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Edited Transcript of ABG.MC earnings conference call or presentation 12-Nov-19 12:30pm GMT

Q3 2019 Abengoa SA Earnings Call

Seville Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Abengoa SA earnings conference call or presentation Tuesday, November 12, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gonzalo Zubiria

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

* Víctor Pastor Fernández

Abengoa, S.A. - CFO

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Presentation

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Víctor Pastor Fernández, Abengoa, S.A. - CFO [1]

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Good afternoon, ladies and gentlemen. Thank you for joining us today for Abengoa's Third Quarter 2019 Results Presentation. My name is Víctor Pastor, and I am the CFO of the company. Today's presentation will conclude with a question-and-answer period. (Operator Instructions)

I will now pass over to Gonzalo Zubiria, the Head of Investor Relations and Capital Markets, who today will go through the presentation. Thank you. Gonzalo, please.

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Gonzalo Zubiria, Abengoa, S.A. - Head of IR & Capital Markets [2]

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Thank you, Víctor. We will start on Page 3. During the call today, in addition to reviewing Abengoa's results for the third quarter of 2019, we'll provide an update on the main themes for the company.

On Page 5. In the first 9 months of 2019, Abengoa has been awarded new projects for a total value of EUR 795 million, including the Taweelah project, the world's largest reverse osmosis desalination plant located in the United Arab Emirates. The company's backlog as of September 30 stands at EUR 1.7 billion.

Through the third quarter of 2019, we continue to see improvements in revenues and profitability. Revenues reached EUR 1.1 billion in comparison to EUR 896 million in the third quarter of 2018, increasing in both E&C and concessions. EBITDA reached EUR 195 million, a 44% increase in comparison to the same period in 2018, continuing the reductions of general expenses and overhead costs as well as the start of operations of A3T. Net income reached EUR 2.2 billion, mostly due to the effects of registering the new financial instruments at fair value after the financial restructuring.

As mentioned in previous results presentations, the company completed the financial restructuring process on April 26 of this year with the issuance of the new convertible notes. At the same time, the company received new liquidity in the form of the A3T convertible note and new bonding lines. Also, in April of this year, we fully amortized the New Money 1 debt with the proceeds from the A3T bridge financing. As a result of the financial restructuring and debt amortizations, the gross financial debt has been reduced by 39% as of September 30 this year.

Moving on to the following page. Abengoa continues to be deeply committed to health and safety of its employees and contractors, and our overall goal is to reach 0 accidents. This quarter, we continued to improve certain key indicators that measure health and safety in our industry.

Through the first 9 months, the company had 159 days without fatal accidents among its personnel, while subcontractors had 48 days. Unfortunately, in May of this year, there was a fatal accident in Brazil, where, tragically, one of our local employees lost his life while performing maintenance work on a field line. As of September 30 this year, Abengoa has a Lost Time Injury Rate of 3.0, which is below the comparable industry benchmarks.

We'll turn over now to the next page for a review of the major highlights for the period. So as mentioned, in the third quarter, Abengoa has increased revenues and continued improvement -- improving profitability. Taking a look at the operating performance for the period. Revenues reached EUR 1.1 billion, an increase of 19% in comparison to the same period of 2018, while EBITDA reached EUR 195 million. The main drivers for the improvement in the EBITDA are the start of operations of the A3T project, continued reductions in general expenses as well as increase in profitability in certain concessional assets.

The net result, as mentioned before, reached EUR 2.2 billion, mostly affected by the effects of registering the new financial instruments at fair value after the financial restructuring. Finally, gross financial debt stands at EUR 3.4 billion, out of which EUR 1.2 billion are related to companies classified as held for sale.

Moving on now to Abengoa's business performance. Through the third quarter, Abengoa has been awarded new contracts for a total value of EUR 795 million. As a result, the backlog, as of September 30, stands at $1.7 billion.

On Page 9, we can see a detailed breakdown of the revenues by segment as well as the geographic diversification. In line with our strategy, the engineering and construction segment makes up 78% of our revenues, while concessions represent the remaining 22%. In terms of geographies, South America and the Middle East continue to be our main markets, followed by Africa, Mexico and the U.S.

