Abertis Infraestructuras SA Management Discusses Q3 2010 Results - Earnings Call Transcript

Abertis Infraestructuras SA (OTC:ABFOF) Q3 2010 Earnings Call November 11, 2010 7:00 AM ET

Executives

Steven Fernandez - Director of IR

José Aljaro - CFO and CSO

Analysts

Bruno Silva - BPI

Robert Crimes - Credit Suisse

Marcin Wojtal - Bank of America-Merrill Lynch

Nicolas Mora - Exane BNP Paribas

Steven Fernandez

Steven Fernandez, Director of IR at Abertis and I am joined here today my Mr. José Aljaro, our CFO and other members of the Abertis staff. Mr. José Aljaro will lead today’s presentation on the results.

Before our starting, we want to thank you once again for joining us in today’s 9 months results conference call. We are truly aware once again that it’s a busy results period, and by now many of you will have had the chance to look at our results published this morning so we just wanted to focus on a few key points after which we will open the lines for a Q&A session.

Without further adieu I hand over the line to Mr. José Aljaro, CFO.

José Aljaro

Good afternoon ladies and gentlemen. As usual, following the publication of our results in this morning I’d like to highlight a few key points. We present growth in the key line of Abertis P&L. Revenues grew 5.5% to €3.1 billion. EBITDA advances 4.6% to €1.9 billion and net profit rose 4.2% to €561 million.

In toll roads, traffic continued to moderate its decline falling by 0.4% in the first nine months of the year versus minus 0.7% in first-half of 2010. With very high growth class 1.4% helped performing light vehicle minus 0.7%.

At this point, it's worth reminding you that 2010 has been market by a number of one-off events that have had a negative impact on overall traffic including strikes in both Spain and France and the poor weather conditions in Q1, 2010. It's tripping out these effects, traffic in Abertis road was had declined by 0.01% versus the 0.4% we’ve reported.

In addition, if we take into a calendar impact of the AP-7 and C-32 compensation agreements, the underlying profit would have grown by 0.9% at the group level versus the 0.4% headline decline. We would also like to remark that the Q3, 2010 on external basis marked the first quarter since Q1 2008 of positive traffic evolution in our network. Regards the evolution of traffic by region, same traffic in the first nine months of the year declined by 4.3% versus minus 4.8 in the third half '10.

The traffic equivalent, taking into account the AP-7 and C-32 compensation agreement stood at minus 1.8% in Spain. French traffic grew 1.8% in the period despite the strikes, minus 0.5% cumulative impact, and also heavy vehicle traffic continues to post solid growth at 4.8%.

Traffic in the Americas grew by 4.9% due to the first nine months, which are not at all acceleration in the third quarter plus 7.5. All in all, overall revenues and EBITDA grew by 6% respectively. In terms of the traffic outlook for the rest of the year we continue to see a slight improvement in October and expect to close the year with overall flat negative traffic growth.

As regards, the evolution of tariff, we expect 2011 level to increase by between 1.2 and 1.6% in our European growth. This is a result of inflation and just put to rest agreement about flat or negative tariff for the next year and deflation of risk.

And we should move on to the telecom. The telecom business posted a 7.2% increase in revenues to €418 million and 4.2% decline in EBITDA to €165 million. The evolution of the telecom business in 2010 is market by the impact of the analog feature as we explained in our Investor Day in April. At that time, we provided market with guidance regarding the evolution of the business. Now we are pleased to report that we are on track to achieve the targets set at the time. In this sense, we expect the unit to continue to be a growth driver for Abertis in the coming years.

Therefore business revenues surpassed 3.2% to 211 and EBITDA grew by 1% versus nine months 2009. This evolution was mainly driven by higher revenues per passenger in TBI plus 6.6% together with under precision of the pound versus the euro plus 3% and the positive performance of MBJ in Jamaica plus 1.1% passenger number which offset the decline in activity at TBI minus 5.6% passenger numbers.

