Acciona SA (ACXIF) CEO Jose Manuel Entrecanales on Q2 2021 Results - Earnings Call Transcript

Jul. 31, 2021 11:28 PM ETAcciona, S.A. (ACXIF)
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Acciona SA (OTCPK:ACXIF) Q2 2021 Earnings Conference Call July 30, 2021 4:00 AM ET

Company Participants

Pepa Chapa - IR

Jose Manuel Entrecanales - Executive Chairman, CEO & MD

Jose Angel - Group CFO

Conference Call Participants

Pepa Chapa

Good morning, ladies and gentlemen, and welcome to ACCIONA's results presentation for the first half of 2021.

Jose Manuel Entrecanales, Chairman and CEO; and Jose Angel Tejero, Chief Financial and Sustainability Officer, will be presenting today.

Previously, let me read a legal disclaimer. Access to this presentation and the information contained herein is limited to persons who are resident and physically present in Spain and certain authorized persons who are resident and physically present in other jurisdictions outside the United States, Canada, Australia, South Africa and Japan. If you are present in the United States, Canada, Australia, South Africa and Japan or you are present outside of those jurisdictions but are not authorized to access this information pursuant to applicable securities laws, we regret to inform you that due to regulatory restrictions, your access to this information is restricted. ACCIONA assumes no responsibility for any violation of applicable law and regulations by any person who gains undue access to this presentation and the related information.

And now let me hand the floor to Jose Manuel Entrecanales.

Jose Manuel Entrecanales

Thank you, Pepa. Good morning, everyone. I'm Jose Manuel Entrecanales, Chairman and CEO. And I will make a brief introduction and leave the floor to Jose Angel Tejero, Chief Financial and Sustainability Officer.

Let me start by saying that this first half has been possibly one of the most important moments in ACCIONA's history. And as you all are aware, we have floated our energy business. The decarbonization secular trend is picking up. Now according to the International Energy Agency, 70% of global GDP has pledged to become carbon neutral mostly around the 50s of this century. And obviously, the energy sector is the lowest-hanging fruit. The electricity generation sector is particularly adequate to tackle decarbonization and the mitigation of climate change. That's the rationale between -- behind our IPO. And these new much enhanced circumstances of need to decarbonize, the need for new capital as an independent company with the highest ESG ratings and the stronger balance sheet and the lower cost of capital was a must to tackle this trend that I was -- this decarbonization trend that I mentioned.

So after approximately 3 decades of building up, we have created the first global pure renewable utility in the world with presence in many countries, 16 countries, with a fully integrated value chain where we develop our own pipeline, we build our own projects, we operate -- naturally operate and manage them, we sell our energy and we help our customers decarbonize through our energy services.

We have an enormous pipeline to double our install capacity by 2025 and triple it by 2030. And above this, huge opportunities, huge positive optionalities in all other areas, energy related mostly in green energy, in floating -- mostly and totally in this area, green hydrogen, floating PV, offshore wind, both floating and fixed bottom or battery storage. So an extremely positive outlook for our energy business.

The IPO has been successful. It has been done, as you will not be -- all are aware, in a very challenging moment with not a positive market -- not positive market conditions. But finally, I must say, with a good work from the syndicate and, of course, the teams and the presentation teams and hard work from all of us, we have succeeded to come out with a reasonably -- at a reasonably acceptable level. And now the trend is the right one, and we have I think given the market the confidence that this company will be able to finance itself and stand as a leader in the sector for the next -- for the future.

But having said all that, mitigation, adaptation and resilience to climate change requires action in all types of infrastructures. So despite energy sector being the lowest-hanging fruit, all other types of infrastructure need action to adapt, mitigate and to bring the resilience to society.

