Aenza SAA (AENZ) 2021 Q1 法說會逐字稿

Good afternoon, and welcome to the Aenza First Quarter of 2021 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded. Presenting today on behalf of the company are Luis Diaz Olivero, CEO; and Dennis Gray Febres, CFO. I would now like to turn the conference over to Luis Diaz Olivero, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good afternoon to all attending this conference call. As we usually do, I will make a brief summary of the relevant highlights of the first quarter of 2021. Then Dennis Gray will expand on the financial results. We will conclude by opening a Q&A session.

Ladies and gentlemen, first, I would like to apologize on the delay in the publication of our first quarter results as well as the timing for this conference. As you may have already figured it out, we decided to use until the last possible day to include the latest information available of the plea agreement. Our initial estimates were to sign such agreement before May 15, however, this happened last Friday, 6 days later than our latest anticipated date.

Despite this delay, we managed to include all of the economic effects related to the plea agreement in our 20-F report filed on May 17, and immediately after, we published our first quarter with no additional effects related to this agreement.

We are now in the process of amending our local results for 2020 to align them with the 20-F and have the same financial information in both markets. Due to the relevance of the plea agreement, I will focus my comments on this matter and its effects in the company. The next excepts and our plans in the near term, while Dennis will cover our first quarter.

After almost 30 months after the company began this process, last Friday, May 21, we signed a preparatory plea agreement with the prosecutors and the state attorney. This document is called a preparatory plea agreement because it is the backbone of a final document that will include not only this agreement, but also every other information that the company has provided in this process that needs to be delivered to the judge for his revision and approval. There is a 60-day term to assemble the final document and submit it. This process is called [Homologation] and it is estimated to be concluded in the next 5 to 6 months. And it has been informed, the agreement settles all economic and legal responsibilities of the company and its subsidiaries in 16 projects as well as its participation in the so-called construction club scheme. It involves Aenza formerly GRAÑA Y MONTERO, Cumbra, formerly GyM S.A. and Concar S.A. The total amount of compensation to be paid by the company is PEN 321 million plus on $14.7 million. The payment term is 12 years after court approval of this agreement, interest at the legal interest rate accrued over the compensation.

There is a security package structured by the shares of 1 subsidiary of the company, the pledge of a real estate property and a debt service reserve account equal to a year installment of the payment schedule. The company has no cash retentions, no limitations in asset divestments, but it will not be able to distribute dividends until it has repaid at least 40% of the amount owned. The compensation is prepayable at any time in partial or full amount.

The company will not be able to participate in new bids for construction of infrastructure or road maintenance, whether as main contractor, partner or subcontractor for 2 years after the court approval of this agreement, as an additional commercial payment. The GRAÑA Y family and the former CEO of the company are excluded from the scope of this agreement, and the company is not liable for any amount of compensation imposed on them. This has been a long, complex and incredibly odd process, where the company has faced a non precedence and negotiations where it had little or no leverage to use our targeting power.

Despite this, we believe there was no other way to provide legal and financial viability to the company. So we are very pleased to reach this stage, and we will put all our efforts to cement this deal with the judge approval as soon as possible.

The delay in the signature of the plea agreement has increased the liquidity problems in the company. To tackle this, last Monday, the company began to touch base again with potential investors to complete the third stage of our $90 million convertible bond. As you may remember, the convertible bond secured $32 million in the first and second rounds. Therefore, with the plea agreement signed, we should be able to complete the goal aimed in the third round. We are deploying our best efforts to assess if this instrument will be feasible to complete within the next 3 to 4 weeks.

Also, since the plea agreement allows the company to access other financial alternatives that were not previously available, we began searching for a bridge loan credit with similar amounts between $90 million to $100 million as an alternative for the convertible bond.

Finally, due to the increase in the amount of the compensation and the latest process within the copy registered in the 20-F, the company is assessing its possibilities to face this additional amount of leverage not included in its financial plan approved by November 2, 2020.

Based in our current revenues and the backlog to be executed for the remaining months of the year, we still estimate for 2021 revenues of $1.15 billion, EBITDA around $145 million and net income in excess of $12 million.

As Dennis will elaborate, our current backlog and recurring business provides good visibility for 2021 revenues with low commercial risks, which allows the company to be selective to complete its budget for 2021 and keep working in improving margins and profitability in all its business lines. However, after dealing with its current financial situation, the company will have to focus in replenishing its backlog by securing contracts for 2022 onwards.

Our main and sole critical milestone for the second quarter is the completion of the convertible bond or the bridge loan for $90 million or for the largest amount possible in order to resolve our first stage of our financial plan.

I now leave you with Dennis for the financial analysis of the first quarter.

Thank you, Luis. During the first quarter of 2021, Aenza's consolidated results showed a significant recovery at the operating level compared to the first quarter of 2020. Since as reported in previous quarters due to the outbreak of the COVID-19 pandemic in March of last year, the group's operations were affected in line with the measures decreed by the Peruvian government. The gradual normalization of economic activities during the second half last year, allowed our projects to develop in a normalized manner, with the established health and safety protocols.

During the first quarter of 2021, the Engineering and Construction business, increased productivity of its projects in execution, and the real estate business increased the sale and delivery of low-income housing units. Likewise, in the infrastructure area, our Norvial concession recovered pre-pandemic traffic levels, and the energy business recorded a significant recovery in oil and gas prices.