In other parts of the district nothing remarkable, and Abertis continue to grow its cash flows. In a business that should be synonymous with cash generations, we continue to deliver. Net cash flow reuse at 7.4% plus 5% organic to €1.2 billion while the free cash flow up to total CapEx and dividend stood at €500 million versus minus €277 million in nine months 2009. As you can see from our result release, we continue to be very vigilant on CapEx. Net debt as of the end of September 2010 amounted to €14.3 billion. Our free cash flow generation for the period reduces the amount of net debt by €500 million and this reduction was partially offset by changes in perimeter around 120 and other non-cash effect such as foreign exchange and derivative for an amount around 126 million resulting in an overall reduction of €253 million for year end 2009.

We maintain 86% of the debt is fixed rate and 94% is long-term with an average maturity of 6.8 years. The average cost of debts in nine month 2010 is to that 4.5% interest rate versus 4.6% in nine month '09. As a regard our financing capacity, we continue to have easy access to funding and have further improved our liquidity positions since our last conference call. That’s of 3rd September, our rewarding credit facility amounted to 1.2 billion versus 1 billion in June and none are thrown. In addition we have transferred €600 million short-term facilities to medium-term ones. Maturities for the next 12 month amount to 543 million of which or I'll have to respond to C&A debt and the rest of maturity asks for very small tickets.

Abertis had signed in the contract to monetize the AP setting compensation agreement. The contract has been approved by the Bank of Spain and is now awaiting the final clearance by the Ministry of Infrastructure, with which we expect will take place by next week. For that reason, today we can disclose more about the economics term of the financing. Our ability to monetize the AP setting compensation agreement shows our capacity to find new sources of financing, in addition to the ones already available. Our loan starts to bring forward future cash flow and crystallizes the value of the compensation.

A quick word on our state in Atlantia and Brisa. Contrary to recent speculation, there are not changes in our shareholding. We continue to emphasize that we are not in a rush to sell and that we will dispose off this asset at the right time and at the right price.

Related dividends on 14 October, the board director approved the payment of an interim dividend against 2010 earnings of $0.30 per share in line with our previous dividend and at the end of Q1 2011, the board of directors will decide on the final dividend.

Before opening the lines for Q&A, I’d also like to make a few brief comments on the changes in our order structure. As of today, less than 5% of our capital is helped by around 10 more Spanish saving banks versus around 11 a year ago. These combined with ACS transaction has eliminated their over time risk.

As you know, CVC Partner became a shareholder of Abertis on September 1st and joined the Board of Director on October 25th. In this regard, I’d like to state the following. We are not going to comment on any potential future change linked to the arrival of the new shareholders. Given the CVC [Director] we believe they will be active member of the Board of Director and contribute positively. In this sense, we look forward to the discussion on how to maximize shareholder value.

With that, I’d like to thank you all for your attention and will now be glad to answer the questions you may have.

Question-and-Answer Session

Operator

Good morning ladies and gentlemen, the Q&A session has just started. (Operator Instructions) The first question comes from Bruno Silva from BPI. Please go ahead.

Bruno Silva - BPI

Good morning everyone, thank you for taking my questions. I have three questions if I may. The first one, I know that you cannot comment more on the secured division and division of the compensations. But your balance today, have or is around, or at least at September was around €400 million, €367 million and what was stance today regarding potential increasing dividends. Does this monetization just increase your level of comfort with your balance sheet or you did something that shareholders could start discounting that the trend in dividends real necessarily have to be respect that even discounting for your usual bonus issue of 5% every year.

The second question, when you mentioned that you were not in a rush and giving (inaudible) so this takes in 20 and gives at a fair price. Can you please comment if for instance on belief that the fair value of that stake or the rise in price is in any chance connected with your acquisition price or not.

And finally from a just would like to understand what is the potential you see today on our packs containment even the good trend we have seen particularly this year and that’s probably a good example of that. Can you please elaborate on the levels of efficiency that you have reached so far on the annualized basis and what would be upside of that you now believe that there could on this ground? Thank you very much.

José Aljaro

Okay related the first question in our opinion there is no connections between the multi-station AP-7 and the dividend policy. Multi-station AP-7 you said an alternative way is an alternative way to finance the company in the financing activities and try to expand maturities and try to improve this trend of our financial profile. That is an independent issue from the dividend policy, the dividend policy will decide by the board of director as I said at the end of the Q1 2011, it is totally independent. Regarding the price of Brisa as you understand that it’s a public company, we can disclose at what time or at what price we will sell. I mean everybody know what is our average price but in that sense it's not possible to provide you some guidance regarding at what level we will be seller of those stakes.

