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Edited Transcript of SCYR.MC earnings conference call or presentation 28-Feb-20 12:00pm GMT

Full Year 2019 Sacyr SA Earnings Call

Madrid Mar 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Sacyr SA earnings conference call or presentation Friday, February 28, 2020 at 12:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Carlos Mijangos Gorozarri

Sacyr, S.A. - CFO

* Manuel Manrique Cecilia

Sacyr, S.A. - Co-Founder, Chairman, CEO & MD


Conference Call Participants


* Filipe Martins Leite

Banco Português de Investimento, S.A., Research Division - Research Analyst

* Guillermo Fernández-Gao Sánchez de Nieva

Kepler Cheuvreux, Research Division - Equity Research Analyst




Manuel Manrique Cecilia, Sacyr, S.A. - Co-Founder, Chairman, CEO & MD [1]


Good morning. My name is Manuel Manrique. I am the Chairman and CEO from Sacyr. I am here in this presentation accompanied by Carlos Mijangos, who is the CFO of the corporation. Thank you very much to all of you, analysts, members of the media, investors for attending this presentation of the economic results of Sacyr corresponding to the 2019 fiscal year.

With this presentation of results, we find ourselves in 8 quarters in a row in which we've been reporting the growth in our profitability and in our turnover at a 2-digit pace. Thanks to the determination in -- our determination in achieving our business plan, we have fully been able to achieve our objectives during the year 2019. And we are about to finish the strategic -- 2015-2020 strategic cycle, and we have -- are achieving results better than expected.

Within our objectives for 2019, first of all, we were able to increase our concessional profile. 80% of the EBITDA of the group, as we committed ourselves to do, are already coming from these (inaudible) activities and with mitigated risks. In total, EUR 538 million is coming from concessions.

Second of all, we have been able to reduce the recourse net debt. I don't know if you remember, but we committed ourselves in the Investors Day in the year 2019 in reducing them. So we will be less than EUR 1 billion. In 2018, we finished with EUR 1.38 billion (sic) [EUR 1.138 billion]. So we have been able to reduce it by EUR 290 million until achieving this figure of EUR 848 million that we will continue on reducing during 2020, as we have already announced.

In this fiscal year, we will account for the divestment that is taking place right now in the highway Málaga-Las Pedrizas. This way, you will be able to verify that we are doing a continuous effort, and we will continue on reducing our corporate debt. Thirdly, we have been able to speed up our cash flow generation, which increased by 24% on operating cash flow, and we've been able even to exceed the EUR 500 million.

Fourthly, we have continued on managing our stake in reals -- in Repsol in order to minimize Sacyr's exposure to the fluctuations of the market. And also, we have extracted value from the financial instruments by a value of EUR 70 million in the year 2019 that have been able to use for financing our concession investments.

And finally, we have been able to improve shareholders' remuneration. We -- the distribution of dividends of EUR 0.105 per share with a profitability of 5% amongst one of the most profitables within the Spanish stock market index. But if in the Spanish -- in the financial aspects, we are totally fulfilling our objectives in a very successful way, Sacyr is also taking a step forward in their nonfinancial commitments.

The Board of Directors has decided to strengthen the corporate governance system in all the things that have to do with sustainability. And therefore, it has created a specific committee that will be able to make sure that we fulfill the most demanded corporate policies in the field of the fight of -- against climate change, assuring diversity and work-life balance, potentiating the possible social impact of all and each one of our projects. And we are also making sure that we are transparent. Sacyr has been working on those fields for many, many years, but the Board of Directors has decided to reinforce our objectives, being even more involved in all and each one of them.

In the framework of these strategic milestones that I have just mentioned, the aspects that we would like to highlight within the yearly results are the following ones. We're still putting the -- highlighting the profitability. We are still focusing in increasing our profitability and cash generation of the business. We have achieved EBITDA of EUR 680 million with an increase of 25% versus 2018. As to the EBITDA margin, we have achieved the 16.3%, 2 percentage points more compared to what we obtained in 2018. And as to EBIT, it's EUR 441 million with a growth of 21%. And net profit in the business areas have achieved EUR 120 million, which entails an increase of 47% versus 2018. Finally, operating cash flow that comes with a growth, a double-digit growth in the last year, we've gone from EUR 412 million that we had in 2018 to EUR 510 million in 2019. That's a 24% increase.