On Page 10, you can see a detailed comparison of our EBITDA in September 2019 and September 2018, divided by both E&C and concessions. The engineering and construction activity generated EUR 48 million of EBITDA through the third quarter, a 14% decrease in comparison to the previous year. The decrease is due to certain projects in Latin America that increased profitability and finalized construction in 2018. That effect was partially compensated with the continued improvements in general expenses and overhead costs as well as margins of new projects in execution.

Concessions EBITDA totaled EUR 147 million, an 86% increase. This is mostly due to the start of the commercial operations of the A3T project in late 2018. The total consolidated EBITDA stands at EUR 195 million, a 44% increase.

On the following page, Page 11. The Abengoa's management has expressed many times in the past, the -- our commitment to reducing the overhead costs and general expenses, always in a socially responsible manner. In comparison to the third quarter of 2018, the overhead costs were reduced by 10%, for a total of EUR 49 million. This reduction was driven by accommodating the organizational structure to the real operational level of activity, discontinuing nonprofitable operations and seeking cost efficiencies wherever possible. Personnel has been reduced by 53% if we compare to 2015. However, since the end of 2017, we've seen an increase in the total number of employees, of personnel, due to the new projects being awarded.

On Page 12, you can see that the -- a comparison between the third quarter and what we had envisioned in the viability plan. The company is on track with the main objectives set in the viability plan. Revenues are near target with 96% achievement. The lag, the 4% that we did not obtain is mostly due to slight delays in the start of certain new projects.

As for EBITDA and EBITDA margins, we are well above target through the first 9 months, mostly due to the delay in the sale of certain concessional assets that we had foreseen in the viability plan, but also due to the continued reductions in general expenses. As you can see, overhead costs are lower than we expected in the plan, and our main objective is to reach the 3% mark, 3% of sales.

As for bookings, bookings are lower than expected in the viability plan. I think this is mostly due to the lack of the bonding lines during the first 4 months of the year until we close the financial restructuring, and also to the delay in certain -- delay in the tender process of certain large projects.

On Page 13, you can see a breakdown of our financial debt structure. As mentioned previously, the company's total financial debt stands at EUR 3.4 billion, including EUR 1.2 billion corresponding to assets classified as held for sale and $631 million of project debt, mainly in the A3T project and South African solar projects.

Gross corporate finance stands at EUR 1.6 billion and is compromised (sic) [comprised] of $846 million of short-term debt and $741 million in long-term debt. Taking into account $331 million of cash and short-term financial investments, the net corporate debt as of September 30, 2019, stands at EUR 1.3 billion.

Our commercial activity is dependent on the availability of bonding lines, of course it's the backbone of the E&C business. We currently manage approximately EUR 932 million, including part of the EUR 140 million in new bonding that we obtained this year in April. There's a further breakdown of our financial debt in the appendix included at the end.

On the following page, Page 14, you can find a summary of our consolidated cash flow for the third quarter. Profit after nonmonetary adjustments reached EUR 113 million. The variations in working capital improved in comparison to the previous year, while net interest and taxes paid increased mostly due to the interest and fees paid at the amortization of the New Money 1 debt in April.

This takes the total operating cash flow to negative EUR 20 million. The investment cash flow reached negative EUR 37 million, mostly due to the CapEx needed in the A3T project and Agadir project in Morocco. The financing cash flow reached EUR 72 million, mostly due to the disbursement of the A3T convertible note in April, and this brings the total variations in cash for the period to a net increase of EUR 16 million.

On Page 15, in the first 9 months of 2019, we've been awarded a total of EUR 795 million of new contracts. This, including the Taweelah project, the world's largest reverse osmosis desalination plant located in the UAE. It has a total capacity of 909,000 cubic meters per day. Also the Jebel Ali seawater reverse osmosis desalination project, also in the UAE, with a total capacity of 41,000 cubic meters per day. The total backlog, again, for the period stands at EUR 1.7 billion.

On Page 16. In order to continue growing our backlog, Abengoa leverages on our pipeline, which stands at $31 billion as of September 30. In line with our strategic guidelines, we focus on projects identified in South America, the Middle East, Europe, the U.S. and Mexico, regions and countries where we already have extensive experience. And we keep an emphasis on turnkey EPC contracts for third parties and lower project sizes.

Moving on to the next slide, on Slide 17, you can see an update on the asset divestment plan. Through September of this year, close to 94% of the plan has been executed through either the sale of assets such as Atlantica Yield last year and the sale of the Brazilian transmission assets in operation and other real estate assets that were mostly held in Spain.