Steven Fernandez

Hi, everyone its Steve here. Regarding the OpEx we are very happy that you noticed the efforts this year. But we have to say is in particular in the third quarter we will have to highlight and you probably have noticed the increasing OpEx in Sanef particularly linked towards that had to be carried out as a result of the poor weather that we had on the first quarter. So you carried along and there is good weather and this is what's happening here. We expect this trend to continue for year end but what I can tell you is that we are not going to be providing guidance yet for 2011 but clearly OpEx will be one of the key areas of focus of the company as well CapEx.

We have made a big effort in CapEx this year and I think the upside that would be left there would be a little more limited on the upside on OpEx, I can tell you that right now we are all working to identify areas where we can continue implementing efficiencies and hopefully by the time we provide you with the full year results, we will give you a better indication for next year.

Bruno Silva - BPI

Am I allowed a follow-up? Just going back to the events for a minute. So lets forget monetization for a minute and is there anything that you can add today on your willingness or any slack or any scope for dividend increase considering you are seeing best markets today and the performance of your business as well as how you see potential investments in Greenfield or Brownfield projects over the coming years with any motorways or outside of this business, thank you.

Steven Fernandez

Bruno, today we can tell you without any doubt or hesitation, there is absolutely no change in the company's dividend policy. Our dividend policy is very clear which means that we have a minimum fixed DTS now which at this point is 0.6 per share on a share issue. Whether or not that’s going to change in the future corresponds to the board of directors and as José has indicated, it is a decision that we'll be taking at the end of the first quarter of 2011. So, today our position is very clear. Our dividend policy is the same as it was before.

Operator

We now give the floor to Mr. Jamie (inaudible) from Morgan Stanley. Please go ahead.

Unidentified Analyst

Two questions please. The first is regarding the talks alluded to in the press between the government and operators would have you to returning loss making confessions in Spain to profitability. I just wondered for Abertis, am I right to think this relates predominantly to (inaudible) and can you provide some detail on the proposals that are being considered please?

And second question is just going back to CapEx, you mentioned vigilance on CapEx and €330 million at the end of nine months certainly seems low, I think versus previous guidance for the full year. And could you just update us therefore on the outlook for CapEx in particular for Acesa and Sanef? And should we relate this lower CapEx spend to the comments I have read this morning about cutting debt to maintain your current rating? Thank you.

Steven Fernandez

Regarding the speculation on the press that talk about negotiations with government et cetera, you mentioned primarily the exposure to Abertis is through (inaudible). It's important to make the distinction here. The exposure for Abertis is on three roads R2, R3 and R5. It's not through (inaudible) as you guys understanding that would be first, which is AP-6 and I guess (inaudible) as well.

We have to note that we have stakes of around 30% in this growth, the equities will be provisioned, and clearly we together with our shareholders are very happy to sit down with the government on trying to find a solution. But there is no drama about it here. We are going about this in a very conservative way, one that preserves value for our shareholders and that allows the government to solve the situation, which is as you can imagine, lets say citable for them at this point.

In terms of the proposals, we're not going to go more into details. You've seen speculation in the press there is a host of ideas that are being discussed, and we'll leave it at that. Number can give you more indications.

José Aljaro

We are working together with the government trying to find solutions and that sense, we are managing different alternatives, some of them in our compensation amount, loans and other cases this formula similar than the AP-7 et cetera. So I mean today is too early to speculate about the final solution but in many case we tried to be proactive and try to support the decision of the government.

Regarding the other question about CapEx, of course we present a significant improvement in our maintenance CapEx versus last year. CapEx at the end of nine months seems too low possibly due to some investment accruals. Nevertheless we expect at the end as we said at the beginning of this year the significant CapEx reduction is one of our priority, as you know. Never then and we expect reduction for the full year around 10% versus 2009, it’s a little bit lower than the (inaudible) percent in nine months; really we are very active looking for synergies improving the intervention of the different Spanish toll roads and also with a integration of assets from Itinere, we have started to re-negotiate many contract taking advantages of the economy backdrop and also as I am taking consideration that the maintenance cost of DTT are lower than those the analytical TV. For all those reasons we present very significant improvement.