As to corporate highlights, also our remuneration of the shareholders with our regular dividend policy has continued on in its growth track. In 2018, we gave EUR 0.103 per share. And in 2019, that figure has been EUR 0.105. And we will continue on increasing next year.

Also, we've had a very active policies in terms of asset rotation. The value has been much greater than the one that was estimated in the presentation that we did in the month of June in our Concession division. We highlight the selling of our stake in Itínere with the power plants in them, also the one of Guadalmedina, although it will be accounted for in the next year. Our equity investments that we have in concessions reached EUR 1.022 billion in concessions and EUR 126 million in services.

Also, in the year 2019, we did a very important transaction in the capital market. In May 2019, we were able to amortize a convertible bond of EUR 119 million, and we issued another one for an amount of EUR 175 million, improving the conditions that we had with the previous one.

Now I will give the floor to our CFO, so that Carlos Mijangos can explain the results of each one of the divisions of the group, especially the management of Repsol. You know that it had an impairment of EUR 1,400 million and some provisions for a dispute of EUR 836 million.

So we give him now the floor.


Carlos Mijangos Gorozarri, Sacyr, S.A. - CFO [2]


Thank you very much, Chairman. Now we're going to get into the details of the operational development of the different magnitudes of the group. The business figure has exceeded the EUR 4,100 million. That's a 10% increase compared to what we had in the previous year. EBITDA has reached a figure of EUR 680 million, a 25%. EBITDA (sic) [EBIT] has reached EUR 441 million, and the operating cash flow, EUR 510 million. It is important to highlight the fact that the portfolio keeps on increasing, although we've consumed EUR 4 million in the year, achieving almost EUR 43,000 billion -- EUR 43 billion, sorry. The increase of the other activities has grown by 47%, reaching a figure of EUR 120 million distributed among the 4 divisions: Concessions, EUR 45 million; Engineering and Infrastructure, EUR 35 million; Services, EUR 30 million; and Industrial, EUR 10 million.

As to our portfolio, our backlog, we can see the geographical areas in which we are working as a company. In Europe, it's mainly in the South of Europe, Spain, Portugal and Italy. Also, we're having in the U.K. some things mainly the construction of a hospital in Milán, high-speed train in Spain and a high-speed railway line in Portugal as well as different awards of the -- maintenance of the section in Australia. We're doing a water treatment plant in Perth, and we finished our wastewater treatment plant in Melbourne. And in Latin America, we are mainly in Chile where we've been awarded EUR 1 billion of 2 highways: Camino de la Fruta and Los Vilos-La Serena. We're also doing the enlargement of the concession of Chacalluta de Arica as well as the building of some hospitals. We also have a very important award in Uruguay, the central railway. And in Peru, we are also being awarded a road, a power plant as well as a mining project.

If we take a look at the contribution by activity, in revenue, the one with the greatest weight within the group is Engineering and Infrastructures, then Services, then Concession and then Industrial. In the backlog, things are totally different. Concession amounts 70% of the EUR 4 billion that we're having; Engineering and Infrastructures, 16%; Services, 12%; and Industrial, 2%.

If we take a look at the EBITDA distribution figures, Concession contributes with 46%; Engineering and Infrastructures, 35%; Services, 15%; and Industrial, 4%. But we have to take a look at the number of concessional assets in each one of the divisions. And you can see it in the nearby graph, and we're seeing that 80% is distributions in Sacyr Concesiones and the proportional part of Engineering and Infrastructures and then Services and Industrial. And with that, 80% of the EBITDA of the group, as the Chairman already explained, is already related with concessional assets with low demand risk.

If we take a look at the debt evolution, it is very important to highlight here the level of indebtedness, the net indebtedness of the group between project finance and recourse -- net recourse debt. The net debt has increased from (sic) [to] EUR 4.315 billion versus the EUR 4.045 billion that we had in 2018. We've generated EUR 510 million for operating cash flows. We have to highlight that EUR 300 million of them come from the concessional part, but EUR 210 million is cash flow from nonconcessional activities with a very important growth compared to what we had in the previous year. We can see this in the working capital. Out of the EUR 130 million of positive working capital, 30% of them comes from the concession activity.

