Fomento de Construcciones y Contratas SA

XMUN:FCC

[Foreign Language] Good morning, everybody. I'm Miguel Coronel, Director for Markets of the Group. Thank you very much for connecting to this earnings presentation of the first 9 months. We have submitted this document that we're going to be discussing this morning to the CNMV. As you know, this presentation is set within the policy that we have established to have these regular meetings of quarterly earnings to provide a global overview of our main -- of the performance of our main areas of activity.

First of all, I would like to share with you that in this first 9 months, the evolution as a whole of revenues and operational results have been aligned with our targets, in spite of the fact that as you know the environment is quite uncertain as a result of price tensions, increases and the price of money and the impact of different external factors.

Having said this, I will review the first operational milestones of the first 9 months. Revenues of our group over the period grew by 13.9% to over EUR 5 billion. There's been a double-digit increase across all the different business areas of the group, particularly we will look at the quite detail an organic expansion in environment and also an increase in the perimeter that we've had with real estate.

With respect to the EBITDA, growth was also double digit, it increased by 15.4% to EUR 940 million. This is a reflection of what I said about the evolution of revenues, but also an increase in the profits provided by the different exploitations of water and real estate because of acquisitions and because of some takeovers in real estate in November 2021, if you remember in Water from February this year.

And so the level of EBITDA, well, we have been able to compensate for higher costs, the increase in prices, especially of energy, is quite visible, particularly in the Cement business area, but at the consolidated level, our operational margin increased, and it rose to 17% as compared with 17.7% of the same period of last year.

As regards to the evolution of the bottom line in the same period last year, particularly in the first and third quarters of 2021, there was -- we had the effect on the books of the sale of different energy assets. So on the whole, at 9 months last year, for both concepts, we have a positive contribution of over EUR 89 million. It is true that we should also mention that this year, as in previous quarters, we've had a positive effect from the FX because many currencies have appreciated with respect to the euro, and they rose the amount by EUR 68 million under this chapter. So we have these 2 effects.

And these 2 forces which are of course nonrecurrent, and they are just one-off effects and together with other factors are attributable profit rose to -- well, fell to EUR 358 million as a result of the one-off transactions that I mentioned.

Other variables at a consolidated level are as follows: our financial debt closed at EUR 3.5 billion. The increase that we had been having in previous quarters with respect to the close of last year is still there, it's an increase of 10% with respect to the previous December. And you've got to consider that in net terms, well, we've got to consider the takeover of GGU for water-integrated cycles in Georgia. You've got to consider both the amount of the transaction and the debt that was consolidated. All of this had an effect on the net debt balance, and we're still making investments, especially across different environmental and water-related projects.

If we compare the net financial debt against that of June last year, there's been a slight reduction. In June last year, we were around EUR 3.6 billion. Now the net assets again went an increase. We reached over EUR 5 billion, 14% higher than December last year, and this is a result of the increase in the net profits and the attributable profits of EUR 358 million.

I also want to draw your attention to the evolution of our consolidated revenues, which is still showing significant strength. At the end of the 30th of September last year, it increased by 32%, across all the different business areas, we almost reached EUR 4 billion, which is a historic figure. And in terms -- and of course, this was homogeneous across all business areas, but we had significant growth in the construction business area followed by water utilities and the environment.

Now with respect to our Environmental activity at an operational level. Here, the revenues increased by 12.3% to EUR 2.6 billion. We have signed new contracts for waste collection, street cleaning, particularly in the United States, but also some new incorporations in the Spanish market in Iberia and this was also accompanied by waste treatment in the U.K., followed by the United States, a higher level of activity with the organic perimeter we have in Central Europe.

More specifically, market by market, the most important market in terms of its contribution in Spain, and revenues increased by 7.7%. We reached EUR 1.4 billion, as I mentioned, that there's been a very good performance in our waste-collection activities and street-cleaning activities. At a municipal level, we had new contracts that have joined our portfolio, which have compensated lower revenues from waste treatment in Spain, because we're not -- because the plants that were most highly developed now entered into the operational phase, but still, the operation was clearly positive.