Operator

We will now give the floor to Mr. Robert Crimes from Credit Suisse. Please go ahead.

Robert Crimes - Credit Suisse

I am just wondering with regards to the guidance given in the April Investor Day for the Telecom’s EBITDA of 212 million. It may not basically in price that EBITDA being flat in Q4, yet you had a 22% decline in Telecom’s EBIT in Q3. So I am just wondering if the guidance still holds and what you're going to be doing in fourth quarter to try to get a flat EBITDA for the telecommunications business, thanks.

Steven Fernandez

Thank you for your question listen, and the fact of the matter is you guys need to take into account that Q3 has been the worst quarter that we expect for the telecoms division it has been impacted by a number of issues obviously the most important of which is the analog switch off. We bare the full impact of this on the third quarter as supposed to partly on the second quarter.

What’s going to change on the fourth quarter is you might also remember from the investor at date that we talked about the deployment of three new multiplexes in year 2011. In fact this has been brought forward and the new multiplexes result start being deployed on the fourth quarter and that’s exactly the reason why we expect a significant improvement in EBITDA relative to the Q3 and that’s exactly the reason why we feel very comfortable with the guidance that we gave you on the investor bank.

José Aljaro

But as we anticipated some expenses we, it was necessary to expand in the limitations of the three new multiplex mall in the Q3 and in the Q4 will be fully implemented and we will obtain additional revenues without no expenses in the deployment.

Robert Crimes - Credit Suisse

Okay and then if you can just fill us in a little exactly what’s involved with these three multiplexes so, this is to distribute the channels presumably.

Steven Fernandez

Three new multiplexes means 12 new channels. So we build on multiplex but not by channel but anyway three new multiplexes means on a national level where we have coverage is increasing distribution capacity by something like 25% or so roughly.

Robert Crimes - Credit Suisse

Okay and if you already sold these 12 channels then, what's the situation there?

Steven Fernandez

The multiplexes in Spain are a commodity and as you can imagine whenever we get the chance to get one multiplex out to market, they go very fast. And so yes they are contracted.

Robert Crimes - Credit Suisse

And then for 2011 guidance for the telecom's business, the €231 million, I mean that’s 9% EBITDA growth and you obviously are going to have the impact during the first half of having the analogue switch-off. I mean does the guidance still hold for 2011 then?

Steven Fernandez

It holds absolutely. There is absolutely no reason to change it and may I just remind you as well that the guidance was based on for example, CPI assumptions of 1.5% in 2011 when we're running out of CPI of around 2.3 % right now. So, there is even upside to the numbers that we gave you on the Investor Day.

José Aljaro

And also due to we anticipate they are making place of the new front new channels. I mean that figures in a little bit conservative.

Robert Crimes - Credit Suisse

Okay and I just had a couple of other very quick questions. Could you say you are able to give some more details for the amortization of the AP-7 agreement?

José Aljaro

It's not possible right now due to it's under discussion with the ministry, but as soon as complete that procedure we will communicate to the market that turn out conditions.

Robert Crimes - Credit Suisse

And are we talking a few hundred millions of euros or approximately.

Steven Fernandez

Well, it depends on what your estimate of the compensation agreement is. We certainly are not going to give you the guidance. You know that at the end of the nine months of 2010 the outstanding balance was 367 million, and from there you can make assumptions as to how much we can draw down or not.

Robert Crimes - Credit Suisse

Okay, that’s one. The last question, you can just repeat the, you gave some guidance for revenues, I didn’t quite hear to the beginning of the call?

Steven Fernandez

We haven't given guidance for revenues for this year, beyond what we've always said which is, revenues are going to grow this year, EBITDA is going to grow and then profit is going to grow. What we've said is we've given indications of tariff evolution for 2011 in particular and there, that dimension we expect our tariffs to increase next year by between 1.2 and 1.6% obviously depending on their road. But this is a marked change from the 0% increase that we had in Europe this year, I might just remind you.

José Aljaro

It will be coming well regard in the traffic expected, continue improving in this quarter. October was better, and we expect to improve a little bit. But, nevertheless will be difficult to modify the cumulative figure at the end of nine months, could be much, slightly better but not so much. We will remain at slightly negative at the end of full year.

Operator

We'll now give the floor to Mr. (inaudible) from Santander. Please go ahead.

