Earnings call transcript: FCC Q1 2025 shows strong revenue, profit falls

FCC Group reported a robust revenue increase for the first quarter of 2025, with consolidated revenues rising by 8.9% to over 4.5 billion EUR. Net profits fell sharply by 43.4% to 55.8 million EUR, despite a significant EBITDA growth of 14.6%. The company’s stock experienced a slight decline of 0.61% in the market following the earnings announcement, reflecting mixed investor sentiment. According to InvestingPro analysis, FCC currently appears undervalued based on its Fair Value estimate, with the stock showing an impressive YTD return of 19.59%.

Key Takeaways

• FCC’s consolidated revenues increased by 8.9%, driven by strong performance in the Environment and Water segments.
• EBITDA grew by 14.6%, with a margin of 15%.
• Net profits declined by 43.4%, raising concerns despite operational growth.
• The company’s stock price fell by 0.61% post-earnings announcement.

Company Performance

FCC demonstrated strong top-line growth in Q1 2025, with revenues climbing by 8.9% compared to the same period last year. The Environment and Water segments were key drivers of this performance, contributing significantly to the company’s revenue and EBITDA growth. However, net profits saw a substantial decline, which may have tempered investor enthusiasm.

Financial Highlights

• Revenue: 4.5 billion EUR, up 8.9% year-over-year.
• EBITDA: 324.4 million EUR, up 14.6%.
• EBITDA margin: 15% of consolidated revenues.
• Net profits: 55.8 million EUR, down 43.4%.
• Net financial debt: Slightly above 3.093 billion EUR.

Outlook & Guidance

Looking ahead, FCC expects stable performance in the Water segment and is focusing on reducing project risks through a design-to-construction model. The company aims to maintain leverage under 3x EBITDA and continue its expansion in environmental and water services. InvestingPro data reveals the company’s strong financial health with an overall score of 2.81 (GOOD), supported by impressive dividend growth of 30% and a healthy dividend yield of 4.96%. Subscribers can access 5 more exclusive ProTips and comprehensive financial metrics through the Pro Research Report.

Executive Commentary

"We are concentrating 100% of our gross financial debt in water and environment activities," stated a financial executive, emphasizing the company’s strategic focus. Another executive highlighted the strength of the Water segment, noting, "Our consumption is primarily residential, which is one of our strengths."

Risks and Challenges

• The significant drop in net profits could pose a challenge if not addressed in subsequent quarters.
• High net financial debt remains a concern for investors.
• Working capital expansion could pressure financial flexibility.
• Market volatility and economic conditions may impact future performance.

Q&A

During the earnings call, analysts inquired about the lack of M&A transactions in Q1, the strategy behind working capital expansion, and the company’s leverage strategy. Executives provided insights into seasonal water consumption patterns and reaffirmed their focus on core segments.

Full transcript - Fomento de Construcciones y Contratas SA (FCC) Q1 2025:

Moderator/Earnings Call Host: Recording in progress. Presentation of the first quarter of twenty twenty five. All the documentation has been sent to you in the early hours of this morning. It is also available on our website. I would also like to mention and make sure you’re aware of it that as a result of the carve out, the partial carve out last year, which was reflected on our accounts from the 11/01/2024, we are going to be comparing this year accounts, which especially in the bottom part of the accounts are not really comparable because if you look at the profits before tax, there’s a contribution already in 2024 from cement and real estate, which were really considered to be interrupted activities.

But regarding revenues and EBITDA, the comparison is really valid because we have expressed the accounts of the first quarter of twenty twenty four. And I wanted to mention this because the first quarter means that there was a fall in the consolidated net profits of the group. In fact, 43.4% that we have expressed up to EUR55.8 million of attributable profit include this effect. In the first quarter of last year, we had EUR35.2 million coming from these two activities, cement and real estate. Also at the consolidated level, I just want to mention something because you know that the first quarter is always a very short period.

And so we had an asymmetrical impact from the evolution of the exchange rate of euro as compared with other currencies. Last year, there was a contribution, a positive contribution of FX differences. But this year, the contribution is of the same amount, but of the opposite time. So there’s a base effect of approximately EUR 32,000,000 that also had an effect on the net profits. And these two effects have created an between the operational evolution of the company and the attributable net profits.

So as I was saying, reviewing the main figures at the consolidated level of FCC in the first three months, the consolidated revenues were increased by 8.9%. I would like to mention that the main element here was the environment activity because of the combination of a good organic evolution underlying apart from the effect of the different acquisitions that we’ll be looking at in greater detail that have taken place over the period, which created a positive effect. Water also had a good performance, and this will be the second area that should be mentioned in terms of its contribution across all its main activities. Afterwards, I will give you further details. At the level of the EBITDA, the figure was EUR 3 and 24,400,000.0.

