Aenza SAA (AENZ) 2020 Q4 法說會逐字稿

Good morning. Good afternoon, and welcome to Aenza Fourth Quarter of 2020 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded. Presenting today on behalf of the company are Luis Díaz Olivero, CEO; and Dennis Gray Febres, CFO. I would like to turn the conference over to Luis Díaz 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 last quarter of 2020. Then Dennis will expand on the financial results. We will conclude by opening a Q&A session.

Ladies and gentlemen, during the last quarter of 2020, the company continued its trend of recovery in terms of activity showed in the previous quarter. Results gave us mixed feedings. On one hand, despite revenue contraction, our operations performed better-than-expected during the fourth quarter and at year end compared to our adjusted budget for 2020. However, the bottom line was affected by additional adjustments and provisions linked to the current negotiations of the fleet agreement, increasing our estimated losses for the year.

Regarding the most relevant highlights of the 3 business lines, E&C continued regaining its peak as a result of the economic recovery of our markets that has started after the second quarter and in line with project cycles that intensified their progress in the last quarters of the year. Margins remained stable as contract negotiations regarding COVID-19 were consolidated.

Our Infrastructure business continue with the recovery in most of its indicators, whether traffic volume, fuel consumption or oil price, with the exception of the impact on Concar, which will be discussed later, all other operations behaved as expected in line with revenue recovery. Our Real Estate business showed better results. Viva completed a record delivery of units in the low house income project of Comas that allowed the company to turn around negative result during the year ending with a positive result.

As of the end of January, all operations were running normalized, and even though it is too early to fully understand the impact of new mobility restrictions dictated in Peru to tackle the second wave of the pandemic, we do not anticipate a similar effect as the one we underwent during the second quarter. Regarding our financial plan, in November 2, the General Shareholder Meeting approved our financial plan. Based on such plan, the company focused its efforts during the last quarter in the launch of a $90 million convertible bond. Filing was completed in mid-January and the first round of the offer targeting current shareholders started last Monday.

The company is targeting to reach the maximum amount of this bond to make sure that it continues its purpose to operate as a bridge until the second stage of the plan can be launched. The second stage of the financial plan is depending on the conclusion of the negotiations of the plea agreement since all alternatives in such a stage are tied to this event.

Regarding this latter, as Dennis will explain, our net income incorporated the latest adjustment based on the substantial progress of the negotiation. Such negotiation, as we publicly have stated, is in its final stage regarding the determination of the amount to be paid as civil compensation under the Law 30737.

Regarding risks for the next quarter, there are 3 relevant risks to consider for the first quarter of 2021. First, the rising of the second wave of the pandemic. Although recent government restrictions do not impact significantly our day-to-day operations. There is the risk that operations may get compromised or that a new mobility restriction that could be imposed by the government may also compromise our operations. On the other side, the key positions have not been compromised and we have designed a contingency plan to avoid any problems based on these critical positions. Second, while access to credit remains restricted, the company relies on the success of the convertible bond issuance. We are aiming for $90 million. However, a lower amount will decrease the time that the company will gain to close the plea agreement.

Finally, even though there are public statements from the Parques del Río that the plea agreement will be executed during this quarter, there is no guarantee that further delays may happen. This agreement is absolutely mandatory to secure the implementation of the second part of the financial plan. As of -- regarding the forecast for 2021, based on the assumptions that our revenues are not affected by the delay in negotiations of the plea agreement nor by new mobility restrictions, we estimated for 2021 revenues of $1.25 billion, EBITDA around $155 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 risk, which allows the company to be selective to complete its budget for 2021 and keep working in improving margins and profitability in all its lines of business.

Finally, regarding critical milestones for the quarter, the critical milestones for the quarter are 3: complete the convertible bond with the largest amount possible and better business with $90 million; sign the plea agreement; and finally, ensure backup for each critical position in the company to avoid any problems with the operations in order to transit smoothly through the second wave of the pandemic.

I now leave you with Dennis for the financial analysis.

Thank you, Luis. Regarding the results of the fourth quarter, it's important to mention as an overview of the whole year that on March 15 of last year, the Peruvian state declared a state of national emergency and mandatory social mobilization, which lasted until June 30 of last year. Since then, restrictions were gradually relaxed until the date of these consolidated results report.

This situation had a significant impact on the country's economic activity, especially in Peru and so in Colombia and Chile and affected our operations, specifically in the second quarter of last year. After such mandatory shutdown, our engineering, construction and real estate projects are developing their activities on a normalized basis with established health and safety protocol and the infrastructure business, which was declared as a key sector at the beginning of the pandemic, continued its operations normally. For example, our Norvial concession although was affected by traffic decrease has recovered the activity levels or the traffic levels of 2019 in the last month of 2020.

On the other hand, GMP was affected by a substantial reduction in oil and gas prices between the months of March and May, but such prices have registered an important recovery at the close of this earnings report.

If we go to Slide 10, on a consolidated basis, revenues for last year reached PEN 3.3 billion, which is an 18.9% lower amount than the figure that we reported at the end of 2019.