This IPO also helps ACCIONA to develop our capabilities in tackling water, transport, urban, waste, housing or social infrastructure needs through a stronger balance sheet and lower cost of capital. So that together with our strong ESG credentials, our technical expertise, 100-year experience, stable shareholding and global reach put us in a privileged position to lead the global SMART. We call them SMART because it's sustainable, mitigating, adaptation, resilience and transformation infrastructure of the world. So the IPO is good for ACCIONA Energía, but it's an absolute must for ACCIONA for the rest of ACCIONA infrastructures as the opportunities there also build up in a very significant way.

So ACCIONA is today a better company, ideally suited to tackle one of the fastest-growing sectors in the world and an absolute necessity for social development for economic growth and environmental balance around the world.

As for the first half results, it is worth noting that pandemic is -- the recovery from the pandemic is slower than expected and also worth noting the negative impact of 2 industrial EPC contracts with negative margins. Let me say that this activity has been discontinued, which should avoid further losses for the future.

On the very positive side, following the successful integration of Lendlease, we expect the Australian business to consolidate as the main contributor to the construction business of the group. All other activities performed according or better than expected naturally considering the nonlinear nature of the first half results.

So let me hand on to Jose Angel, but just let me reiterate our guidance for the year. And judging from the very strong demand and the healthy backlog, I can also say that I'm confident in a very positive outlook for the short and medium term. Thank you very much.

Jose Angel

Thank you, Jose Manuel. As we go on with the presentation, we see on Slide 4, we present the key financial highlights of the first half of the year. As you can see, we have obtained strong growth rates across the entire profit and loss account. Revenues grew by 17% to €3,555 million with a 23% growth in energy, a 19% increase in infrastructure. EBITDA grew by 29% to €643 million with infrastructures increasing by 76%, benefiting from the growth in revenues and the comparison with a weak first half in 2020, which was negatively affected by the pandemic, particularly in the second quarter. Energy EBITDA increased by 18% and other activities grew by 11.6%.

Earnings before tax before our share of Nordex results amount to €246 million, more than 2x higher than the figure reported in the first half of 2020. And attributable net profit reaches €148 million, more than 7x higher than the previous year. Net investment cash flow in the semester reached €1,122 million with most of the investment effort in the Energy business. This compares to €504 million in the first half of 2020.

Net financial debt stands at €5.8 billion versus €5.7 billion a year ago. Relative to the previous quarter, net debt has remained broadly unchanged. As we mentioned, this figure does not include the impact of ACCIONA Energía IPO proceeds, which would result in a pro forma net debt of €4.3 billion.

In Slide 5, you can find our ESG highlights and key environmental and social performance metrics. We have launched our new sustainability master plan for the period 2025 that adds regeneration to the responsibility and resilience dimensions to -- of our 2 previous plans. We have been the first Spanish electric utility to join the Climate Pledge, remaining committed to achieve carbon neutrality to -- in 2040.

I would also like to highlight the innovative double-impact ESG structure incorporated in our €3.3 billion syndicated facilities, which is another milestone for us and we think for the financial market as a whole.

With regards to the key ESG indicators, I would like to highlight the increase of the number of women in executive and management positions and also the increase of renewable energy generation mainly in the U.S., Mexico and Chile.

Going to Slide 6. We provide detail on the investment by division, which reached a total amount of €1,122 million, most of it in the Energy division. ACCIONA Energía presented yesterday its first set of results as a listed company, invested €661 million during the first half of the year, which includes, amongst other things, €404 million of ordinary CapEx and the payment of the acquisition of an 8.33% stake in its subsidiary, ACCIONA Energía Internacional from KKR, bringing the current stake up to 75%. The total cash outflow also includes payments that were deferred in 2020 to 2021 to protect the balance sheet in the pandemic year.

In infrastructure, we have invested €143 million. The most important cash outflow has been the payment of the second installment for the purchase of Lendlease Engineering of €70 million. Other activities with a total investment of €277 million includes the acquisition of Silence, the electric motorbike manufacturer, for €34 million. As a result of which, we have strengthened our strategic position in the urban mobility business, becoming a vertically integrated player.