This is an increase of 14.6%, even higher than the one recorded in revenues. But here, we should mention that the main element apart from a good operational performance, there was a base effect last year in the environmental area. But since this year, we’re not going to have that anymore, this has also helped reach this higher EBITDA growth. And so this has resulted in an EBITDA margin over consolidated revenues of 15%. The other headings of the P and L account apart from the interrupted activities and FX effects I mentioned, well, did not show any effects that were of any consideration.

Now the net financial debt at the end of the first quarter was quite similar to the balance we had in the previous period until December. We were slightly above BRL 3,000,000,000, 3 point 0 9 3 billion with a very modest growth that can be attributed to the expansion of the working capital, which in some of our areas was quite marked halfway through the period. And this is something that is quite common for the group. So this is the main culprit for this element. Net assets were quite stable with a slight reduction of 0.3% to slightly more than EUR 3,000,000,000.

Here, I perhaps should mention that the consolidation reserves of foreign companies also as a result of the some of the FX variations, well, gave rise to these small variations, particularly because of minority interest, which is related to the assets belonging to minority shareholders. I should also mention the capture of new activities in terms of revenues. There is a breakdown here and you can see that we stand at over 45,000,000,000, more than 6%. And here, I would like to mention, of course, there’s been an increase across all the different areas, environment, water and construction had a slightly higher importance because of an element I will be mentioning later to do with construction specifically. As I was saying, if we now turn to the different business areas in greater detail, in the environment here, revenues increased by 16.7% reaching over EUR 2,000,000,000.

And here we had good performance across all the four platforms we operate in. What we have done since the end of last year is to aggregate the different operations in The Atlantic, which would comprise our operations in Spain, Portugal and France after the takeover we carried out last year. But as I say, the evolution has been quite positive across all the different platforms. If we start by this new platform of Western Europe, In the case of Spain, revenues increased by more than 9%, five seventy six million. And here we had a good evolution.

The situation is very stable, particularly in our main activity, which is waste collection and street cleaning, which but all the other activities, processing and, you know, had a good performance, very harmonious performance. In other countries such as France and Portugal, we had €35,000,000 on this platform as which compares with a much lower figure in the previous period. And this here, we should mention the acquisition of SGG, the French group that we took over, whose activity is very similar to the activities we carry out in Spain, waste collection, street cleaning. And also in Portugal, the performance was quite similar to that of other countries. The second platform that we have in Europe, the second and most important one is The UK.

Here revenues increased significantly by over 34% reaching over EUR $240,000,000. And here there are two effects to be mentioned. You will remember that in June 2024, we bought the UK Eurobaseur Group, which is really focused on processing and we also had more activity in the recycling and valorization chapters. And here, we really act as collectors on behalf of the British tax authority. And here, there was a lower collection of the discharge tax, which meant that our revenues were slightly lower.

The last platform I wanted to mention in Europe is the Central European platform. We have a cluster with different countries, and the growth was positive, but still positive, 4.2% more. And here, I would like to mention The Czech Republic and Poland with quite harmonious growth with, you know, between waste collection and street cleaning. And the last platform I want to mention is that of The United States. The turnover increased to more than EUR 100,000,000 in just one quarter.

This is the first time we have reached that large figure. And here, there is two effects to be mentioned. The first one is the organic effect because we’re still incorporating new contracts based on the platform we already have, new contracts in Florida and then a new contract in North Carolina. And there’s also a modest contribution, but still important because we made a takeover of the Recycling Holdings Group, which is a waste processing which is a which is a processing plant in the center of Florida. Takeover took place in May 2024.

So this increase of 16.7% of our consolidated revenues, our EBITDA went up by 46.2%. And here, apart from all that I mentioned to do with the four platforms, we should mention a negative base effects we had last year that was already reported in 2024. This was a provision of 10,900,000.0 for a claim for the collection of the discharge tax in The UK. But if we adjusted for that provision of EUR 10,900,000.0, then you would see that removing this from the base effect, the real increase in EBITDA, homogeneous EBITDA for the group in environmental activities was very similar to our revenues. It’s a positive improvement around six 17% of the environmental EBITDA for the first quarter.

Now if we look at water, then as far as water is concerned, to the March, revenues increased by 10.1% or slightly more than 422,000,000. And this was basically supported by the increase in the rates we charge across different geographies. I will mention this in detail in a minute. In the water supply were present in four continents, adding up to 15 different sides. The growth has been harmonious.

