Earnings call transcript: FCC Q2 2025 sees strong growth in environmental services

Fomento de Construcciones y Contratas SA (FCC) reported its second-quarter earnings for 2025, showcasing a robust performance in its environmental and water activities. The company reported a total turnover of 4.5 billion euros, with EBITDA rising 11.3% to 675 million euros. Despite these gains, net earnings decreased to 80.7 million euros due to currency exchange rates and asset value adjustments. According to InvestingPro data, the company’s stock has shown remarkable strength with a 32% year-to-date return, supported by an impressive gross profit margin of 59.66%.

Key Takeaways

• FCC’s revenue increased significantly, driven by strong environmental and water sector performance.
• Net earnings declined due to unfavorable currency exchanges and asset adjustments.
• The company completed a partial carve-out of its cement and real estate activities.
• FCC expanded its services in waste collection and street cleaning.
• The company expects stable margins in the water sector moving forward.

Company Performance

FCC demonstrated strong growth in its environmental services, with notable revenue increases in several geographic regions. The company’s strategic focus on expanding its waste management and water infrastructure capabilities has positioned it well within the industry. Compared to previous quarters, FCC continues to show resilience and adaptability, despite challenges from currency fluctuations and asset revaluation.

Financial Highlights

• Revenue: 4.5 billion euros (increased)
• EBITDA: 675 million euros (11.3% increase)
• Net Earnings: 80.7 million euros (decreased from 172.6 million euros)
• Operational Margin: 15.4% (up from 14.9% last year)

Outlook & Guidance

FCC anticipates total investments of around 900 million euros for the year, with a focus on maintaining stable margins in the water sector. The company plans to continue its expansion in environmental and infrastructure sectors, leveraging its strong presence across multiple countries.

Executive Commentary

Miguel Coronel, Capital Markets Manager, highlighted the company’s robust performance, stating, "The results still show a very strong evolution of the company." He emphasized the double-digit growth in revenues and EBITDA, noting, "We grew double digits in terms of revenues and EBITDA." Coronel also remarked on the company’s healthy progress, saying, "The group has really progressed in a very healthy manner."

Risks and Challenges

• Currency Exchange Rates: Continued volatility could impact financial results.
• Asset Value Adjustments: Potential future adjustments could affect net earnings.
• Environmental Regulations: Compliance costs in various regions may increase.
• Market Competition: Intensifying competition in environmental services could pressure margins.
• Economic Conditions: Global economic shifts could influence investment and operational strategies.

FCC’s Q2 2025 earnings report underscores its strong operational capabilities and strategic focus on environmental services, positioning the company for continued growth despite the challenges it faces.

Full transcript - Fomento de Construcciones y Contratas SA (FCC) Q2 2025:

Miguel Coronel, Capital Markets Manager, FCC: Good morning, everybody. Those of you connected remotely, I’m Miguel Coronel. I’m capital markets manager for FCC. First of all, I would like to wish you a very warm welcome to these earning to this earnings presentation. The documents were sent to the Spanish CNMV, and I will be reviewing the financial statements of the company for this second quarter.

I would would like to direct your attention to the partial carve out that we carried out in November of the activities of cement and real estate because, as you know, the lower part of our income statement cannot be cannot really be used as a comparison. Of course, the top line is comparable. So the two periods are fully homogeneous. And I wanted to mention this because we’re going to be looking at the specific effect of all of this in a quantitative way. I also wanted to wanted to mention that the guaranteed revenues, which basically revolving around some of our contracts, from the next quarter, we’re going to be including also our concessions for infrastructure in this chapter, which because, you know, it’s a 100% project based based activities, so this is going to give you a better inkling into what we’re doing.

So July, the portfolio was in excess of €44,000,000,000, a mild increase of 2.8%. But, you know, guaranteed revenues still provide a very solid visibility to our activities. So these are the two things I wanted to start off with. But if we now look at the main figures of our income statement, As I was saying, our turnover rose to €4,500,000,000. I’m going to put on my glasses because I can’t see very well.

This was basically because of our increase in environmental activities here. We took over well, halfway through last year, we carried out some takeovers in The UK, in The US, and in France. Also, in terms of water, our integrated cycle and technology and network activity have also been very active with practically double digit growth. But in terms of consolidated revenues, the activity that had a better performance was concessions, which increased by 45%. And here, this is because of a combination of different factors.

