Investor Update

Dec 23, 2019

Press Release

Good afternoon, everybody, and welcome to Ferrovya's conference call regarding the relevant events published this morning on the sale of Broad Spectrum. Leading the call today will be Ernesto Lopez Moso, FFO. Following his presentation, there will be a Q and A session, and all questions will be taken through the call. With this, I hand over the call to Ernesto. Ernesto, the floor is yours. Thank you, begonia, and thanks, everybody, for attending the call on the short notice and in this, a season. Well, we we have to slide. The first one is relating the disposal itself at Broad Spectrum, and then we get into the, state of the different, units, inside the services division. Okay. So with the disposable Spectrum, we say that we have reached an agreement for the sale of, the Australian and New Zealand services, brought a spectrum to Ventya. And, this operation, doesn't involve the business that Spectrum had in, North America and Chile. So this, is carved out for the purposes of this transaction. The main metrics are the enterprise value and I will, measure the Australian dollar. So it's the base of the contract of 574,500,000 Australian dollars that yesterday's FX rate would be €327,000,000. We showed the reported EBITDA for the 1st 9 months of the year, that is close to 53,000,000 Australian dollars. And we, as you see, explicitly, we haven't provided an EBITDA multiple. And there's several reasons for that. I mean, of course, we have an estimate of how, the year could close in terms of EBITDA for this, AJU need and probably it could close between 80 to 85,000,000 Australian dollars could be, a a good range of, of estimate for the year. But, I mean, it doesn't make any sense to get into multiples. I mean, if you do the math that is around 6 point something, because always there's discussion about what is the underlying. I mean, if you have reversals of, provisions as, if you have, in this case, you could have a lower EBITDA, but at the same time, the buyer being an industrial buyer, could have a better EBITDA just because could have synergies with systems and the other and operational cost reduction. So therefore, we, if recently don't, make, an EBITDA multiple for this transaction. As I mentioned, I gave some, indicate, but, just, see the 9 month figure, and, it has been performing below our our expectations in the last couple of of years, but it's true that at the end of the year. I do expect MASA, won some contracts that could put it a little bit back to where our estimates could be. But nevertheless, as I said, a multiple could be anywhere between 607 point something. And of course, to move from the EBITDA to the actual equity value, you have adjustments of a debt like items of €24,000,000, and that leaves an equity, well, equity, and it company loans for us of USD 485.5 1,000,000. That is $300,000,000 with yesterday's exchange rate. We have a final impact that is, that is negative 270,000,000, close in this quarter, and this, also bear in mind that there was a correction in fair value in the third quarter, right? So, there has been an impact related to, broader spectrum, mainly, along the year. What is important for you probably is where the book value for the remainder stands. And you have you can see that we have a 1.3 €1,000,000,000 mark at the end of the 1st 9 months of the year. At the end of the 1st 9 months of the year, at the year end, of course, we will have to be assessed, again. Okay. So this 1,300,000,000, euros, you could see as fleet where Amy is around 187, close to 1,000,000, and the rest is, Spain. And international. Okay. So the the main messages I want to, leave you with is that, Ferrabial is is committed to exit the services business. It's true that we started the year with a process with, a more appetite for the whole, platform. And, this has been weighed to a more focused approach where some players are interested in specific businesses and or, geographies. In terms of, timing for the process, this means that we could, see, things happening probably in the second half of twenty twenty. And, even materializing in 2021, even though some, small divestments could take place before. Okay. So it's gonna take a little bit longer than what we expected, but, interest from my buyers has really, change the profile from the initial expectation. In terms of the business update, the main message is the good news that, Ferrobiad Services in Spain and International are are outperforming our expectations. By maybe 3% to 4% in terms of, all the lines. I mean, revenues, EBITDA and the activity and cash flow. In terms of Amy, AB is in a different situation. Continues this transformation. It has a new CEO with a focus on streamlining the business and maybe doing some partial divestments that have been, on the on on the press. So they're looking to maybe doing some partial divestments and then with a more streamlined Amy looking at the exit of this business as well. Of course, the UK sector is awaiting more clarity on budgets from public, clients. So, we, I think that Amy is preparing for, being in better shape for a the transaction that we would expect to do in as part of this, divestment process. Okay. So with, out any further discussion, I would just close at the, I mean, my speech before I take questions. I probably pain in one of the questions that is, when do you expect to close the deal? Well, it will close next year, probably between 6 to 9 months, maybe it could be something faster, but never, before 3 months. So, probably and more around the midyear should be a natural expectation for the close of this transaction. Okay. And without any further delay, let's get into the Q And A session that we would have to make on the phone rather than, by email as in the past. Okay. So thanks. Let's start the Q and A session. Thank you, Our first question today comes from Stephanie Das of RBC. Stephanie, your line is open. Good afternoon, and thanks for taking my question. Regarding the other parts of services that are not divested yet, are you that, they will not be burning a lot of discussion eventually results in, more provisions. And I guess I'm personally thinking about the in part of the business. And given it's as asset health for sale, yes, how much disclosure will you give until those parts of the businesses are sold, in terms of, what they are generating in terms of cash going forward. Thank you. Okay. Thanks for the, for the question, Stephanie. I guess that, here, the, main news is that, we have a positive, activity, cash flow from the remaining business. Right? I mean, the, main item here was in the in the UK, Amy, you know, that, there was, settlement to get out of the Brimingham contract. And this, at the end of this year, will mean that still to pay, there would be £55,000,000 in the next 5 years, right? So This is something that, is a liability that the company will need to be paying every year in installments, right, but, it's, I mean, we expect, the UK to generate a positive activity cash flow in 2020. This year, it would be a negligible number in terms of cash generation. We won't be bringing let's say, activity cash flow, but, definitely, we expect