In the second market, which is the United Kingdom, here, the revenues increased by 13%. The revaluation of sterling by 2% had a significant effect. We reached EUR 1,293 million in revenues. And here, I just want to mention the revenues produced by our waste treatment plants.

In the case of Central Europe, revenues rose to EUR 450 million, this is 9%. We had harmonic growth across the 3 activities we have, which, as you know, are collection, cleaning, treatment. Here, I want to mention that in the 6 markets, where we operate in Europe that the recovery activity and especially harnessing secondary raw materials have been very successful, especially in the most -- in the largest markets, namely the Czech Republic and Austria. And also in the United States, together with other market, other minor markets, the increase was 79% over the 9 -- the first 9 months of the year.

We have had new contracts, both for waste collection in -- also in the United States, in Texas and Central Florida and a new processing and recovery contract in California. It is true that the 79%, as you know, also includes a contribution from the evolution of the U.S. dollar, which -- well, where value increased by 12% over the period. So the EBITDA for this area grew by 10.8%. Obviously, this reflects all the factors we mentioned, particularly the increase in our revenues for the different reasons I mentioned, and this made it possible for us to compensate for the increase in the cost of energy that we had to face over the period. In addition, I should say that there have been some activities, the so-called other Environmental urban services, which had lower margins. But as I say, the growth has been quite harmonic, it's been double digit, both in terms of revenues and EBITDA and this is the main business area of the group.

Now let's turn to Water. Here, revenues increased by 11.5% to EUR 970 million. I just want to mention, and I mentioned it before, the incorporation on the 1st of February this year, the Global Georgia Utilities, CGU, which was also accompanied by good performance of the consumption of the so-called nonresidential customers. This is what we call a rebalancing, a post-pandemic rebalancing, especially on the Spanish coast, tourist consumption went back to normal.

It is true that in Water, we had lower activity levels in what we call technology and networks, which are activities where we buy, we build water-related infrastructures, but this was in line with our forecast because we knew that some international contracts would have a lower contribution, especially in the MENA region, but this has been compensated by a higher activity in other infrastructures, where we have been very active.

To be more specific and geography by geography in the Spanish market, in terms of Water, we grew by 5.3%, EUR 639 million. Here, as I said, the concession, the integrated cycle concession activity in the domestic market, well, experienced a significant increase because of nondomestic consumption and also technology and network activities experienced very significant development.

In Central and Eastern Europe, particularly the Czech Republic and Georgia, we increased by -- our revenues increased by 65%. Of course, this reflects the takeover of this Georgian company. And now we have a stake of 80% in this company. But if you look at different markets, for example, in Czech, the performance was also favorable. We had a slightly positive effect of the exchange rate of the Czech kroner. And in general, the situation of the integrated cycle, the development of the integrated cycle business was quite similar to that in Spain.

In the MENA region, where we have a higher amount of concessions increased, there was an increase -- also an increase in revenues by 23.4%. Here, concessions accounted for more than technology and networks because some of the plants were expected to be decommissioned over this period. And in Latin America, there was a reduction in revenues by 22.3%, again because of technology and networks, where the activity was much lower because many contracts in Mexico and Colombia came to their -- came to an end. But in the future, there will be a higher level of integrated cycle activity because of some takeovers that we've made and some awards we've won in Colombia in the northern part of the country.

As regards to EBITDA of this area increased by 21.1% overall much more than the increase in revenues. We reached EUR 263 million. Of course, there's different elements that explain this. First of all, the higher margin of the operational activities of CGU because, as you know, CGU renders integrated cycle services on the basis of proprietary infrastructures. So this allowed us to significantly compensate for the higher cost of energy, especially in terms of electrical energy. So the EBITDA of this area increased by over 200 basis points. We -- it accounted for 27% of the sales.

Now Construction. This area had revenues for EUR 1.3 billion to 12.6% higher. Here, the evolution was reasonable. The pace of execution of projects was quite aligned with our target geography by geography in Spain, well, in Spain contributed slightly less than 50% of the total revenues. In Spain, there was a slight reduction in revenues of 4.8%, EUR 622 million. Here, the most important project we have is out of the Santiago Bernabéu stadium. There were other minor projects, both public and private, which explained that we had that small reduction in that -- in this period.

