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Edited Transcript of OHL.MC earnings conference call or presentation 31-Jul-19 4:00pm GMT

Half Year 2019 Obrascon Huarte Lain SA Earnings Call

Madrid Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Obrascon Huarte Lain SA earnings conference call or presentation Wednesday, July 31, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jose María Sagardoy Llonis

Obrascón Huarte Lain, S.A. - CFO

* Manuel Álvarez Muñoz

Obrascón Huarte Lain, S.A. - OHL Group General Manager

* Pedro Arellano Villanueva

Obrascón Huarte Lain, S.A. - Director of Investor Relation

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Conference Call Participants

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* Miguel González Toquero

JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to OHL's conference call. The management of the company will run you through the presentation, which will be followed by a Q&A session. (Operator Instructions)

I now hand over to the call -- to the OHL management team. Please go ahead.

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Manuel Álvarez Muñoz, Obrascón Huarte Lain, S.A. - OHL Group General Manager [2]

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Good afternoon, ladies and gentlemen. Thank you for your attention today. Together with me in this room are Mr. Jose María Sagardoy, our CFO; and Mr. Pedro Arellano, Head of Investor Relations.

Before explaining our financial results, I would like to highlight that the company is performing according to the business plan, in line with expectations in this transitional year with [favorable prices] and with positive figures in all divisions.

Let's go through the operational results of this first half of the year in details. The most important achievement in this first half has been the profitability at an operational level in all the business areas of the company, continuing the trend showed in the fourth quarter of 2018, reaching gross margins of levels of 6% and EBITDA of EUR 22.7 million, representing 1.7% of our sales. The main figures of the period are as follows: sales reached EUR 1.36 billion, which is 5.5% less than in the first half of 2018, making it comparable to the first half results of last year on the guidance.

Gross margins at a project level were around 6%. This has allowed the company to reach a positive EBITDA by the end of this second quarter of EUR 22.7 million compared to the minus EUR 104 million loss in the same period of the previous year. The total short-term order book as of June 30, 2019, amounts to EUR 5.5 billion, with new awards in the first half of the year of EUR 1.5 billion. Of the new awards, more than 70% are directly awarded works. And approximately, 80% are from public sector clients.

Now I'm going to highlight some results by divisions. Construction. Sales of the Construction division totaled EUR 1,123 million, representing an 8.2% reduction year-on-year. However, we reached a positive EBITDA figure of EUR 32.3 million in this period, improving the construction profitability from 2.5% in the first quarter of 2019 to our current 3.2%. This improvement in construction activity has been thanks to new project awarded in the period, the closing of some nonprofitable works with 0 gross margins and the ongoing rates control of the order book from the tender phase. Construction order book totaled EUR 4,951 million in June 30, representing 25.3 months of sales with 1.2x book-to-bill ratio. The construction backlog is highly diverse in terms of geography, project size and project type.

During the first half of the year, OHL added EUR 1.3 billion in new awards in our 3 main areas: USA, Europe and OHL Latin America. In the first half of 2019, OHL has been awarded EUR 480 million in that area, 30.6% of the total new awards. OHL has been working in U.S.A. since 2006. In 2017, the company was awarded with our largest contract in the regions, in the Interstate Highway 405, approximately EUR 1.2 billion contract. As a consequence of the works performed since 2006, our construction company has an important reputation.

As you already know, our subsidiary, Judlau Contracting was named Contractor of the Year in New York in 2019 by the very well recognized review ENR, Engineering News-Record, attributed to their notable accomplishments. In Europe, OHL has been awarded EUR 669 million, 50% of the total new awards. In Latin America, EUR 219 million, 16% of the total new awards exposure that we expect to increase in the near future, thanks to the contracts in the preawarded phase.

Regarding the agreement announced in June 17 between OHL and Aleatica related to the Atizapán-Atlacomulco highway, the good news is this agreement concluded the arbitration process in which the 2 companies resolved their differences. This will not have any material impact on OHL's accounts, and it has allowed the recovery of the guarantees provided by OHL.