As to the financial results, since we're doing infrastructure projects, has increased. It couldn't be otherwise because every day, we have more debt in order to develop our own projects, and this can also be seen in the investment. We've invested more than EUR 1.2 billion in infrastructure projects. Out of these investments, we have to highlight that EUR 190 million were invested in concession equities, EUR 20 million in services. But we've also done a very important effort, especially in the second half of the year in the purchase of machinery for construction in Colombia and in the United States to make sure that with our own means, we will be able to implement the projects, not depending on any subcontractor.

As to divestments, they are more than EUR 400 million. And we have to highlight that in March, we sold the last part of the advanced payments in Panama. With this, we've seen a variation of almost EUR 500 million that I can explain right now. The deconsolidation of Guadalcesa in our balance, this is in liabilities, maintaining the [delta] to EUR 125 million. And when selling the industrial plants, EUR 85 million, plus the water assets in Portugal that are EUR 50 million, all those -- these 3 add EUR 160 million. To that, we need to add the EUR 17 million of cash flow generated with the amortization of the derivatives and the impact of the [NEAT 16] that was EUR 75 million.

If we take a look at the commitment that we acquired with our shareholders, the graph is -- speaks on -- for itself. We have been able to reduce our recourse net debt -- or the net recourse debt by EUR 290 million, fulfilling our commitments with the group. As to the impact of our stake in Repsol, we're going to detail the impact that it can have in our accounts and how we've done things.

As to the Repsol provision, 2 important things: one, EUR 4.8 billion considering newer scenarios of oil and gas prices joining the Paris 2030 agenda; and also, the pending dispute was EUR 837 million. So therefore, the result was minus EUR 3.8 billion, known by everybody because this is public results.

How does this affect Sacyr? Sacyr has suffered the losses because of our participation. The impact of Repsol stakes in our own accounts were EUR 272 million -- minus EUR 272 million. But if we talk about net profit, the result was minus EUR 354 million, but this is only an accounting result. This is a balance adjustment. It will have no impact in the cash flow of the group, it will have no impact in the operation of our business nor in our strategy, and it will not impact our shareholder remuneration commitment. And with all these, our book value is EUR 13.93 per share.

This is the accounting part. But we're also taking a look at the cash part. In that sense, it is convenient to explain again that our shares, our stocks in Repsol are linked to the derivatives that will protect us in case of a reduction of the price of the share. These derivatives can bear any price reduction and is -- are associated to the associated debt with no type of financial commitment. But that's not the only thing that we're doing. We do a very active management of derivative structures. And taking into advantage of the changes in the prices of share, we have done the financial closure of 22.5 million of options, obtaining EUR 70 million of free disposal cash. We have 172 million of options, and we have closed the total association of 22.5 million, obtaining the EUR 70 million of fully free disposal cash for Sacyr.

As to the different business areas, we can take a look at each one of them. In terms of Concessions, I'm going to show -- well, they show a tremendous solidity both in the revenues as well as in the EBITDA and EBITDA margin. They have reached an EBITDA of EUR 331 million, above EUR 300 million, so with a portfolio of EUR 31 million. As a relevant aspect, apart from the equity invested, EUR 120 million were in -- EUR 190 million where we have done the divestments of Itínere and 7 Chilean assets. And we've also commissioned a high road at Pedemontana-Veneta and Routes 21 and 24 in Uruguay as well 9 months ahead of schedule.

As to our income in the construction, we again notice the huge activity that we're doing right now in the concessions in Colombia, Rumichaca, Montes de María; as well as in Mexico, Pirámides-Tulancingo and Hospital Tláhuac; in Uruguay and in Chile where our contracts are starting 2019.

We continue on highlighting our extraordinary capacity at Sacyr Concesiones to achieve 7 financial closures of very high amounts, all of them adding EUR 3.7 billion in different countries, both in Chile, Colombia, Paraguay or Uruguay. The truth is that we've been highly supported by most of the international banks. I'm going to give you some examples because there have been so many banks and investors that have supported us and backed us, but JPMorgan, Morgan, Sachs, Banco de Santander, Deutsche Bank, other rural funds such as CDN, et cetera, et cetera. These are banks that have supported us with the financing because they trust the group both from the financial point of view as well as from our capacity to implement all of the projects that we are awarded.

Also, we have the asset rotation, the sale of Itínere and the 49% of stake on the 7 Chilean assets. And finally, we will finish with the closure of Guadalmedina highway that, as the Chairman said, the value was much higher than the one that we established at our Investor Day almost a year ago.