First of all, inorganic activities, it is the the beginning of new concessions and their contributions to revenues, but this was also supported by a very solid performance of passengers and vehicles and different types of concessions. So the operational revenue, the operational results rose to €675,000,000 This was the EBITDA, an increase of 11.3%. And here, to explain that difference between revenues and EBITDA, want to mention the greatest contribution of our processing activities in addition to inorganic growth, organic growth was also significant, and this is what lies behind that positive rise in EBITDA, which grew by five basis points. So at the level of the consolidated group, we practically reached 15%. And at a consolidated level, you can see that our operational activities are still having a very strong performance aligned with the good evolution of our company that we already mentioned in the first quarter.

Now if we go to our net earnings, let me repeat to what let me repeat what I was saying about the partial carve out. Last year in discontinuous activities when we approved the carve out, although it did not take place until November. Formerly, but until June 2024, the contribution of these two activities, have already abandoned us, was €93,000,000 in 2024. As you know, these activities are not making any contribution anymore. This was the most significant impact in the at the bottom of our income statement.

And then there’s another thing I wanted to mention, which really didn’t have any impact on our cash generation. First of all, the strength in the evolution of the euro currency rate, which has strengthened against most currencies. And this left a trace in this first half of some negative exchange rate figures. This has no impact on our cash, though, but in the first half, to give you an overview, 2024, it had a slight contribution of 1 and a half million. So across periods, this is also a very significant element.

And the third element I wanted to mention is a combination of adjust value adjustment of different assets that we have, particularly in the participation using the equity method and some other participations related to activities in the environmental field for an amount of €89,000,000. And these adjustments, you can see them in the income statement. They have come in terms of other operational results and the results due to the application of the equity method. So all of these effects have resulted in a net figure that went down to EUR 80,700,000.0 to 172,600,000.0 because of the effect I mentioned. So there’s a significant asymmetry between the operational evolution of our company and these effects that I have tried to outline.

And I hope I made it clear that they have affected us over this period. And now having said this, let me turn to the different business area, the four business areas making up the group. In terms of the environment, here, the revenues went up by 14.7% to €2,300,000,000. As I mentioned before, waste collection and street cleaning is one of the most significant portions, and it rose organically. It grew organically in Spain, but also in France where we bought an SG a company called SG, which doesn’t which is a company devoted to street cleaning.

And then there was also growth in our operations in The UK and in The US where we also had organic growth. In terms of processing or treatments, the growth has been higher in waste collection and street cleaning. And here, there was a significant effect from the acquisition of UK Eurobasur together with The United States to a lower extent where there was integration of health recycling in Florida. I also want wanted to mention, and you can see this in greater detail when you analyze the environment, there’s the activity that we call others. And here, there’s been a significant growth, the most important growth in the six month period related to our greatest sales of what we call secondary raw materials, including the sale of electrical energy.

So this is what we recover and things we give a second life to. Now in terms of geographies, there’s four main platforms here. We already talked about the Atlantic concepts, but I’m going to break it down here. But it comprises Spain, Portugal, and France. And then we have The UK, Central Europe and The United States.

Now within the Atlantic platform in Spain, revenues grow. Revenues grew by 6.7% to €1,100,000,000 And as I was saying, the most important thing is that the advancement has been quite homogeneous across our different activities, waste collection, street cleaning, treatment, and, of course, other others. And others refers basically to the maintenance of gardens and green areas. The second platform is The UK. A significant growth, 26.4%, €498,600,000.

Here, can, you know, feel the effect of UK Erbiturum. There was also a significant increase in treatment activities and some by product. Central Europe, there we operate in six or seven countries where we are headquartered in Austria, a growth of 5.3%. Here, you know that the main core, relatively speaking, is Austria, The Czech Republic, and Slovakia. And I want to mention what we did in The Czech Republic with higher prices.

And in line with what happened in The UK, we also did quite well in terms of secondary raw material. And this last platform, last but not least, is Portugal and France in The United States, 215,000,000 in revenues. And here, there’s a combination, which is still very successful, of organic contribution with the growth that we have achieved in terms of oil stains growing in areas where we are already present, piggybacking on the economies we already possess, and also the participation of health, recycling, and holding. And I also want to mention that we carried out the acquisition of the first energy recovery plant in The United States in the area of Florida, in the southern area of the Peninsula Of Florida. And this is going to start, you know, contributing to our results from the second half.