But in other jurisdictions, for example, in the rest of Europe, the turnover increased more sharply. We reached EUR 335 million. And I want to mention the pace of the works carried out last year and this year, especially the roads in the U.K. and in The Netherlands, especially in Wales and near Amsterdam. And this has had a very significant contribution to our earnings.

As regards to the Americas, particularly in Latin America and Canada increased revenues reached EUR 292 million. Here, there's been a significant increase and the contribution of the Maya Railway in Mexico. And as I was saying, there's an incipient contribution of a railway contract in Canada for suburban trains around Toronto. We have already -- this is one of the important contracts that we've signed over these 9 months.

In other areas in the Middle East, we reached EUR 111 million. Here, you know that the most important project is out of the 3 metro lines of Riyadh in Saudi Arabia. Now in the MENA region, this contract has been extended by EUR 200 million. And now the project is going to be finalized in May 2024, and we've now added a new project, which we have been awarded, which is the performance of a railway tunnel to a city on the Northwestern coast of Saudi Arabia and the amount of this project is over EUR 700 million, which accounts for 12% of the total portfolio. So with all of this, the EBITDA had, well, increased by 14% to EUR 86.5 million in the area. This was quite harmonic, and it just reflects the evolution of the revenues, plus some positive adjustments of margins that were carried out in some contracts as development and execution process advanced.

Now let's turn to Cement. Here, our revenues rose as we have seen in previous quarters. They rose by 15.9%. We reached EUR 377 million. Price hikes have still been implemented, although there's been a slight volume contraction. So if we add the higher export activities from both production markets, both Spain and Tunisia. So this explains how we reach that positive figure, but with the different volumes and prices. Particularly in Spain, which is still the most significant market, the turnover increased by 16.2%. We had EUR 230 million in revenues. There was a double-digit increase in prices, which has compensated for the fall in the volumes that we have seen, although they are still lower than 10%, but the net results allowed us to grow in an environment which has not been easy.

In the local Tunisian market, particularly domestic sales in the country, revenues here fell slightly by 2.4%. We had EUR 44 million in revenues. And in Spain, there was a reduction in demand, similar to that in the other markets, but prices rose less and later. And that's the reason why there was a slight reduction in total revenues.

But exports still contributed a significant amount. They increased by 25.3% over the 9 months period to EUR 103 million. Exports are made from our plants in the North of Spain to markets in Central Europe and Northern Europe and also from Tunisia to the west of Libya.

Now with all of this in spite of the growth in revenues, EBITDA fell with respect to the same period of last year by 66% to EUR 22.1 million. But here, the only explanation for this reduction is the increase in energy prices, both electrical energy and the fuel used in our furnaces. But of course, we need to say that we had to -- well, we traded some CO2 rights this year -- well, last year, there was the sale. And this year, there was no sale and that also explains the reduction.

Our fifth business area now is real estate. Here, revenues increased to EUR 257 million. This is a significant leap of over 200% with respect to last year. As you know, revenues will still not be fully comparable because you should remember that in November last year, we -- the Realia and Jezzine Group became part of our business. If you look at that figure, well, 79 million came from rental property, which was nonexistent last year. And then another EUR 77.4 million that corresponded to the housing development activity and the land sales. This is comparable to the revenues we had last year in real estate, which was EUR 59 million. But of course, Realia developments last year were not still there. But the EBITDA for real estate already accounts for a significant amount, EUR 84.1 million because of all the reasons I mentioned just now. And you can see the significant also contribution of rental property because the margin is over 55%.

I don't want to run on ladies and gentlemen, I have reviewed all of our main operational variables, the evolution of our business areas. I think that again, I would just close by saying that the structure of the group, which, as you know, is well balanced, diverse, we have kept applying selective growth. We have made significant investments, and this has allowed us to keep very solid development. If you look at the different business areas, Environment, Water and real estate, they account for 83% of the EBITDA over the 9-month period. And this is an essential element to understand our evolution so far and how we can still be expected to reach our targets.