For the investment in other activities also includes a loan granted to Nordex for around €200 million and which has been capitalized as equity in July 2021 as part of the €584 million capital increase carried out by Nordex. As a result, our stake in Nordex remains unchanged at 33.63%.

We have invested €103 million in property development in the first half of 2021, including the acquisition of €51 million of land in prime locations in Madrid and Barcelona.

Lastly, we have collected from the sale of our portfolio of Spanish concessions agreed in Q4 2020, which has been partially cashed in, in 2021.

Going to Slide 7, you can see the large cash flow items that explain the evolution of the net debt during the first 6 months of the year. The most important moving part has been the €1,122 million net investment already mentioned. Working capital outflow of €187 million in the first half of the year implies a positive evolution of €32 million in the second quarter stand-alone. While financial results amounting to €95 million have been 10% lower than the same period during the last year.

Going to Slide 8 and 9, pro forma net debt. We see -- we present the detailed information about ACCIONA's financial position. Firstly, on Slide 8, we provide the reported net debt as of June 2021, €5.8 billion, which includes €2.2 billion of gross cash. We have reduced the average cost of our debt from €2.8 billion in financial year 2020 to €2.6 billion in the first 6 months of 2021. And we expect too a further reduction of our cost of debt as a result of the independent access of ACCIONA Energía to the financing markets.

In Slide 9, we present the pro forma net debt with the net proceeds of the IPO cash-in in July. We have adjusted the maturity profile on a pro forma basis as well. The net cash proceeds from these transactions amount to almost €1.5 billion, resulting in a pro forma group net debt post-IPO of €4.3 billion.

On Slide 10, we present the main operating and financial data of ACCIONA Energía. I will not elaborate much of ACCIONA Energía given that it has already published its first half results in full detail.

Revenues grew by 23.2% to €1,041 million. And EBITDA grew by 18.3% to €501 million driven by the very high prices achieved by the new capacity in operation in the U.S. markets in the context of the Texas snowstorm, the slightly higher prices and generation volumes recorded in Spain.

In terms of capacity addition, energy has added 494 megawatts in the first 6 months of the year, which puts them on track for the close to 600 megawatts targeted for 2021 as a whole. 495 megawatts are under construction as of the end of June. A 1.3 gigawatt is scheduled to start construction during the second half of the year.

Lastly, Total output increased by 4.1% on a consolidated basis, thanks to the new capacity in operation. By geographies, production increased by 2.3% in Spain and 6.1% abroad.

Going to Slide 11. The infrastructure business has had a good performance in the first half of the year with a 19% increase in revenues and a 76% increase in EBITDA. Construction revenues grew by 25%, reflecting an important acceleration in the pace of execution in the second quarter versus the first one and the significant normalization of the environment despite COVID not being fully out of the picture yet. Construction EBITDA reached €57 million compared to just €1 million in the first half of 2020, which was very negatively affected by the pandemic.

As we said in Q1, infrastructure activity is not yet 100% COVID-free. But business is gathering momentum as the year advances, particularly in our Australian business, and as the Line 6 projects in São Paulo builds up with EBITDA margins going into normalized numbers of between 4% to 5% in the second half of the year and the next year based on the high quality of the backlog of the business. The concessions activities is a decline in EBITDA driven by the exit of our Parramatta -- of the Spanish concession portfolio we agreed to sell in December.

The Water business continues to see high levels of activity and stable margins. Its contribution increased by 5.9% at the revenue level and 6.4% in terms of EBITDA. Our total infrastructure backlog reached a new record high with €17.4 billion compared to €14.9 billion 6 months ago. In this figure, the project backlog, which is construction and water, amounts to €12.5 billion, again another record high.

In Slide 12, we see that this €12.5 billion of project backlog provide a lot of support for future growth of our construction business. Australia represents our largest market with €2.2 billion of order book, followed by Brazil with €2 billion of backlog linked to the landmark Line 6 project and Spain with €1.9 billion. During the first 6 months of the year, we have obtained new awards worth €2.4 billion. Amongst the most relevant projects awarded in the first half of the year, we would highlight the Jubail 3B desalination plant in Saudi Arabia, the Maya Tren in Mexico, the works to improve the Frankston railway in Australia and several projects in Poland for an amount of €249 million.