And competitively speaking, this is going to also bolster up our American platform. Now in Atlantic, although it still has limits, so we have Atlantic with significant growth, Portugal and France, you know, with significant growth, particularly because of the incorporation of SGG in France. Now all in all, the EBITDA grew by 18.8%, so above the revenues, EUR 3 and 55,800,000.0. There’s, of course, an effect related to the acquisitions, and the operational margin grew very significantly. The most significant figure for the whole group, 15.4% as compared with 14.9 last year.

Now in terms of operation, the operational evolution of water activities, these are basically integrated cycle activities. Revenues here grew by 9.2%, EUR $965,000,000 more. Here, as compared with previous quarters, where the performance of the main activity, you know, partial or integrated cycle versus the projects that we are working on and the networks that we exploit, well, this difference really, was not that big in this period. So in terms of geographies, Spain, which is still making a significant contribution, although its relative weight lower and lower, but it still contributes over 50% of the revenues of the group. Revenues increased by 11.2%, reaching EUR 500,000,000.

Here, we had an improvement in the cubic meters consumed as well as in tariffs. The experts in this area were telling us that we had that the consumptions previous to the pandemic, well, we have gone back to the consumption levels previous to COVID. So the performance has been very salutary both in terms of price and volume. And technology and network, this is the concessions that we explored also grew significantly in Spain. Now in terms of the Central And Eastern Europe, particularly our platforms in The Czech Republic and Georgia, these are assets that we own, not just exploit.

The revenues grew by 4.4%. Here, we had an increase in tariffs. You know that these are businesses that are regulated. But in addition, we are bound by some regulatory plans and those tariff increases related to the targets that we have in terms of operations and service levels have been quite considerable, so much so that they allowed us to compensate for certain reduction in consumption that we experienced in The Czech Republic. But in Georgia, you know, what we had problems with was with the currency rate given the strength of the euro.

So we had a depreciation of minus 3.8 of the local currency. In the rest of Europe, revenues increased by 3.7%, €55,700,000 Here, I want to mention that we had an improvement in prices both in Italy and in Portugal, in spite of the fact that the effect of a more responsible consumption, the result of the drought is still there, which is something that was not really the case in Spain. Now in the case of The Americas, with the transaction that we carried out in Texas, our turnover increased by 12.7%. And similarly, we had a good performance in both Colombia and Mexico in our BOT activity and network technology. Lastly, in the platform that we have in what we call MENA, Middle East And Northern Africa, our performance was similar to 2024, only 0.5% growth.

And perhaps this is the only region where there was a combination because there was a greater activity in Saudi Arabia and less activity in Algeria because of a readjustment of tariffs related to BOT projects and to the models we have for pricing. So the EBITDA in this area grew by 6.2%, EUR 196,300,000.0. As I was saying, I would like to mention and underscore that there’s a reasonable combination of volume and price that explains it, and our margin remained at 22.7%. That slight fall with respect to last year is due to the fact that last year, we reached 23.3 because technology networks had a greater contribution. And as you know, the margin in technology networks is lower.

This year, in the first half, the figure was 10% contribution. And in the same period of last year, the figure was 7%. All the figures are included in the document. Now in terms of construction, the construction activity, well, there’s nothing really new under the sun, but I will break it down for you. Here, revenues had a slight reduction to €1,300,000,000.

It was a lower contribution of industrial projects. As you know, here, there’s a significant weight of industrial projects of all kinds, but particularly those linked to our renewable energy plants. We’re still securing new contracts, but this is the element that really explains the reduction in sales that we experienced. In Spain, specifically, the turnover went down by 5%, €166,000,000. And here, this is because two projects were completed.

One was in the South of the well, both were in the South of the country. In other geographies in Europe, the growth was positive. The evolution was positive, 11.7%. And here, we have we completed a a significant motorway, which is very important for concession, a motorway in Wales, and also Motorway 9 in The Netherlands progressed very, very satisfactory. And then there was another project in Romania.