to, to get improvement in the in the coming budget. Right? So, it it shouldn't be a burden. And the main thing is that, for the rest that you have, Spain and international, that are generating decent activity, classroom, right? So, I mean, both explained and international could be close to 1,000,000 of activity cash flow in 2019, right? So, yes, we take a lot of care that this doesn't burn, cash. And, of course, as I mentioned before, we are committed to, to exit. I mean, it's taking longer, but we will be it in the business. We have four questions on the line currently. Our first comes from Fernando Lafunt of Alantra. Fernando, your line is open. Hello. Good afternoon. Just two quick questions, Ernesto, please. The first one, looking down, I mean, in your conversation with the auditors, is there any hands or risk that they force you to bring back the services division to the business as usual, or you expect to leave them as, this for sale as they are today? And the second question is, if you have any, you said, more or less, the approximation of the cash flow generation that you expect, can you give us an indication of the dividends that should come to the corporate center or the parent company from the service distribution, please? Thank you. Okay. Well, thanks for the questions. Well, regarding the auditors, there's 2 things that are important, right? I mean, one of them is the formal decision to exit the the business, by the company, right, by the board. And the other is that the the different indications from, from bias. Right? So, our expectation is that, it will be, maintained as a a held for sale. Right? I mean, I'm I'm quite comfortable in that, in that regard. And regarding the, class cash flow generation, yes, there's some, dividends that could be coming to a for a reality end of, of this year, right? But in general, I mean, we prefer to talk about activity cash flow, that is the cash flow that any buyer could be seen in the, in the business and and and pay for it. But just it's true that there could be some I mean, not not major, but some, minor dividends from by from the outside region of Spain, coming to the to the corporate. As I said, we, we report the cash, really has been part of the services division. So even though we could declare some, some dividend, we will provide more information at the results conference call. It's something that won't be really material. Our next question today comes from Jenny Payne of Citi. Jenny, your line is open. Two questions from me, please. Firstly, apologies if, this was answered during the call a bit late. But firstly, just in terms of the potential buyers for the residual, services assets, obviously, we've seen in the papers that, APACs have walked away. Can you say at this stage whether they are still potential, bidders with offers on the table, or are you starting from scratch now, you know, just to give us a sense of, the timetable And secondly, are you able to, disclose what the net debt position is at the services business at 9 months or whenever you last heard, in terms of your comfortable sharing, in terms of the net debt position. Thank you. Okay. Well, thanks for the question. I mean, the the first one, we don't make comments. I have not made any comments regarding any, be there or, or this cussions. Okay. So, I want to be giving it, and now, of course, when we say there's, the center because people have, approach with, with interest, but I don't disclose, neither the type of buyer nor the different of the premises they're looking at. So no more information. And here, as I said, we are more likely to see a small a smaller things happening, before we see some of the of the bigger ones. But, mean, there's no point in discussing timings of those because, they could be different different paths. Right? Regarding the net debt, position, the best thing to do is, to publish the, at the year end, what is the net cash position I said now there are different moving parts that could affect. One of them is that services tends to have cash collections from, payments from clients at the end of the of the year. And also, we were looking to maybe getting some dividends from services, right? So I think that the best thing to do is when those moving parts are, are already done. That will be by by yearend. With the results conference call in February, we provide you more information. The fair value that we provide in any case I think reflects the kind of net equity that we could be collecting the remaining for a bill, right? So for now, that is the main figure that, you could have in in mind. And as I said, we'll update with, other, facts like net debt. When we publish the results at year end. Our next question today comes from Jose Arias of Santander. Jose, your line is open. In the Q3 conference call, you announced you intend to retain several PFI products. Is that still the intention, or has that changed? Okay. Well, there was some confusion with this because, people thought of retaining, let's say, kind of services business. I mean, some of them, even though that they see it in the services division, could be more like let's say, PFI where you have an availability. Right? So it's more infrastructure type. Right? So yes, we are looking not to retain, but maybe we could divest some of them. So when we're talking about streamlining the business, is basically getting some of these things, say, out to, more natural buyers that usually are, funds that are closer to infrastructure funds rather than people that would buy a services business. Okay. So, in the end, it's not that we are looking to retain these, these things. But they don't mix together in a transaction that is more, relating services operations. Right? So we, kind of, remove this. Yes, we would be looking to to rotate in it. Oh, okay. I hope that answers your your question. If if yes, we could move on to the to the next question, please. Our next question today comes from Tobias Minor of MainFirst. Tobias, your line is open. You alluded to the difficulties in the UK and the business after possibly the elections starting to get a clarity and certainty in that context and given that the sector has suffered significantly in the UK, wouldn't it makes sense to seek a transaction where you maintain a stake in a merged business? Okay. Some some, buyers have offered us the possibility of, just buying part and us remaining in the business with, objectives have been aligned. We have a preference for a clean exit. We don't rule out really things like, what you're mentioning or even a one point in time some capital markets activity, but it's not the preference that we are looking for buyers that could provide clean exits of the different Okay. So, we've had that kind of interest, but our preference is to, is to, I mean, get out cleanly, let's say. We have no further questions. So I'll hand back for any final remarks. Okay. Well, thank you for taking this call. I mean, I would just take opportunity to, wish you all a very happy Christmas, and we'll keep you updating on these processes and the results in February. Thanks so much, and bye bye now. This concludes today's call. Thanks for joining. You may now disconnect your lines.