Growth in our main activity, which is management, integrated or partial management of the water cycle and also in what we call technology and networks, which is some projects we carry out linked to the services we render for managing the water cycle. Having said this, in Spain, starting by the main market we have, which is Spain, revenues increased to €236,700,000 And here, there was a combination really, a harmonious combination between consumption, cubic meters that we released and an increase in rates. And also technology and networks had a good performance reaching an increase of 11%. As far as the center and the East Of Europe, where we have two important markets where we’re where we own the network, and this is something important because the activity is a % that of a utility. This is the case of Czech Republic and Georgia.

Revenues increased to €68,000,000, 5 point 5 percent more. And here, we have to mention our increase in the rates we charge in the two markets. Also in The Czech Republic, as I mentioned, for Spain, we had a slight increase in consumption. Whereas in Georgia, there was a more flat performance. But since we are net producers, not just for the self consumption of electrical energy, but we all can also export to the network, thanks to our hydroelectrical plant in Georgia, we did have an increase because we sold the surplus to the system, and this was something good for us.

Now for the rest of Europe, you know, we are present in Portugal, also in Italy, etcetera. Here we increased by 7.3% our revenues EUR 28,000,000. In Italy, again, as in Czech Republic and Georgia, we had an increase of rates. Again, this is a concession based model, which allowed us to make these increases. And as I said in previous quarters, in Italy, for example, in Sicily, as far as water is concerned, the drought has hit us very hard, especially last year, but also this year.

But in spite of this, the business model is highly resilient and allowed us to have a good performance. In The Americas, the turnover, well, increased by 11.7%, fifty eight point five million euros. Here you know that since the first of January of last year, and this is, you know, the like for like figure is comparable. We had we we included a new company in Texas where the model is basically based on an integrated cycle. And then in other areas, we also had increases in rates in companies in countries like Colombia.

And also in technology networks, we have carried out projects. And in Colombia and in Mexico, the contract we have quite a few contracts for the management of hydraulic infrastructures. Finally, in The Middle East and North Africa, MENA, especially in the Arabian Peninsula, the main market is Saudi Arabia. Revenues increased by 8.5%, forty point eight million. And here, I should mention the clusters we have in Saudi Arabia where we are just starting off, but this model holds great promise in the future.

Now the EBITDA for water increased to €90,800,000. And here, I would like to mention that well, the margin remained quite stable, 21.5 over sales. There were some readjustments of the margins for some DOT contracts that is partial cycle contracts, and that is what explains the slower pace in the increase of EBITDA than the increase in revenues themselves. But it was not really very significant. Now if we turn to construction, I want to mention, and you know this already, that the two previous activities, environment and water, contributed 80% of the group’s EBITDA.

But now if we turn to construction, DPC revenues rose to €626,000,000, 3 point 4 percent less. Now the problem here was because well, some very important projects came to an end internationally. Particularly last year, the Mayer the Maya train in Mexico, which gave us a very healthy margin, and we completed the project in a very successful way. And also, we made a lot of progress in other projects, but but which did not manage to offset the completion of the Mayer train project. Now in terms of geographies in Spain, we had a reduction, quite a marked reduction, EUR 7 point 6 percent less EUR 21,000,000 less.

But here in Spain, we also completed last year a project that was very important such as that of the Santiago Bernabeu Stadium. Now with respect to the different position since we have in the rest of the European continent, there was a more positive performance, 9.8% more than the previous year. And here, we’re still making progress in the different projects we have in Romania, in the railways in Romania, the highway in Wales, which is, you know, being done on a concession basis and another highway in The Netherlands. In The Americas, the turnover also went down because of, of course, the completion of the Mayer train project. But I should mention for The Americas, and I want to mention this particularly that there was a significant growth in our project portfolio, particularly because in the American market, particularly in The United States, we incorporated a new new project that has now moved on from from design to construction.

This is a model that we are trying to implement more and more at a general level and which allows us to reduce risks because first, you talk to the customer, you define the contracting model and the execution of the works. So a contract is signed and then this when you start the execution phase, things are very streamlined because you have already defined the scope and the cost that are going to be current. And so in this Scarborough contract, you know, this is precisely what we did. And this, you know, allowed us to offset the minor trend reduction. Also in the MENA region, Middle East and North Africa, we are being very cautious in this area, but we have made some progress in Australia.

There’s a series of jurisdictions where we had a fall of 14.4% in our revenues to €37,500,000 because there was less activity in important contracts that we had in Saudi Arabia, such as the case of the completion very successful completion of the railway works in the capital and the underground lines in Riyadh or the Neo Tunnel. But at the same time, we’re going to start off a social housing project that we have signed with the authorities of Queensland in Australia, which is a project that is quite significant, which which is added to some other minor words that we also have in Australia. The EBIT of construction also experienced a fall, 30,900,000.0. The operational margin was also lower than the previous periods, but it is quite aligned to our forecast. Finally, the fourth business area I want to mention is concessions.