In The United or in The Americas, in general, we grew by 5.1%. And in the next few quarters, we will see more about this because our railway projects have really started off, in Canada and Pennsylvania in The United States. Here, well, I want to mention the beginning of phase one of a large contract in The United States, Scarborough, a contract which represents well, represented at the start more than €1,800,000,000. And this contract will be developed in collaboration with the customer, but I just wanted to specify it. Another important area that we have, well, MENA.

There was a significant reduction of 55%, €68,400,000 because this was due to the fact that the project well, we already completed the Riyadh metro lines, and so this didn’t make any contribution this year. And we also had an early cancellation because of the customer decided it of the NEO project. This was a project that the customer decided to put on hold. The evolution was positive, and we are going to be, you know, on standby to see what the customer finally decides. But that doesn’t that hasn’t really created any problems for us.

So the contribution is too small, but the beginning of, you know, the new contract in last year, the new contract last year, particularly those in Australia, particularly the social housing project in Queensland, you know, give us reason for hope. So all in all, in construction, our operational margin went down to 5.6%. There was a slight reduction in EBITDA, reached 75 8,000,000, 7.6%. Although, you know, within the evolution, the normal evolution of the division, both revenues and EBITDA progressed in a very predictable way. Now let me turn to concessions.

The concessions area grew by 41.450.1%, reaching 50,500,000 Here, I would like to mention, apart from the underlying evolution of traffic, I want to mention the road project in Aragon, contributed €12,500,000 in revenues out of a total of over €50,000,000 and to a lesser extent, there’s the revenues from the parlor, the family. We acquired a 100% of this concession in April. This is a very positive thing, although the contribution is lower than that of itinerary eight in Aragon, you know that most concessions that we have are concentrated in Spain, and we invoice about €48,000,000. I just want to say that we had a fall in the contribution from other markets, basically Mexico and other areas. Because in 2024, there was the exit of a small concession also that we had in Portugal.

And so it’s now contribution. If you look at the revenues and concessions, well, you will see that this is full, which is explained by this. Because in Mexico, we had a significant increase last year or last year, we had an increase of 30%. The EBITDA in this concession area rose to 29,000,000 it’s 6.8% more. The operating margin went down to 58% this year.

And because itinerary eight of the American concession, while it is being developed, the revenues are accounted for in the top line, and the margin is lower. And so the mean concessions margin has gone down in the period, but this is an effect that you know very well, and it only got a temporary effect. Before I conclude, I just want to mention something about the evolution of our operational performance in terms of cash flow and the balance of our cash position. So the different blocks of the cash flow starting with operations was €329,500,000 It went down by €61,000,000 with respect to the previous year, but this was due, and we will see this in a minute, to the partial carve out in the bottom part of the income statement. So if we look at the most recurrent part, which is the working capital, the outlay was less than €300,000,000.

Most of this money was concentrated in construction and, to a lesser extent, in environmental activities in line with our goals. In terms of pays and taxes payments and taxes, we had an outflow of €26,000,000 slightly lower than what we had last year because there was a regularization in the first quarter of this year of the company tax, which was paid in 2023. And as I was saying, in terms of our cash flow, I want to point your attention to the fact that this year we had an outlay of less than EUR 20,000,000 linked to the variations of provisions. But last year, we had 144,900,000.0 more, which included the activities that were going to be carved out, cement and real estate. For that reason, we were obliged to reflect a different differential evolution, and I would like to, you know, mention this to you so that you can analyze it properly.

In terms of the investment cash flow, we had an application of $319,000,000 lower than the EUR $750,000,000 last year. Of course, last year, we had a delta because we made because this year, we made fewer acquisitions than last year. This last year, we acquired Health Recycling ESG, UK Urbacer in the environmental area, but the investment effort is still going strong. Two thirds are recurrent investments, and one third is still linked to the different activities related to development, which are still not contributing to our EBITDA, but they will do. They will do.

They will do in due course. So our investment efforts are still going very strong. Now financing cash flow, well, we had an outlay of EUR 31,000,000, but there was EUR 50,600,000.0 contribution. And I just want to mention that there was a refinancing that we closed in June for water for half of their financial debt. We may we captured hybrid debt because we resorted to the banking market to maximally optimize the financing cost, and we refinanced a total of 1,100,000,000.0, which would were to mature in July 2026.

