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Empresas ICA SAB de CV (ICA)
Q2 2013 Earnings Conference Call
July 29, 2013, 10:00 AM, ET
Victor Bravo – CFO
Javier Gayol – GBM
Lillian Starky - Morgan Stanley
Carlos Peyrelongue – Bank of America Merrill Lynch
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Thank you very much. Good morning and thank you for joining us for ICA’s second quarter 2013 conference call. Joining me are Gabriel de la Concha, our Chief Investment Officer and Head of Investor Relations and Iga Wolska and Elena Garcia from Investor Relations. I will go over ICA’s second quarter results, provide an update of the outcome of our two strategic transactions and close with an update on our outlook for the year. After this we will open the call to your questions.
Let me start by noting the positive development of the second quarter while also acknowledging that ICA continues to transition from the completion of many large projects last year to the ramp up of major new projects. Five accomplishes standout. First, concession revenues grew more than 100%. These were the result of the start-up of four concessions late last year, plus the continuous maturation of orders.
Second airport continues to generate consistent strong growth with excellent margins as a result of traffic growth and expansion of non-aeronautical services. Third, construction is rebounding from slowdown in the first quarter. Construction revenues grew 70% compared to first quarter and margins recovered. It is important to note that we have completed the financing for the big projects that are in backlog. So we expect these rebounding constructions to accelerate in the second half. Fourth, debt increased only 2% as compared to March 31st, and the increase was mostly an exchange rate affect. Since the end of June the recovery of the peso has reversed the FX losses.
Finally, we launched two strategic transactions to sell mature assets as part of our overall business model. The sale of the RCO toll road and a portion of our shareholding in OMA generated Ps. 7.8 billion for ICA. They strengthened our financial situation and put us in a strong position to take advantage of new business opportunities. We will see the balance sheet benefit of these two transactions in the current quarter. While some of the financial results of the second quarter were below our expectations the overall effect of these five factors enabled us to conclude that we are well positioned to meet our business plan objectives.
Looking at the results of our business segments in the second quarter, construction revenue was Ps. 5.4 billion, that is 17% above the first quarter level, as I mentioned just now, also it is still 30%% below last year’s second quarter. The operating margin rose to 6.2% and the adjusted EBITDA margin was 7%, recovering from the low levels in the first quarter. This rebound reflects the fact that we have moved into the construction phase of two major civil construction projects; Mitla Tehuantepec in Barranca Larga Ventanilla. We expect this trend to continue in the second half of 2013 with the start of the construction phase of the Playa del Carmen branch of the Mayab toll road and the start-up work on Palmillas - Apaseo El Grande in Acapulco bypass toll roads.
Construction backlog remains strong. As of June 30 ICA has more than Ps. 37 billion in construction backlog, plus an additional Ps. 6 billion in loans and services contract and Ps. 10 billion in backlog of non-consolidated affiliates. The major new additions to backlog were the Palmillas - Apaseo El Grande toll road and we also registered an additional share of the work of the Mitla Tehuantepec Highway and increased the size of the contract of contract with the Caqueta Huila Highway in Colombia.
The construction business had an outstanding quarter. Revenues increased 109% compared to the second quarter of 2012 as a result of the start of operations of the two concessions highways in two new construction projects late last year. Traffic and consolidated highway concessions rose 73% reaching TPDA of 30,840 vehicles per day. Traffic on our non-consolidated concessions rose from 10,000 vehicles per day to more than 30,000 per day as a result of the Autovia Urbana Sur. Including the gain on sale of the RPO investment the concession segment adjusted EBITDA increased 149% with a margin of 70.7%. Some noteworthy operational developments in the concession portfolio include the fact that two SPCs are operated normally and with good cooperation between the concessioner and the borrower.
The remaining 68 kilometers of RIO VERDE – CIUDAD VALLES highway opened in June with one toll plaza still to be constructed. Work began on the Palmillas-Apaseo El Grande toll road, in late July. Approximately 75% of the right of way has increased. We also finalized the remaining assets of the contract for the Acapulco Scenic bypass at the beginning of July. The Realito Aqueduct is 85% completed and we expect to start operations in December. And the Nuevo Necaxa-Tihuatlan highway is advancing with a scheduled completion date of December 2013.