Unidentified Analyst

I'd like to know, what's your target financial structure? Are you happy with your comments to believe less [trades] waiting, or you are still pay minus? Also I did say your business is definitely cash flow positive, so once you said that you will maintain the dividend policy will be the priority in the next close months to reduce that or in terms of how efficient you are maintaining the same guidelines that you provided during Investor Day.

José Aljaro

Today our priority is to manage in a proper way, the OpEx, the CapEx and at the same time, we are using the free cash flow to reduce our debt, we feel very comfortable operating A minus (Inaudible) that means this is very comfortable. That is one of our priority and different thing (inaudible) policy of that question we just answered before.

Operator

(Operator Instructions). So we will now give the floor to Marcin Wojtal from Bank of America-Merrill Lynch

Marcin Wojtal - Bank of America-Merrill Lynch

I have two questions, please. First, I just want to check if there is any update on [summits] business plan negotiation and if not, when could we expect an update there and second question on the AP-7 monetization. I just want us to check if that C-32 balance is already included in that agreement that you're negotiating with the banks and if not, do you expect to sign a similar deal for the C-32? Thank you.

José Aljaro

C-32 is excluded of this agreement and the amount is much lower, it's no materials. I mean for that reason we prefer not to combine both. We prepare complete the AP-7 and after that we will see. Regarding the summit, we expect to sign the contract (inaudible) at the end of December or probably beginning of January. The problem was the Ministry of Infrastructure in France changes the guy who was involved in the negotiations and was necessary to restore and to reopen some discussions, that has been the reason to justify the delay in the senior (inaudible).

Operator

We'll now give the floor to Mr. (inaudible). Please go ahead.

Unidentified Analyst

I have three questions if I may. First of all regarded to traffic, could you elaborate a little bit about the traffic in Spain in the last quarter that you expect as well as in France? And if you can also give us guidance, say, what is your idea of traffic next year? You see some improvement in traffic in Spain and so we can expect a positive trend next year or not?

The second question regards your business plan. You said now you are focused on [reduction] of operating profit and to maintain a control on the CapEx. Now you are donating lot of cash, you will go ahead also with this monetization of AP-7. So when will you present a new business plan in order to understand what are your targets was in term of strategy, not only in term of debt reduction?

And the last question regards the indebtedness that you expect at the year end if you have a guidance? Thanks.

José Aljaro

Regarding traffic, it's difficult to predict traffic going forward. Only we are seeing a very positive trend improving the traffic much more abroad and Spain, the traffic in Spain nevertheless is improving slightly, a little bit slowly than we expected at the beginning of this year but at the end the figure are in line with our expectation from the beginning.

In France, we expect traffic always above 1%, today the traffic is penalized due to differing strikes in France. That means probably in a very stable way we could see in the coming month around 1.4, 1.8 or close to 2% between 1.42% that could be in a very stable rate. In South America, we are above 5%, in the last few months we expect to continue on that range to go-forward. That’s clearly unpredictable traffic, it’s difficult to compare and to obtain similar pattern in the part that crisis was deeper, that sense it is very difficult to quantify what could be roughly going forward.

(Inaudible)

Unidentified Analyst

Is there any new business plan or anything like that? I mean there is no new business plant, so we are not going to present anything that doesn’t exist.

José Aljaro

We never presented the business plan, we present at the beginning of every fiscal year what is our strategy, what is the CapEx plan, what kind of project we are regarding of that sense. I can say we are regarding from project, we are obtaining new financing time to risk up to our big profile, time to extend length of the concession, try to guarantee significant liquidity in the company, if we find good opportunities, have been booked IR that is the key to being involved in new acquisition process. Its not in the mean time, we prefer to deliver it to the company. That is the most efficient in short term and never the less we will find good continuity with IR above 10, 12 depending on the business of 15, depending on the business of the countries we will look. In that sense there is no clear target in the level of debt but there is a clear target in turn of trading in the short-term is clear that we will continue regarding new opportunities in the market. All of them will be brownfield, no greenfield that is our strategy and we will explain of course as every year regarding what kind of project we are going to see and to regard in 2011.

That’s all we never presented before and business IP have been spread, except in telecom these two, the visibility in the telecom was very limited because what’s necessary, making play, the switch off on the DTT implementation, etcetera; in that sense well that was an exception.