And we captured some money not just to refinance early, but, you know, to increase our average cost, also increasing our cash our cash position in that business area. So all in all in all, our our cash flow had a slight slight variation. And if we look at if we look if if we if we take into account what we did in terms of financing, we had a slight increase in our financial debt, in the gross financial debt of the group, 5,200,000,000.0. After the deal with Aqualia, two thirds were capital markets, one third is banking debt. Most of the debt is long term.

So as you can imagine, this is something this was all very solid. The net financial debt, so after the adjustments, was below €3,200,000,000 Essentially, I would like to mention, and we’ve said it, I would like to mention the operational flows and the effect of the temporary evolution of the expansion of current capital. And the financial debt. As you may have seen in the breakdown, it’s a 100% concentrated in our two activities, water and environment, and the headquarters with its perimeter activities and the net cash flow closed at EUR $915,000,000. That’s about all I wanted to share with you.

As you can see, the results still show a very strong evolution of the company. We grew double digits in terms of revenues and EBITDA, and the operational profitability still performed strongly. This second quarter was a little bit slacker in terms of that inorganic the first quarter was a little bit slacker in terms of inorganic activities, but things have picked up in the second quarter. But the group has really progressed in a very healthy manner. That’s all I wanted to share with you.

Thank you very much for your attention. And now we can turn to the questions and answers. Total investments of the group were EUR $364,000,000 in the 2025. Can we expect a similar level in the second half? Thank you, Filipe, for the question.

Well, at the level of maintenance investments and growth investments, so it’s basically current assets, especially environment, I would say yes. What you need to consider is the investments that we have already dispersed in July of our energy recovery plant in the South Of Florida. So what I would say is that, you well, that you should estimate that the that all of those investments, well, it should be of a similar amount of last year’s investments, close to EUR900 million for the whole financial year. Next question. The operational margin of Water grew by 0.5% in the first quarter and 0.8% in the second quarter.

Should we anticipate a continuity of this trend with lower margins also in the 2025? Well, not necessarily. Just remember that here in terms of water, as you can see in the first half, 10% was contributed by technology and networks, which is basically projects that we carry out that are hired by our customer, a public company, to do, you know, improvements or repairs or emergency work because you should remember that we need to manage network’s diligently. But unless we are owner the owners, as we are in the Czech Republic, we’re not really responsible of the final condition of the network. Having said this, we have a forecast for the whole of the year, but it is true that technology and networks, for example, we are required to carry out certain pro certain projects, and we have to, you know, carry them out instantly.

Things are difficult to foresee. What I would say is that if we look at things if you look at the breakdown, I would answer that in the integrated water cycle, there could be a slight increase, while in technology and networks, things will remain stable. If we combine the two, I would say that perhaps we should expect a similar margin in the second half of the year, although it is true, and now I’m going back in time, that things will improve as compared with the first quarter because in the second quarter, we have higher consumption volumes because of the summer. Our business is in the Northern Hemisphere, so there’s greater water consumption. So if you compare it with the second quarter, and let me rectify what I said, margins will go up.

But if we compare it if we compare things with the same period of last year, they will stay very similar. Next question. Could you clarify why you made provisions for possible legal obligations in The UK related with environment? What kind of legal obligations are you referring to here? Well, as I was saying in the beginning, we made we did two things.

First of all, an adjustment in the value of the assets of a treatment plant that we are well, that is under development in The UK because we wanted to be prudent and that’s why we made this adjustment. This is a plant which will, you know, be in operation for many, many decades. And here we have used the equity method for around 30,000,000. And the rest of the provisions, there’s different kinds of provisions, it is true that our operational our operating results include a significant amount in this year, which is basically linked to provisions for an investigation that is underway with respect to our treatment activities under environment, the way we process some of the waste that we deal with. Since this is an operation that is underway, we don’t really want to give too many details.

But as I was saying before, we have applied a prudency criterion. Has over this period, this has no impact on our cash flow, and we will see how things go before we make a decision as to how the process is closed. Next question. The working capital, was it aligned to the budget? Yes, Victor.

We were in line with the budget, so we’ll see how things go in the rest of the year. But, you know, I don’t think there’s going to be too many surprises. There’s no further questions. Okay. So there’s no further questions.

You know, I hope you have the time to make a detailed perusal of our income statement. Thank you again. And if you haven’t gone on holiday yet, we wish you a very happy holiday. Have a very good day. Thank you.

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