As to the contracts awarded, we have been awarded a highway in Chile, Ruta 66, Ruta de la Fruta; the Route 5, Los Vilos-La Serena; and an airport, Chacalluta. This is -- in Italy, we're having also another 52 kilometers of improvement in operation of Autopista A3; and Uruguay, Ferrocarril Central.

As to the Engineering and Infrastructures, we have an increase on the EBITDA, reaching a figure of EUR 253 million with a margin of more than 12% and a portfolio of more than EUR 7 million. So it's been very successful in terms of awarded contracts.

We have finished, as milestones, the completion of the constructions of Routes 21 and 24 in Uruguay; the Pumarejo Bridge in Colombia, one of the longest cable-stayed bridges in Colombia with more than 22 kilometers length; and the Hisgaura Bridge in the middle of the jungle, we have to say, with 148.3 meters high and 653 meters long. We can see how we've increased our activity nationally, both in construction and in civil works. But the international arena is still the one that it is the engine and the driver of this division.

As to the EBITDA, we're seeing an increase in the margin and an increase on the figure right now. They are implementing the main infrastructure projects that we're having in Colombia, Uruguay, United States, Chile, et cetera. And the vast majority of these projects are for the Concession division that will give us greater margins and more capacity for our management of the risk associated to this activity. As to the backlog, you will see that's EUR 7 billion, so it allows us to cover 41 months of activity, and 51% is for the Concession division.

The main contracts that we're having. Well, in the main contracts where we are operating, in Chile, the 2 roads that I mentioned and the 2 hospitals, this is direct contracting, plus the new terminal in the airport; in Uruguay, the new construction of the railway; in Peru, the construction of a road; in Italy, Policlínico Hospital in Milan; in Ireland, the railway; highways in Texas, et cetera; and the tramway in Edinburgh in the United Kingdom.

We -- as to the Service business area, we have an increase of more than 15% mainly due to the increase of the margins of the new contracts that are being implemented right now. All the areas have been able to improve their margins. And the only one in which we're seeing a minor difference is water is because of the sale of (inaudible) in the last quarter.

As to the main milestones, we have started the desalination plant in Sohar in Oman, with 250,000 cubic meters of water supplying around 220,000 people as well as the commission of the first group wastewater treatment plant in Australia. So this is in 1.2 million inhabitants and treating more than 120,000 tons per year. And as to our portfolio, the deconsolidation for the sale of (inaudible), that was EUR 520 million.

In terms of the contract award, it's very active in Spain, such as the street cleaning, waste recovery and transportation in Santa Cruz de Tenerife; the cleaning of the Terminals 1 and 2 in El Prat Airport; waste recovery, street, beach cleaning in Gran Canaria with EUR 55 million; extension of home care contracting in Madrid, EUR 56 million. We're also getting a new market. For example, Paraguay, with the operation and maintenance of Routes 2 and 7. In Mexico and Peru, we're already having the capacity of developing contracts not only for Concession, and we have been awarded the conservation of some of the railroad -- roads, sorry, in the country. And in Chile, some facility management for shopping malls, corporate buildings as well as being the procurement person for the different highways of the group.

In Industrial division, this has been a transition year. The end of the quarter of 2018, we saw the end of one of the big projects at that time, such as the refineries of La Pampilla and the compression plant in Nuevo Mundo. This year, we've also finished before summer end the waste treatment plant in Melbourne and the desalination plant in Sohar and some of the contractions took a while to start up. In that sense, our business figure has gone down by 33% and EBITDA by 36%. The portfolio, the backlog is being affected by the selling of the plants. Those will amount EUR 2 billion.

As to the main milestones, as I said before, we finished with the desalination plant and waste treatment plant in Melbourne, but also the cement plant in Oruro in Bolivia. As to the contracts awarded, we're having a mining plant and 2 hydroelectric power plants in Peru; in Chile, also wind farms; in Bolivia, a pilot geothermal plant; in Australia, a purifying groundwater plant; and in Spain, we've just finished a photovoltaic plant in the South of Spain.

And without further ado, I give the floor back to the Chairman.