In July, we have been awarded some significant new projects, such as the contract for the construction of a trans in the Sydney Metro West in Australia for €1.24 billion or the Fargo concession in the U.S., which will imply not only works for the construction unit, around €350 million, but also concession revenues for a period of 29 years.

Going into Slide 13. Sales and EBITDA of our Property Development business have shown a decline in the first half of 2021 versus the first half of 2020 due to the lower number of houses delivered, 156 now versus 301 last year. However, we expect deliveries to accelerate in the second half of the year towards a total run of 400 units for the year as a whole.

However, it is important to highlight that we have 1,700 units under commercialization in Spain, Poland, Mexico and Portugal, equivalent to €486 million in prospective revenues. Out of this figure, our backlog of presales reached €281 million, which implies 58% of the total stock under commercialization. These presales provide a good degree of visibility to our delivery schedule and should compare into revenues during the next 24 months.

In the first half of 2021, we have invested in €113 million in property development, €51 million of it corresponding to land in prime locations in Madrid and Barcelona. Additionally, in July 2021, we have acquired from Madrid a land plot in Méndez-Alvaro, Madrid to develop 450 units, which will be devoted to build to rent for delivery in 2024.

Also, our offices and logistics segment is showing an encouraging positive trend. A proof of that is today's signing of a long-term lease with Webhelp of our 20,000 square meter property in the Barcelona Business District, 22 Arroba with -- in a JV with Tristan. The gross asset value of our property portfolio is estimated at €1,165 million. This figure includes not only the housing development business, but also 90,000 square feet -- square meters of offices and logistics, which are under construction in Madrid and Barcelona, and out of which, 74% are already leased in prelease agreements with tenants.

In Slide 14, we see the performance of Bestinver. Bestinver has had a very good performance in the first half of the year with almost 30% increase both in revenues and in EBITDA. Total assets under management increased by almost €1 billion in the first 6 months of the year to 74 -- €7.4 billion while average funds under management increased by €1.2 billion to €6.9 billion, including the successful launching of Bestinver infra fund with €127 million assets under management as of June 30. EBITDA growth has also been driven by the higher contribution of Bestinver Securities.

With this, I hand it over to Pepa for the Q&A.

Question-and-Answer Session

A - Pepa Chapa

Thank you very much. So now we are going to start reading the questions that you have kindly sent us. First, we have a couple of some questions from Oscar Nájar from Banco Santander. Oscar is firstly asking about construction. This question has also been asked by Jose Porta from Kepler. He wants to know -- well, he's a little bit disappointed with the margin that we have reported in the first half, 3.5% EBITDA margin. He expected us -- a higher improvement with the works that we had in the order book. So he wants to know how do we see the rest of the year, how do we see 2022 and when do we expect to have an EBITDA margin in the range of around 5% in this business.

Jose Angel

Thank you, Pepa. I -- we have to say that there is still some delays in the start of new projects due to the pandemic. In addition to that, as Jose Manuel said, there are 2 -- there is a contribution -- a negative contribution of 2 negative industrial contracts that have, as I said, negative contributed to the results of the Construction segment in this second quarter. However, as we have commented during the presentation, also, construction is gathering momentum, and we expect to have a much better H2 in '21.

With regards -- with normalized EBITDA margin, as also I have said in the presentation, based on the high-quality order book that we have estimated that in '22, we should also already be delivering normalized margins of between 4% and 5%.

I also would like to take this opportunity to highlight the good performance of -- good evolution of the working capital in the first half of 2021 in the Infrastructure division because out of €187 million working capital outflow, €86 million correspond to the Infrastructure division, which I think is a very good performance.