We've also completed the monetization of certain assets through financings or similar agreements, like the bridge financing and the convertible notes issued in A3T. Specifically in regard to A3T, we expect to finalize the sale of the asset sometime in the coming months. We still have some assets that the sale process is ongoing, including the Xina plant in South Africa, SPP1 in Algeria, Chennai in India and Accra in Ghana.

So now on to Page 19, a conclusion. I'd like to conclude stressing the ideas that best summarize the current status for Abengoa and the performance so far in 2019. The recovery of the business activity is shown in the bookings, totaling over EUR 795 million during the first 9 months and the total backlog to -- at EUR 1.7 billion.

So far, this year has been marked by an increase in profitability and -- in comparison to the same period in 2018, with continued improvements in the reduction of general expenses and increased profitability in the concessional assets.

Revenues through the third quarter reached EUR 1.1 billion, increasing in comparison to the third quarter of 2018 in both E&C and concessions. Overhead costs were down 10% in relation to the same period in 2018, always in a socially responsible manner.

In April, we successfully completed the financial restructuring process, which included receiving new liquidity and EUR 140 million of new bonding lines. We have also fully amortized the New Money 1 debt with the proceeds from the A3T bridge financing.

Finally, we've addressed the inadequate capital structure through the issuance of the new convertible notes in exchange for the previous Old Money debt.

So we will begin now with our question-and-answer period.

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Questions and Answers

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

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(Operator Instructions). Okay. So taking a look at the questions we've received so far. The first one is about the latest news regarding hiring Lazard as -- to explore strategic alternatives, can we give some details.

So I think, Víctor, if you'd like to take this one.

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Víctor Pastor Fernández, Abengoa, S.A. - CFO [2]

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Well, in this regard, I would say that the company, the management and the Board of Directors of Abengoa is always looking for ways to strengthen the capital structure of the company, the income statement. And in this regard, we had hired Lazar that is reputable financial advisers to look for alternatives and to analyze these alternatives. I would say that the process is in a very early stage, and I would say that this is what I can comment so far.

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Gonzalo Zubiria, Abengoa, S.A. - Head of IR & Capital Markets [3]

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Okay. Thanks, Víctor. The next question is about the Mexican restructuring process. If we can give any update on that.

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Víctor Pastor Fernández, Abengoa, S.A. - CFO [4]

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As is publicly known, the Mexican -- Abengoa Mexico is out of the bankruptcy proceedings and is now submitting an amendment to the recovery plan.

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Gonzalo Zubiria, Abengoa, S.A. - Head of IR & Capital Markets [5]

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Thank you. The next question is regarding the Kenyan and the Polish arbitration. If any of the effects that we announced in the -- in the (foreign language), the relevant facts at the CNMV, if they've been included in the EBITDA figures for the third quarter?

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Víctor Pastor Fernández, Abengoa, S.A. - CFO [6]

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No, it has not been included. We have an award for EUR 94 million and an ongoing arbitration process of -- in the same proceedings of EUR 34 million. In the first one, in the EUR 94 million award, the client or the counterparty has set aside the award. So this is something that we will still have to wait for the resolution. And as I said, in the second part of the EUR 34 million is an ongoing process, but I would like to remind that nothing has been recorded as part of the EBITDA on the third quarter.

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Gonzalo Zubiria, Abengoa, S.A. - Head of IR & Capital Markets [7]

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Okay. Thank you. And finally, the last question is regarding the sale of the A3T project. If we can give any update on that process.

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Víctor Pastor Fernández, Abengoa, S.A. - CFO [8]

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Okay. As you -- as we -- as you have already mentioned in the presentation, we expect this process to be finalized in the coming months. We have already retained 2 banks to -- as an advisers of this process, and this is an important process that we expect to complete in the coming months.

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Gonzalo Zubiria, Abengoa, S.A. - Head of IR & Capital Markets [9]

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Okay. Thank you, Víctor. So this concludes our presentation. More information is available on the financial statements available on our website. And as always, the Investor Relations team is here to answer any questions that you may have that we were not able to address.

Once again, ladies and gentlemen, thank you very much for your interest in the company and for connecting to today's presentation. Goodbye.