Empresas ICA S.A. DE C.V. (NYSE:ICA)
Q4 2015 Earnings Conference Call
March 30, 2016 17:00 ET
Luis Fernando Zárate Rocha - CEO
Pablo Garcia - CFO
Guadalupe Phillips Margain - CRO
Good afternoon. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Empresas ICA Fourth Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]
I would now like to turn the call over to Pablo Garcia, ICA's Chief Financial Officer. Please go ahead.
Good afternoon and thank you for joining us for ICA's fourth quarter 2015 conference call. Joining me today are Luis Zárate, ICA's Chief Executive Officer; and Guadalupe Phillips, our Chief Restructuring Officer. Also with us is the IR team including Gabriella Rosco and Christian Ibanes [ph].
ICA's results include the effect, both of our operations in a very difficult environment and the restructuring that is taking place at the company. Let me emphasize that we are still working on the restructuring plan, and today's call is not about the specifics of the plan. Because the restructuring plan is still pending, we're not in a position to open up this call for Q&A.
Now I would like to introduce Luis Zárate, our ICA's Chief Executive Officer for some remarks.
Luis Fernando Zárate Rocha
Good afternoon and thank you, Pablo. I was asked last month by the Board of Directors and Chairman, Bernardo Quintana, to return to ICA and take over the position as CEO during this critical period. Today ICA has three mature stable businesses; our industrial construction joint venture, ICA Fluor, the portfolio of operating concessions in our subsidiary for airport operation. The civil construction business is where our biggest challenge lies. Civil construction is ICA's core business, and if it is underperforming, the company as a whole will suffer.
We start the operations structuring the fourth quarter and to-date we have reduced headcount from 51% from 2014 level and our cost structure has declined by 46%. We greatly reduced structure [ph]. However, I firmly believe we have the most talented team of professionals, employees, managers in Mexico. ICA's challenges are great, but one way the short-term plans placed with the elements that we need in order to restore ICA to our former position related in the market.
Now we'll return the call for Pablo for a financial review.
Thank you, Luis. Looking at our results, three factors dominate. Number one, the decrease in construction revenues, particularly in the fourth quarter; number two, the allowances for dipole accounts and asset impairment losses; and number three, the continued high level of financial expense from our dollar denominated debts.
Construction revenue decreased 66% from 8.4 billion pesos in fourth quarter 2014 to 2.4 billion pesos in fourth quarter 2015, the negative variation was 5.7 billion pesos. Work in our concessions in Mexico decreased to 1.1 billion pesos as a result of the high level of work in 2014 to bring some big projects like [indiscernible] completion and delays and difficulties with Barranca Larga in 2015. Other construction work in Mexico also decreased 2.2 billion pesos, this was the result of the slow ramp up of projects in backlog and the low rate of new project wins in 2015. Due to consolidation of San Martin effective October 1, decreased revenues by 1.1 billion pesos. There was a one-time gain on fair value recognition of a property in Panama that contributed 1.1 billion pesos in the prior year. And finally, there was 0.6 billion pesos decrease in other international revenues from Latin America as we move towards completion of some big projects which were only partially offset by 0.4 billion pesos increase in Facchina.
The second major factor was the allowance for doubtful accounts, asset impairment losses, and other provisions which totaled 11.4 billion pesos that we took mostly in the fourth quarter 2015. 6.7 billion pesos represent allowances and impairment losses in the civil construction area. The two largest contributors were increases in allowances for doubtful accounts for on-build work on the Barranca Larga tollroads projects in Oaxaca and the TECII Port Terminal in Lázaro Cárdenas. As we noted in the report, we have essentially stopped major works from Barranca Larga because of cost over loss caused by factors out of our control. In Lázaro Cárdenas, our client notified the older termination of our contracts. We have entered a dispute settlement process with our clients. We also wrote down devaluation of the Faros property in Panama by 1 billion pesos as we consider this land to be available for sale rather than subject to be developed.
3.4 billion pesos represents allowances and impairments mainly of long-term assets in the concession segments. From Barranca Larga, we wrote down the investment by 2.2 billion pesos because of the uncertainty of recovery. On Rio de los Remedios, we reduced the estimate of the return on the project to 9.5% per year from 10% as a result of current traffic volumes and new long-term traffic projections. The remaining 1.3 billion pesos in provisions and impairments in the corporate and other segments was principally due to write-downs of housing development project in Mexico and severances provisions.
The third principal factor affecting our results was depreciation of the peso against the dollar. This resulted in increase in the exchange loss and interest expense totaling approximately 1.2 billion pesos comparing 2015 to 2014. The decrease in revenues and the charges and provisions are the most significant impact on the construction segment and the non-operating side of the concession segment. Together, these two are areas produce and adjusted EBITDA loss of 10 billion pesos including 10.1 billion pesos in charge severance provisions.
On the other side, our operating concessions portfolio in airports contributed 700 million pesos and 561 million pesos respectively in adjusted EBITDA. In addition, ICA Fluor generated 429 million pesos in adjusted EBITDA, although this is eliminated in consolidation. The portfolio of operational concessions had a strong quarter. Vehicle traffic on the five operating highways grew an average of 18% and operating revenues including revenues from the social infrastructure projects and other services grew 25%. We had a strong performance in airports, passenger traffic at almost 13 airports grew 18% and revenues grew 26%. ICA Fluor's revenues increased 68% reflecting the Ramones II Sur Gas pipeline and the refinery project Tamaulipas [ph].
This concludes my remarks. Now, I would like to introduce Guadalupe Phillips, ICA's Chief Restructuring Officer.
Guadalupe Phillips Margain
Good afternoon. Pablo mentioned the company is currently focused on its operating restructure and on its financial restructuring plan. We are working together with our advisors Rothschild and FTI on our business plans. We hope to be able to come back in the near future with more information about the restructuring plan, and we will welcome the opportunity to engage with the market on the details of our plan at that time.
Thank you, Guadalupe. ICA's fourth quarter and full year results clearly highlight the challenges that the management team faces in restoring the company to operating a financial stability. Thank you for your participation today. As I stated at the ousted, we will not be able to take questions today.
Operator, this concludes the call.
This does conclude today's call. We thank you for your participation and ask that you please disconnect.
End of Q&A
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