Revenues of the E&C business decreased mainly due to lower production volumes an ongoing project. And as a result of the restrictions established by COVID-19, especially in Peru, which I mentioned before. On another hand, the reduction in revenues in the infrastructure area was mainly explained by lower revenues in GMP related to the oil price situation and fewer wells drilled during the year. And the substantial decrease in traffic at Norvial in the context of social immobilization and lower revenues at Concar, our operation and maintenance business, due to less maintenance work performed was also a variable to consider.

Finally, the results of 2020 versus 2019 is also explained by comparative effect of -- for instance, the completion of the expansion of Line 1 of the Lima Metro, which was done in 2019 and also works of the second roadway of Norvial was also done in 2019. As a result of the normalization of activities since July 2020, the results of the 6-month period between July and December of last year showed a significant recovery in activity.

In terms of consolidated gross profit, it decreased 27.4% in last year, mainly due to GMP as a consequence of what has been mentioned before. And also by the reduction in maintenance works and traffic at Norvial, which reduced the margin from 10.8% to 9.7% in 2020.

Other income and expenses are, on a consolidated basis, mainly include an increase in the provision for the potential civil damages for an amount of PEN 32.1 million. Also, they include a provision for the impairment in Concar's accounts receivable in 2 contracts for [Radius]103 with the regional government of Cusco and also other commercial account receivables for 43.6%.

Finally, also in 2020, we included an additional provision for the impairment in the Via Expresa Sur project investment for an amount of PEN 12.3 million. Also important to mention is that as a result of the negotiations with -- towards the CAM Chile divestment in 2018 regarding certain items included in the escrow accounts pursuant to the divestment transaction, we have reported an impairment of PEN 12.7 million also in 2020.

In 2019, other operating expenses also includes the effects of the provision of the civil penalties and the provision for such action in 2019.

In -- at the bottom line, you will see the consolidated net loss in 2020, it amounted to PEN 119.6 million as a result of what has been mentioned before. And also, the net margin went from minus 21.7% in 2019 to minus 3.6% in 2020. It is important to mention that in terms of -- regarding -- or regardless of the consolidated net loss in terms of adjusted EBITDA in 2020, it decreased to only 29.5% compared to 2019, going from PEN 632.9 million to PEN 446.1 million.

As it has been described in the consolidated withholds report, the adjusted EBITDA does not take into consideration the other adjustments, basically provisions for impairment in order to reflect the more operating -- or a more precise operating result of the company for last year.

If we go to Slide 14, in terms of backlog, we reached a consolidated backlog of $1.3 billion plus recurrent businesses of 4 -- of almost $500 million, reaching a total amount of $1.8 billion by the end of 2020. This number represents 2 years of revenue.

In the third quarter of 2020, our E&C business was awarded with a contract with Lima Airport Partners for the construction of the second runway at the Jorge Chávez International Airport and also an EPC contract with Gases del Norte for the construction of the Piura Gas Pipeline for $58 million.

In the infrastructure area, the increase in recurring businesses was mainly due to new sales estimates in GMP with updated oil price.

If we go to Slide 15, the total amount of consolidated financial debt was $505 million. On such amount, $136 million belongs to working capital facilities associated with clients account receivable and also leasing for the acquisition of machinery and equipment. A total of $284.9 million corresponds to infrastructure project finance debt at Line 1 of the Metro and Norvial, which is debt without recourse, with guarantees and cash flows from the project itself. $28.4 million corresponds to CS Peru Infrastructure Holdings financing at our holding company. And $42.1 million corresponds to the debt of the registered debt dividend debt amortization at Norvial. The debt at the end of 2020 decreased 8.8% compared to the end of 2019, mainly due to the amortization of debt of CS Peru Infrastructure Holding, the regular amortizations of our project finance transaction and also the amortization of working capital facilities at our E&C business.

On the other hand, due to the -- on the other hand, the total working capital at the E&C business at the end of 2020 stands at $69.1 million, a slight increase compared to the third quarter of last year, mainly because we registered an incremental indebtedness related to the surety bond that was called by Tecnicas Reunidas on the last week of December, which resulted to a short-term debt facility provided by Banco Santander to reprofile that called surety bonds. In relation to the consolidated surety bonds, our total amount is $428 million at the end of last year, which -- from which 59% belong to E&C construction projects, 39% to infrastructure projects and 2% to the real estate business.

Of the large amount, you can see also on Slide 16 that 83% of our stock of sureties is related to performance bonds. This is basically performance bonds on the E&C business for the construction projects and also performance bonds and the Infrastructure business.

For the [Garantia Asico Pimento] or concession contract compliant surety bonds that are mandatory in order for each of our concessions we manage.

Thanks for your attention, and we can start now with the Q&A session.

(Operator Instructions) Our first question is from Sebastián Montoya from Compass Group.

I have 2 questions about AMA construction company. The first one is if you can please explain why debt for AMA has increased by approximately PEN 60 million between the third quarter this year and the fourth quarter. This is regarding the balance sheet per company you present on the earnings report.

That's the only question or you have a second question?

Yes. Well, the second one is if you can explain why cash also at AMA has increased by approximately PEN 100 between the third quarter and the fourth quarters of this year.

