to exit the (inaudible) process by the end of the year. But if you remember, in Brazil, we also had the second one. It's with respect to Brazil bio energy assets. The plan has been approved by the creditors, but we are now pending approval from the courts. You know the courts in Brazil have their own calendar and they're out. so that's sometimes takes more time than what we would like to.

Another question also in status of Mexico.

In Mexico, we are working to obtain an approval of (inaudible) from the creditors, from the local restructure. We are now working to obtain the naturally 50%. We are very close to it. That's why we have extended the terms we have put, and we were in the last one that was 1 week, 10 days ago we were at 48%. So we hope, and we are working very hard to have a positive outcome on this.

There was another one on the arbitration. I think that has also already been answered.

So thank you. If there's anybody that has not been able to put in his question, we really apologize. These were all the ones I have been given, and thank you very much to all of you for attending this call and via the Investor Relations and all of us. We are fully open to answer any further questions you may have going forward.

And let's not forget that in mid-October, we will have our Investor Day that we really look forward, and we hope that many of you can come. Remember, it's in Madrid and it'll be 15th of October and probably be in the morning. Thank you very much to you all for attending this call. All the best. Thank you.