That's all I wanted to share with you. I want to thank you very much for your kind attention. And if you have any questions, do not hesitate to ask them.

So we could start with the Spanish, the Spanish channel questions in Spanish. Thank you very much. [Operator Instructions]

The first question comes from Victor Peñafiel from Societe Generale.

Thank you, Victor. I will look at the different topics one by one. Well, with respect to the impact of inflation, I mentioned that we have 83% of our group's EBITDA, which is generated real estate leases, water activities and the environment. Now as far as real estate is concerned, a significant part of the EBITDA of that business area is leases and the rises are all related to the consumer price index and our contracts are very well protected with -- against environments of this kind.

With respect to water activities, I was talking about integrated cycles. As you know, this contributes around 90% of the EBITDA of the water activity. And here, integrated to a partial cycle contracts all of them have their price hike closes, which take into account the evolution of costs. Normally, at the end of every financial year, we look at the evolution of prices and we make the appropriate rises.

Now with respect to the environment activity, most of our contracts in waste collection, street cleaning and processing, they are also quite well protected. Street cleaning and waste collection contracts are free of those indexing regulations because they are long-term contracts. All of them are signed for periods over 5 years. So they include a lot of elements to protect us. So at the end of each year, we can also revise them.

For Construction, our contracts are also long term, and the evolution that we have experienced with respect to the understanding of the readjustments coming from the pandemic to the post-pandemic effects of downtimes, material costs are also being managed properly. We believe that all of those things can be managed quite reasonably and have a well-balanced effect. So I would say that the only activity which is more exposed to the evolution of inflation is the cement activity, which is an activity, which over 9 months contributed only 5 months of our overall EBITDA. So we are not too concerned about that.

But I think that overall, the group has -- because of the nature of our activities, can enjoy a very reasonable protection against inflation. Now as far as costs are concerned, we -- I can't really give you too many details because we believe that it's better not to provide too many details, but I can tell you that we have clenched long-term contracts for 2023 for electrical supply, both for Cement and for Water, which will be very positive for us, especially in 2023 and will help us mitigate the high cost of energy. So both in terms of revenues and costs, I think we will be able to manage the environment appropriately, although things will not be plain sailing.

With respect to the macro situation, you were -- well, with respect to the working capital you were asking over 9 months, although there's still a certain level of absorption with respect to last financial year, we had a much better performance. I would say that with respect to our target, we are doing well. We are reasonably satisfied. And we believe that from now to the end of the year, there will still be a recovery. So for the whole year, I think that the evolution of working capital or the conversion of EBITDA into cash will be reasonably satisfactory, even mean collection times, which we follow up very strictly are also evolving in a satisfactory way. So we are quite happy with that.

And then what you are asking about potential problems with our -- but getting paid for our bills. I would say that the situation now is a lot different from what it used to be, particularly in Spain, the problem in Spain a few years ago was that councils, but nobody knew how much money councils owned their supplier, but this was changed with the law that was introduced a few years ago, the effort was made to pay up all the debt, and we had to make our own contribution as a supplier.

At that time, particularly in our environment activities where we deal with a lot of public customers. But now the situation is a lot different. It's -- well, councils first of all are in a much better financial situation, but the law -- the legal framework is radically different. So the issue is not so much that our customers are over leveraged. I think that they're in a much better situation than they used to be. And the legal framework is a lot different.

The main periods to pay suppliers are under strict control, but we believe that the situation is structurally different from the situation of 10 years ago.

Now our debt variable rate is of -- 34% of our debt is at a variable rate. From September to September of 2023, there's not very much that matures or there's not much to be refinanced. And the main cost of debt that we have now is around 2%. So we will see and we will try and manage things as interest rates evolve. Of course, we'll have to face up to that. But you know that our financial structure, our leverage structure is basically skewed towards our leases.