Okay. In general terms, as Dennis mentioned, at the end of his speech. During last quarters, there was a sure -- a couple of surety bonds linked to the project of Talara, the one that we have in arbitration with Tecnicas Reunidas, arbitration, which started almost 20 months ago, where Tecnicas Reunidas decided to call for the surety bonds amounting $23.7 million. We issue a (foreign language) relating that situation in the -- by the end of the year. As a consequence of this, you have an increased amount of debt -- of financial debt linked to this because we have a short-term debt right now under negotiation with Banco Santander to cover the calling of that bond.

Regarding that particular situation, it's highly unlikely that during an arbitration process, you have one of the parties calling the bond to the other. It's -- it shouldn't happen and the company has to take all the provisions in order to attend the surety point that was called, okay? And that's the negotiations we have with Santander. That's the explanation for the increase in debt. The second part of your request linked to the increase in cash position is mainly because, as you may -- as you know, we have trust funds, the issue for every project that we have in the construction company in the construction business in general.

Therefore, what you see at the end in the balance sheet is the total amount of the money that we have in the trust funds in a particular period. The purpose of the trust funds is to keep -- save the money from the clients and make sure that this goes only to the projects where we are ensuring and constructing for the client. So what you see is simply a difference of collection between the advanced payments and regular progress of the projects that adds the positions in each of the trust fund accounts.

In general terms, I cannot say that, that amount is fully liquid. It is a form of cash reserve because you can only use it in the project.

Our next question is from [Enrique Gao] from CrediCorp Capital.

I have 2 questions. The first one is, how many shares do you expect to be issued? And the second one is if the EBITDA for 2021, is the adjusted one or the regular one?

Can you repeat the first one? How many shares? Shares...

Shares, yes. Shares of stock with this convertible bonds.

That will depend. Or Dennis, if you want to take that one?

Yes. It will depend. Let me go back a step. We are aiming for a transaction of an amount of $90 million in the convertible bond. The short-term goal the company has on -- but we do not have an estimation on or an expectation on how many shares would be converted or how many bonds will be converted to share once the specific conversion periods activate in the next -- or following the issuance of the convertible bonds. It will depend on basically traffic, the price at such moment and also the -- each investor's individual decision on whether convert or not.

From the company's perspective, we are operating under the assumption that the convertible debt is debt. And that following the issuance of this instrument, we have to prepare ourselves within the financial plan to repay that convertible debt at face value doing during 2020 -- '21, sorry. Your other question was? Help me with that.

About the EBITDA.

The EBITDA for 2021. It's calculated on an adjusted basis, basically. So it seems it would be comparable to the figure that we have reported in this report for 2020.

(Operator Instructions) Our next question is from Cesar Perez-Novoa from BTG Pactual.

Would it be possible for you to comment on your existing backlog? And what will drive 2021 performance? And maybe tie this up on your views on stalled country investment, juxtaposed perhaps by a commodity super cycle or however you want to call it.

Yes. As you have seen, backlog in general terms have remained quite stable, okay? This is one of the strongest things that we have in our financial plan because if you check how the budget will be consumed, we have $700 million already announced to be consumed in E&C, for instance, which is the more relevant figure linked to backlog, okay? So what is going to happen is that out of the $1.25 billion that I have announced as potential revenue for 2021, backlog will represent a little bit on top of $1 billion.

So we have a very low commercial risk right now in order to complete our budgets. The challenge will be really under the pandemic mode and the transition to a new government, particularly in Peru, on how private investment goes, okay? If mining keeps pushing and private investment keeps pushing, there are -- as we are seeing right now because projects have not halted, we are quoting a lot of things, but we are quoting, looking for building a pipeline of backlog for 2022, okay? Right now, if I mention this, in particular, is because with the amount of backlog that we have to consume, in 2021, we feel comfortable that we can provide the profitability and the margins that we need to deliver, particularly in the E&C business.

The other businesses are more stable and will not change. So in general terms, depending on how the second and the third wave of the pandemic goes in Peru, Chile and Colombia and how the private investment is linked to that, we can say that we probably will be building up backlog for 2021 expected to finalize next year -- this year with similar amounts because this is a size of backlog, which is healthy and a size of backlog that provides us predictability and the security to be quoting with high margins or standard margins and secure profitability. My main risk, in any case, will be the result of the election in Peru, okay? That's essentially the risk to keep in mind.

Absolutely. If I may, just one more question here. Could you -- would it be possible for you to provide a split on EBITDA for your 2 main divisions, E&C and Infrastructure? Out of the $155 million, if there's a breakdown?

Let me -- let me think of -- I'm going to -- I can confirm you that on writing afterwards. I'm going to give you a wild guess because I don't have the numbers on my hand right now.

That would be convenient, I guess.

About revenues -- revenues in E&C should be a little bit on top of $750 million, and EBITDA margin should be around 5.5%. So probably $35 million, $40 million will be the EBITDA of E&C. Infrastructure will go a little, I would say, a little bit on top or around $100 million, and the remaining portion will come from real estate.

(Operator Instructions)

At this time, we have no more questions. So this concludes our question-and-answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.