Pepa Chapa

Okay. Moving to the next question from Oscar. He wants to know a couple of things about Nordex. Firstly, he highlights that the company has had an improvement in results in the second quarter versus the first Q. And he wants to know if we expect a better -- even a further improvement in the rest of the year. And linked to Nordex, as I was saying, he says that we've invested money in the company for a few times, and if we expect further investments from ACCIONA in Nordex.

Jose Angel

Well, we have a positive view on Nordex as a general, but results of Nordex has to be described by -- in the Nordex presentation. But as I said, we have a positive view on Nordex outlook.

And also, to mention the dimensional of our support to Nordex, we see it more as an investment, not as support, an ACCIONA support. Now Nordex is fully capitalized. It shows a fully capitalized balance sheet, has very strong balance sheet. And it is ready to capture the future growth of the wind turbine manufacture.

Jose Manuel Entrecanales

Let me add there that Nordex is a strategic investment for ACCIONA. It's just part of our strategy. It's an essential tool for the energy activity. And it is a source of competitive advantage, which we obviously hold at corporate level, at parent company level but for obvious reasons because it's having -- holding together an OEM and the Energy business doesn't make sense or would be a distorting factor for the energy business. However, it is a key element of the energy strategy.

Pepa Chapa

Excellent. Thanks. Then last question from Oscar. He wants to know 2 specific items of the P&L account. He wants to know what are we including in the -- included in the results from asset disposals for an amount of €55 million. And he wants to -- he also wants to know the provisions for an amount of €65 million.

Jose Angel

Yes. The €55 million correspond to the capital gains obtained with the sale of the portfolio of Spanish concessions that was agreed in Q4 2020, but has been executed now in 2021. And the provisions of €65 million, as I said, I've mentioned before, corresponds to some onerous contract mainly in the industrial business.

Pepa Chapa

Okay. Moving to the next analyst. We have questions from Daniel Rodríguez from Bestinver. Talking about the Property division, he highlights that we have invested €51 million in land this quarter, and he would like to know what are our plans for this activity in the medium term.

Jose Angel

Yes. In relation to the real estate business, our cruise speed in terms of deliveries is this -- of around 1,000 to 1,200 -- I mean 1,200, and we expect to reach it by 2023 units. I'm sorry, yes, it's -- I'm being corrected, sorry. And we expect to reach it by 2023 to 2024.

Pepa Chapa

Next question from Daniel has also been asked by Jose Porta for -- from Kepler. Both would like to ask if we can give them any update on the potential JV services with Ferrovial that has been published in the press in recent days.

Jose Angel

We can say that this is -- in terms of this business, this is a business that requires scale. Always, we are looking into all possibilities for the purpose.

Pepa Chapa

Okay. Thank you. Jose Porta from Kepler again. He wants to know about the Energy business. He asks if -- can you please provide an update on the impact of the ongoing cost inflation and supplies on your CapEx plan?

Jose Angel

Yes. Energy have -- the short-term secured projects are highly protected from current inflationary environment. And energy has also looked to mitigate for any potential increase in the equipment costs through balance of plant efficiencies. They have a very tailored program. And this is a process that is controlled internally. So with these elements, we think that the energy is quite protected for that kind of contingence.

Jose Manuel Entrecanales

Let me just add to that. The energy environment -- the inflationary environment, sorry, is unavoidably associated with higher cost of commodities. In fact, the commodity costs is what's driving in many cases the inflation rate. So commodities are naturally associated or a big part of energy and conventional energy prices.

So yes, there are inflation tensions, but much more relevant to our business or a higher impact to our business is the higher electricity prices that also derive from this inflationary environment. So yes, some impact, but definitely a very significant impact on the sales side.

Pepa Chapa

Next question from Jose about energy also. Can you discuss your bargaining power with both off-takers and suppliers? Do you feel comfortable you can pass through eventual price pressure on supplies? Very much related to the previous one.