Related to the Industrial and Services unit, they are in line with the trend showed in the first quarter of 2019. Sales in both divisions were 5% and 6.2%, respectively, higher than in the same period of 2018. At EBITDA level in the EUR 3.7 million in both divisions with 3.9% and 2.7% EBITDA margins proves the capacity of OHL to perform positive profitability, in line with the guidance given in the 2018 financial report. Industrial division is operating in positive results for the third consecutive quarter after several years of negative results. The cash consumption of this division was 75% lower in the first -- than in the first semester.

Developments division, we have almost finished the construction process in Canalejas. This moment, we are working on obtaining the occupancy license and other preopening requirements, including the recruitment processes for each -- of one of the businesses needed to be ready for opening by the end of 2019.

For concluding, in relation to the constructional activity, as we said in the past, OHL is highly committed in a prudent but consistent way with this division. We expect to give you some positive news before the end of this year.

And now please, Mr. Sagardoy will explain the financials of this quarter in details.

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Jose María Sagardoy Llonis, Obrascón Huarte Lain, S.A. - CFO [3]

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Thank you, Manuel, and good afternoon to everybody. With today's results announcing our third consecutive quarter with positive operating figures, OHL shows again that the company is starting to be predictable with margins consistent with the margins of the industry and with our own forecast. After the financial discipline implemented across all the business units, we were able to gain close control of the activity, cash consumption in the first 6 months of the year being 36.7% lower than the same period of 2018.

With those figures, the company ends the semester with a total available recourse liquidity of EUR 823.7 million. The EUR 823.7 million liquidity figure reflects a cash consumption in ordinary activities significantly lower across all divisions of OHL Group. EUR 198.4 million of cash consumption has been in pure construction activity, which represents 27.2% less than the first 6 months of year 2018, legacy consumption included. It also includes EUR 15.2 million of cash outflow related to Industrial activity, which represents 74.8% less if compared to the same period. EUR 8.4 million consumption in Services division, which is less than -- which is 24.3% less than the previous year. During the first half, OHL has invested EUR 19.5 million mainly in project Canalejas Madrid.

Talking about divestments, as you may remember, all the assets of Ciudad Mayakoba were sold in the first part of the year. Up to June, we have collected EUR 71.6 million, and there is still a remaining amount of approximately EUR 20 million that is expected to be received in the next quarter.

In summary, the company is performing according to the business plan, in line with the expectations of this transitional year without surprises in the ordinary business and with sustainable positive operational figures in all divisions, which would progressively improve resulting from the termination of the legacy projects in our backlog.

Thank you all for your attention. We can start now with the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Miguel González from JB Capital Markets.

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Miguel González Toquero, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [2]

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I just have a question regarding legacy assets. You guided a cash outflow from legacy assets of approximately EUR 160 million for 2019. And so far this year, the cash outflow was EUR 27 million. Does it mean we still expect a meaningful cash outflow in the second semester? Or do you see the cash outflow from this project will be lower?

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Jose María Sagardoy Llonis, Obrascón Huarte Lain, S.A. - CFO [3]

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Yes. I mean you are correct with the figures you provided. I mean the idea is that we expect to spend the money we told to the market of EUR 160 million. But it is true that probably by the end of the year, we will not be consuming the whole amount. But what you shouldn't do is expect in the second part of the year the same amount of consumption. It will be higher and probably, we will not reach the EUR 160 million this year.

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Operator [4]

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There are no more questions. We will now hand over the call to the management of OHL.

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Pedro Arellano Villanueva, Obrascón Huarte Lain, S.A. - Director of Investor Relation [5]

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Okay. Thank you very much everyone. We're completely available in the results -- sorry, in the Investor Relations team. So whatever question is pending, please call us. Thank you very much for attending.

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Jose María Sagardoy Llonis, Obrascón Huarte Lain, S.A. - CFO [6]

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Thank you.

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Manuel Álvarez Muñoz, Obrascón Huarte Lain, S.A. - OHL Group General Manager [7]

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Thank you.