But in terms of Water and the environment, which are recurrent activities, where we will have to abide by the evolution of the price of money, but we don't have a high percentage of debt variable rates, just the opposite. And in the next 12 months, as we speak, we will not have to refinance anything. So that is really quite reassuring and allows to wait and see.

[ Nadia ], thank you for your questions. Well, regarding the refinancing that we have Environmental activity. You're right, we have EUR 600 million, which are due on December. And I think if I remember well, is the 3rd December 2023. And yes, I mean, when I talk to your colleague previously that we have no any relevant refinancing ahead, I was thinking from 9 months, September until 9 months 2023, so that the outlook is quite dispelled for the next 12 months. But you're right, on December, in 14 months from now or 13 months as we speak, will have this EUR 600 million. Well, we look at it with a high degree of comfort. We'll see what the conditions are. This is long-term maturity activity from the asset side. So we'll look at the different options as we did in Aqualia in the water activity in the first half of this year. So I think we'll have and that will reach different options among the capital markets, so banking solution.

So again, I restate that we have a full range of options open. We have time enough, the activity is performing well as I'm saying. So I said before, which I think for us is the critical thing. So the credit value is there. So time enough ahead to go through these troubled waters for now. So we'll see along 2023, how we deal with this EUR 600 million, which is I would point out the only relevant refinancing that we have in 2023, all considered on the top of the EUR 5 billion of gross debt, that the group -- FCC Group has at the end of September. So we'll see along next year how to deal with this. But as I said, from a very, very solid position in the activity performance.

Especially regarding in also in this field, as you mentioned in the FCC Environment, how we look how we approach to energy. Within energy, we have a double exposure or energy cost -- sorry, revenue cost exposure. In the waste collection and street cleaning activity, of course, we use fossil fuels to some extent, a combination of different fossil fuels to provide the service that we rendered to municipalities. At this respect, of course, we have been suffering the 30%, 35% rise on average that we've seen in jurisdiction in the cost of the fuel, the spot prices that we have been subject to. But in the contrary, this could amount to roughly 3%, 4% of our total cost over sales in whole Environmental Services division.

But on the contrary side on revenues, we have the positive exposure. And I think this is one of the virtues of our combined structure in environmental business or unit itself, we have a revenue stream coming from the valorization energy from waste plants that we have in several locations as is the case in many of them in the U.K. So because of the energy prices that we've seen also shown in some markets and U.K. others have not been an exception of this. As you probably know well, we have been alone 2022 and the 9 months, the result is quite visible, we've been able to quite balance or have a net neutral effect from all this.

I mean it doesn't mean that mathematically, this is going to happen every year the same. So we'll see what happens in 2023. But in 2022, in the 9 months, that we've seen, probably, we have had an even effect from rising costs in energy for the fuels using surely among waste collection and street cleaning versus the increase in revenues and the corresponding positive EBITDA effect that we've seen coming from the energy from waste made at higher prices.

If this is going to happen exactly the same quite neutral in 2023, well, it depends, they're not exactly the same markets, but there's some connections, as you know. At the end, it's all energy related, but we'll see. But so far, the combination has performed quite nicely.

Regarding the target for recovery, in this moment, well, we are now looking in the -- this vary quite a lot, and it depends on the jurisdiction we talk about. For instance, in Iberia, if we talk about NPTs or in the U.S., where we have opened, I mentioned the platter accountee NPT site we have the targets for recovery of all the products from households that we collect in the region between 55% and 65%.

In the case of the U.K., we have the target of raising the amounts that we recover, including even the household waste recovery centers, but also going up to the energy from waste plants have recovery rates at the point of being able to get regions in the 65%. Of course, the rest will be -- of course, at the fraction of the rejection will be burned in the site where we will have this solution. This is the targets that we aim at globally.

So we would be moving from 55% to 65%. It's a little bit open because, as you know, the waste that we get not always is collected by us always, not always is selective collection, but this is on average, the targets we aim at depending the different treatment solutions and jurisdictions. I don't know if I have completely answered...

[Foreign Language] Get in touch with us through usual channel. Thank you very much. I wish you a very good day.