These are all of them are well, it’s different types of infrastructures really. Revenues EUR 21,500,000.0. Growth was quite significant, 26.5%. And here, fundamentally, there’s two elements to be mentioned. First of all, you should remember that we made an acquisition of a certain percentage of 50% of the concession of the urban tramway of PALA in the Madrid region.

And we also started the development phase and the implementation phase of road concession in Aragon, also in Spain, the Aragon region. You know that the revenues or concessions basically are concentrated in Spain. The most important ones in terms of their contribution are the road the motorway in Puente, and then another concession we have for a motorway in Murcia in the North in the Southeast Of Spain. And the performance was also good across all the different positions we have in terms of volumes and also in our urban projects. The EBITDA was BRL 13,700,000.0, 13 point 2 percent more.

The EBITDA was aligned with what we expected over the period. There was a slight reduction as compared with the comparable period of the previous year, but we should also consider that when concessions are in the development phase before the exploitation phase, for example, in the Aragon Motorway, their contribution margin over that period is slightly lower and this is only logical. So it’s all very well aligned with our forecasts. Right. I think that this is the long and short of what I wanted to share with you about this first quarter.

And apart from the things I mentioned about the differences because of the carve out that we had last year and other details that I also mentioned when I spoke about the different areas, I think that the evolution has been quite healthy both in terms of revenues and operational margin. Also revenues were very positive and I don’t have much else to add. So I think we should move to the Q and A period. Thank you very much for your attention. Are there any questions?

First question, could you give us information about the revenues and the EBITDA figure for organic growth of the first quarter? Well, yes, just let me look at the figures for a minute. For the environment area, just the environmental business. Well, in the environmental business at the level of organic growth in the first quarter, we there was an increase of 8%. And the rest, which is 50%, would come from the taken over activities.

Next question. Any was any M and A transaction carried out in the first quarter of twenty twenty five? No. To be honest, there were no M and A transactions. Nothing was incorporated to the consolidation perimeter over the period.

In fact, as I was saying, with respect to the evolution of our net financial debt in this first quarter, the payments that we made for investments were very well aligned with the investments and the recurrent activities of the group and the investments in group companies were practically negligible, not very important at all. The leverage target is under three times. When do you think you will be able to reach that target? Probably by the end of the year? Well, the question about the in debt the borrowing target.

Well, it’s not that we have a target under three times EBITDA. If we look at the consolidate figure for for FCC last year, we closed with an EBITDA of €1,450,000,000 with a debt that closed below 3,000,000,000. So we would be at a level of two times EBITDA at a consolidated level. You know that our borrowing level is easy to understand because it is one have 100% is concentrated in the two business areas that are most visible. Utilities or pseudo utilities that is the environment, waste management and water and water cycle.

That’s where a % of the data is concentrated. So in these two business areas, as you know, we have a mixed hybrid financing, banks and capital markets. We have covenants and we have borrowing targets. In the case of water and the water cycle, we have a commitment to stay below five times debt EBITDA. And in the case of the environment, three times.

But at a consolidated level, we are there. We were there at the end of so as the end of last year, we were at level of two times, which I think is very good because utilities account for 80% of our revenue. So this is quite robust. So to answer the question, I think we are what we really want to be. We don’t have the target of going down from this.

And in the two activities, where we concentrate 100% of our gross financial debt, which is water and the environment, we have good rating and investment grade, and we feel comfortable with our leverage level. Next question. Could you quantify the evolution of the working capital over this period? Well, in this first quarter, as I said already, there was an expansion. And we should have figured slightly above EUR 150,000,000, which is lower than our figure in the like for like period of the previous period.

This is an expansion that is typical of this first half and it is quite aligned to quite well aligned to our target. Next question. In Water, can we expect that during the first quarter, the EBITDA debt will stay aligned with the figure of the same period of last year? Well, I think that we will be halfway between the two, I would say, but closer to the figure for 2024 because in water, water is very seasonal. We operate in the Northern Hemisphere.

And as you know, in the Northern Hemisphere, when summer comes, people consume more water. But I would say that precisely because of that reason, our consumption, as you know, is residential. It’s so that is really one of our strengths. So, of course, we provide services to industrial companies, so it is basically residential. So that’s why in the summer, in the Northern Hemisphere, there’s quite a high consumption level.

So I wouldn’t extrapolate this 21% for the rest of the year. Of course, there may be a few things that might affect such as BOTs, but we will be closer to the figure of 2024 than to the figures of the first quarter of twenty twenty five. Okay. If there’s some further questions, I would just like to thank you very much for your interest and for paying attention to what I had to say. You know that we are available to you for any questions you may have.

Thank you.

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