Unidentified Analyst

Then if we can have a big follow-up. In this sense can we expect that in the next conference call we will also, you will set some figures about what could be the amount of money that you can spend in your prediction down (inaudible) or if you have we can say medium term target in term of debt to ratio, terms like this, or not?

José Aljaro

I think it’s still realistic, say a figure or an amount upon what could be our investment in the expansion next year or in two years time, because the flow of assets in the market is not controlled by us. That (inaudible) the secondary market of (inaudible) privatization process that is it’s very realistic. I think that if we communicate an amount we will do that. That is really unpredictable. We tried to clarify what kind of projects we are ready to analyze or what not. That's all, not feasible to quantify to understand.

Unidentified Analyst

And the last question was if you have a guidance for net debt in your hand.

José Aljaro

This year probably we will continue reducing the debts in around 100 to €150 million.

Operator

We now give the floor to Mr. Rupert (inaudible). Please go ahead.

Unidentified Analyst

Yes, hi guys I am back with just two additional questions. Number one, are there any scenarios in which you would put more equity into your tripled Spanish toll roads. And then number two, I am just wondering about the quarterly revenue contribution from these three new multiplexes and telecoms. And will that be approximately equal to the 76 million loss I think there was due to the analogue switch-off in Q3? Thanks.

José Aljaro

Up to date we managed to put more equity in those totals.

Unidentified Analyst

So just to be clear you said you definitely want to put more equity in those toll roads.

Steven Fernandez

That is correct, more equity. Okay. Regarding the Q4 and obviously if we expect the three new multiplexes to offset the analog, then you can come up with the estimate because of giving you the impact of revenue level on the analogue switch-off rates [1 and 49M]. As you can isolate it quarterly and you can then come up with a very good educated guess as to how much the new multiplexes are going to contribute. So that, as you mentioned in your first question, if we are going to be meeting our guidance for year-end which we are, then you can extrapolate what the Q4 EBITDA revenue should look like, that’s three new multiplexes in essence.

Operator

We now give the floor to Mr. Nicolas Mora from Exane BNP Paribas. Please go ahead.

Nicolas Mora - Exane BNP Paribas

Three questions if I may. First one, just to come back on the CapEx. You were supposed to spend $500 million on the AP-7 by lets say 2012. So I suspect the pretty low CapEx you're seeing this year is just going to be, there's definitely going to be a catch up in acceleration in Q4 and then 2011-2012. Is this correct? Or is the timing just let say put back a little bit to 2014 as well?

Steven Fernandez

All CapEx has to be started by year 2012. Definitely we have to be concluded by year 2012, can be concluding year 2013. But the answer is of course that there is a catch-up effects that will take place in 2011, in the fourth quarter of 2010, and then in 2012, and there might be some spill up into 2013 if we're very smart.

José Aljaro

We don’t expect significant CapEx in related to AP-7 in 2013. Our commitment with the Ministry is to finish before 2013.

Nicolas Mora - Exane BNP Paribas

Okay, now that I find that’s all into shape. Second, have you considered looking at disposing part of your stake in the each holding company just to get rid of the debts that is not sitting there, a bit like [pictorial] style I would say?

José Aljaro

No, no, we want to maintain the control of HIT. It's more than 50%.

Nicolas Mora - Exane BNP Paribas

Sure. Okay, and last question, irrespective of CVC entry, let's say there has been some expectations in the market that the arrival of new CEO Reynés would maybe trigger some change at least somewhat say reviews. Is there anything going on, should we expect anything 2011? As I say irrespective of CVC, it's just waiting to the arrival of the new CEO.

José Aljaro

You see some effect in operation CapEx that I would say…

Nicolas Mora - Exane BNP Paribas

In terms of review of assets?

José Aljaro

As Steven has mentioned if the Board of Directors decided anything just when we communicate them, if not, its different as usual so we operating the management of the company, it corresponds to shareholders to express their views we will see what the future holds.

Operator

There are no more questions. Thank you.

José Aljaro

Thank you all very much for participating in today's conference call. We obviously at Investor Relations part that remain at your disposal as always for any additional questions you may have and I would also like to take this opportunity to wish all of you a happy and a good Armistice day. Thank you.

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