Revenues at the end of the first quarter of this year reached PEN 905.8 million, 2.1% lower than the figure reported at the end of the first quarter of last year. Engineering and construction revenues decreased mainly due to lower production volumes in the projects under execution.

For instance, the final stage of the auxiliary works of the Talara Refinery contract, as an example, which was partially offset by the increasing sales of Vial and Vives-DSD.

Likewise, in the infrastructure area, sales in the energy business increased due to higher oil prices, and in Norvial, as I mentioned before, due to higher toll collections. This was partially offset by a reduction in sales in the infrastructure Services business due to lower maintenance work performance.

Our consolidated gross profit increased 42.8% in the first quarter of 2021 due to higher productivity in the E&C projects, mainly in the Quellaveco tunnel project and the lower comparative base of engineering and construction in the first quarter of last year, increasing our margins from 7.8% to 11.3% in the first quarter of this year.

Likewise, there was a positive impact in the gross profit of the energy business due to oil price increases. Administrative expenses at the end of the first quarter increased 11.5% this year compared to last year, reaching 5.5% of the sales compared to 4.8% at the end of the first quarter of 2020. The increase in general expenses was due to higher costs in the subsidiaries Cumbra and Cumbra Ingeniería.

Other income expenses, other income and expenses in the first quarter recorded the sales of machinery and equipment, while in the first quarter of 2020 included the provision for the abandonment of wells in the energy business by -- or in compliance with its contract. It is important to mention that in the -- in our energy business, we have 2 of our 4 oil production contracts that are scheduled to expire in 2021 and 2023.

As a result, operating income and expenses increased 165% in the first quarter to the first quarter of last year, with a margin of 5.7% compared to 2.1% last year.

In the first quarter of this year, our net financial expenses increased 65.9%. This is mainly explained by, first, the restatement or the actualization or update of the present value of the account receivable we have related to the Gasoducto

Sur Peruano project, the accurate interest provisions related to the loss of a claim to the Peruvian Tax administration in relation to the 2013 income tax audit in Cumbra and interest increased due to the indebtedness that arise with Banco Santander at the end of last year, due to the execution of the surety bonds by Técnicas Reunidas in December of last year.

Our consolidated net result in the first quarter of 2021 was a loss of $34.7 million. The net margin went from 3.3% or negative 3.4% in the first quarter of last year. To negative 3.8% in the first quarter of this year, explained by the results described above. Our adjusted EBITDA in the first quarter of this year increased 28.1% and compared to last year, going from $93.9 to PEN 120.3 million.

In Slide 11, related to backlog, our consolidated backlog stands at $1.2 billion, plus the recurrent businesses of $552 million. Reaching a total amount of $1.8 billion by the end of the first quarter of 2021, an amount that represents 2 years of revenue.

In the third quarter of last year, our E&C business was awarded with a contract with Lima Airport Partners for the construction of the second runway at the Jorge Chavez Airport Airport and an EPC contract with Gases del Norte for the construction of the Piura Gas pipeline for $58 million. And in the infrastructure area, the increase in recurrent businesses while daily because the new sales estimate at the energy business in relation with increased low oil prices.

In Slide 13, we can see that the total amount of consolidated financial debt at the end of the first quarter of this year was $478 million. Of the total debt, $128.9 million belongs to working capital debt associated with clients' account receivables and also leasing's for the acquisition of machinery and equipment. An amount of $271 million is related to Infrastructure Project Finance that without recourse encapsulated with the cash flows generated by the project itself.

And on the other hand, we have $23.9 million on the financing provided by CS Peru Infrastructure Holdings. And finally, the other amounts belong to the dividends monetization of Norvial and leasings according to IFRS 16.

The debt at the end of the first quarter of this year decreased 5.4% compared to the end of 2020, mainly due to the amortizations in our project finance issue.

In relation to the amount of consolidated surety bonds of $396 million to the quarter. 57% belongs to engineering and construction projects, 40% to infrastructure project and 3% to the real estate business. Luis, We can go to your closing remarks and the Q&A.

We can right now open the Q&A session.

(Operator Instructions) Our first question today will come from Sebastián Montoya with Compass Group.

I have 2 questions today. Can you provide, please, an update on when you expect to resume [railing] wells from Blocks III and IV on your GMP business? And the second question is if you can provide an update on the status of the well, the convertible bond you mentioned and especially about the $350 million corporate bond?

Okay. In the case of the Blocks III and IV, the company has already prepared everything to relaunch drilling. And should be ready to start by July. By now, we are -- we delayed the start from March to July, but we are almost ready to begin. We expect to do it, and we have secured the cash within the operations of the block 3 and 4 in order to drill without any external need of new money until year-end.

In the case of the corporate bond for $350 million, as you know, that's the second stage of our financial plan. We are right now relaunching the convertible bond, the 1 for $90 million. That's what we expect to close as soon as we can within the next 4 to 5 weeks. As I said before, we are also looking for any other alternative that may come in the market due to the access to the market because of the signature of the plea agreement. But if we are able to secure either of these instruments within the next 30 to 60 days, we should expect to deal with the corporate bonds, I would say, in the last quarter of the year.

(Operator Instructions)

This will conclude the question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Thank you very much. As we said during the call, we have reached a very important milestone in our transformation process as a company. We will now focus our effort in deploying our financial plan to secure long-term viability of the company. Thank you all for your patience in this process and for attending this conference call. Have you all a good and safe weekend. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.