Manuel Manrique Cecilia, Sacyr, S.A. - Co-Founder, Chairman, CEO & MD [3]


Thank you very much, Carlos. As you've been able to verify, Sacyr has achieved in 2019 a growth -- a solid growth line, that it is very profitable, generating a high positive cash flow. Our business model, integrated business model with a concessional profile differentiates us from our competitors and makes us possible to grow by improving profitability, at the same time that we continue on reducing our corporate debt -- our recourse corporate debt. That will be the basis together with the strengthening of the corporate governance in all those things that have to do with sustainability, but those will be the basis of the new strategic cycle that we are developing for the period that will go from 2021 to 2025.

Now we're fully available to respond to the questions of the analysts.


Questions and Answers


Operator [1]


(Operator Instructions) First question will be carried out by Filipe Leite by CaixaBank -- from CaixaBank.


Filipe Martins Leite, Banco Português de Investimento, S.A., Research Division - Research Analyst [2]


I would like to formulate 3 questions. The first one of them, it has to do with Pedemontana. Could you please quantify its contribution in the EBITDA, EBITDA contribution? And if you are suffering any delays in the works related with the coronavirus crisis that it is affecting that region in Milan?

As to the prospects for this year, could you give us any guidelines as to consolidated EBITDA and the recourse debt? And what are your expectations with regards to these 2 for year-end?

And the final question, in the Investors Day, you spoke about more than EUR 50 billion new opportunities. My question is if there is any relevant project that you are expecting to be awarded in the short term.


Manuel Manrique Cecilia, Sacyr, S.A. - Co-Founder, Chairman, CEO & MD [3]


Let me answer the first question. The figures of the impact between EUR 380 million of Pedemontana in our business has contributed with an EBITDA concessional of EUR 153 million. So the purely construction EBITDA has been EUR 100 million.

As to delays related with the coronavirus crisis, there have been none, and the work is being developed as planned. As to the expectations for 2020, they're really good. Our objective, as you know, are always to increase our growth by 2 digits, and we are hoping to achieve this.

And finally, as to the pipeline of awards, well, I sometimes say that our cost-cutting and mainstreaming management model makes us very successful in the bidding process. In the last 5 to 7 years, you can take a look at the different statistical figures, that out of 10 projects that we detect, 4 of them are fully ruled out by us because we don't see that we can participate in it because of the stipulations or because of the type of projects that it is. But in the 6 in which we participate, we are successful in more than 35%, more than 2 out of 6 we're getting. Even statistically speaking, we continue on in the same path, we will see great successes this year.


Operator [4]


(Operator Instructions) Next question will be formulated by Guillermo Fernández-Gao for Kepler Cheuvreux.


Guillermo Fernández-Gao Sánchez de Nieva, Kepler Cheuvreux, Research Division - Equity Research Analyst [5]


I would like to ask a couple of questions. One, Carlos has explained the participation of Pedemontana. We understand that the construction margin is very close to 6%, 5.9%. Do you believe that this is sustainable? And will this be the margin for 2020 in construction? Secondly, we're seeing an important increase in the amortizations mainly in the Industrial division in the last quarter. Could you elaborate on this? And what is this due to?

I would like to insist, in line of the question that was formulated by the previous colleague, could you specify more about your objectives in terms of the net recourse debt?


Carlos Mijangos Gorozarri, Sacyr, S.A. - CFO [6]


To answer your first question, your calculation is quite correct. The margin is 5.9%. We've had several years of solid margins on top of 5%. I don't know if it's going to be 5.9% or 5.3%, but it should be very stable because as I said before, we're implementing with our own means and most of the pipeline needs for the concession business, so this is perfectly sustainable.

As to the amortization that is registered in the Industrial division, this is the goodwill of Sacyr. So this is an accounting thing. Once we've analyzed the test of the time line of projects for oil and gas in the future, we thought that it was more prudent to deteriorate the goodwill. It is true that we have to take into consideration that, that fund corresponds to half of it. We have a minority adjustment, so the impact for the group is not EUR 70 million, but only half of it, EUR 35 million.

As to the net recourse debt, I'm courageous and I normally provide some figures, but as time goes by. But now as I told the general shareholders' meeting and as I will repeat in the next shareholders' meeting, we'll see what happens. But it's going to be very significant. You have to believe that.


Operator [7]


There are no further questions. And therefore, I give back the floor to the speakers. Thank you.


Manuel Manrique Cecilia, Sacyr, S.A. - Co-Founder, Chairman, CEO & MD [8]


If there are no further questions, we would like to thank you all for your participation and your interest, and we say goodbye until the next presentation when we will present the results corresponding to the first quarter of 2020. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]