Jose Manuel Entrecanales

As I was saying, the pass-through is almost automatic because the environment of the higher alternative energy cost environment sets a different higher reference in prices. So when you're negotiating PPAs, the alternative of your client, despite higher competition -- despite high competition, the alternative of your client is a less attractive alternative, is a higher-priced alternative, which, of course, is an automatic pass-through of the renewable energy sector.

You can't forget that at the end of the day still, we only represent less than 20% of the global generation on the renewable -- the renewable generation sector only represents less than 20%. So the overwhelming driver of energy prices in the world is conventional energy. Hence, if we are -- if conventional energy generation is more expensive, there's a mathematical translation, communication to our energy prices.

As for the transfer of costs, well, that I guess answers your questions. But there's also a bargaining position in anything that happens around the globe horizontally in all industries. So all our competitors are experiencing the same effect. So there is a tendency to convey a significant part of that in all -- of that higher cost. So the answer is definitely yes.

Pepa Chapa

Okay. Last question from Jose about the Property business. What sort of EBITDA should we expect once deliveries normalized? And when would that be? You've said something about the time line previously, but he wants to know as well what kind of EBITDA could we be achieving?

Jose Angel

As I said before, we estimate that we could reach a cruising speed of deliveries with -- of 1,200 units by the year '23,'24. And with regards to margin, you know that the sector average should be around 50%, and we should be at a similar level.

Pepa Chapa

Okay. We have a question from Fernando Garcia from RBC. Can you clarify that the 2.1 terawatt hour of energy forward contracted in Spain at €50 per megawatt hour is for the second half of 2021 and not for the whole 2021?

Jose Angel

Yes. This is right. For the second half of the year, we have hedged 2.1 terawatt hour, just north of €50 a megawatt hour.

Pepa Chapa

Perfectly. And then we have two last questions from Fernando Lafuente from Alantra. Once the Energy division has a life of its own, what are the main strategic guidelines for the rest of the group? Is growing in concessions the focus? Are you planning to speed up the activity at the Real Estate division?

Jose Angel

Okay. As I mentioned, the infrastructure development needs in the world are huge. We are in a privileged position boost by a healthier balance sheet, lower cost of capital, all that added to our more -- to the previous strengths, global presence, 100-year experience, technological capacities that puts us -- or our ESG credentials, that puts us in a very privileged position in order to develop the remaining infrastructures.

I mean this -- let me remind you, this has been -- this has always been a company focused on infrastructures. The only change that has taken place recently has been the separation of the energy infrastructure. But the infrastructure focus remains unchanged. So that will remain to be ACCIONA, a parent company strategic focus.

As for your question for concessions, well, naturally, concessions, private PPPs are an essential part of this industry. And despite the fact that we are not long-term holders of concessions, we are more deriskers, so green to brownfield developers of concessions. We are -- that's definitely a focus, which, by the way, is growing in opportunities, in very attractive opportunities in our pipeline in a very significant way.

And then again, the real estate activity, housing, all these are infrastructures that need to be adapted and that we are developing and that we are in a position to continue developing. And as Jose Entrecanales mentioned, that we'll enhance and will grow in the coming years to a cruising speed of about 1,000 to 1,200 units a year.

So yes, increase in all our infrastructure activities with a stronger balance sheet and the independent listing of ACCIONA Energía.

Pepa Chapa

Thank you. And the last question. In this context, looking to your asset portfolio, ex energy, what is core and what is not core? Could you consider additional asset sales?

Jose Manuel Entrecanales

I think I've answered that one in my former answer. Asset sales is not an immediate -- of any immediate likelihood. However, M&A transactions may occur with the objective of enhancing and improving our capacities in some of our areas of activity. But yes, everything at this stage is core.

I guess we don't have any more questions. So thank you very much, everyone. Thank you for attending this call, and we will be talking to you soon in a -- with the objective of maintaining a very close relationship with the market and our investors and both from ACCIONA Energía and from ACCIONA parent, maintaining a full communication line that will contribute to highlighting the quality and the knowledge of the investor community of our business. So thank you very much. We'll speak to you soon.

Thank you, Pepa.

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