Hochtief Ag

Welcome to everyone and thank you for joining us for the presentation of Hawk Thief's results for the first nine months of 2023. I'm Mike Pinkney, Head of Corporate Strategy, and I'm here with our CEO, Juan Santamaria, and our CFO, Peter Sassenfeld, as well as our Head of Capital Markets, Tobias Loskamp, and other colleagues from the Senior Management Team of Hawk Thief. We look forward to taking your questions later, but to start off, our CEO is going to run us through the key aspects of our performance during the first nine months of the year. Juan, over to you.

Thank you, Mike, and thank you, everyone on the team. Good afternoon to everyone, and thanks for joining us. Octis has delivered a strong performance during the first nine months of 2023, with solid sales and profit growth, as well as firm cash generations. Another highlight of the figures is the exceptional growth in new orders, which is driven by our strategic focus on the growth opportunities in the rapidly expanding areas of high-tech, energy transition, and sustainable infrastructure markets. This strategy is driving strong order backlog growth, positive profit momentum, and a steadily improving risk profile, and is accompanied by a prioritization of ESG. Let's look at some of the key highlights. Sales increased by 6% year-on-year during the January-September period to $20.4 billion, up 11% on an FX-adjusted basis. Margins remained robust. EBITDA rose 5% to $908 million, or 10% adjusting for FX. Operational net profit for the period rising 6% to $403 million, were over 10% FX adjusted. As you can see, there has been an FX translation headwind of around 5%. The third quarter saw strong performance in Hocty's underlying gas flow from operating activities, which increased by €135 million year on year, with an LPM figure of €1.3 billion, reflecting the group's strong gas conversion. And the group balance sheet remains robust. In the last 12 months, net debt has been reduced by 158 million, with an underlying improvement of 478 million year-on-year, driven by the solid cash generation of the group's businesses. New orders during the period saw exceptional growth of almost 40% year-on-year, effects adjusted to 27.8 billion euros. If we jump to slide 6, we can see the group's wrong cash flow performance in more detail. During the third quarter, our businesses generated 194 million euros in cash flow from operating activities, up by 135 million compared with last year. And if we consider the nine-month period, the 208 million cash flow figure highlighted is almost 90 million higher year on year. Adjusting for seasonality, the 1.3 billion last 12 months figure reflects a sustained high level of cash conversion for the group. We can look at the positive net cash evolution. At the end of September, we have a slightly net debt position of 68 million following the payment in July of just over 300 million euros in dividends to active shareholders. If we adjust for this dividend and some other non-operating effects, the underlying year-on-year variation is a solid 478 million improvement. And I would note our September 2023 figure. incorporates a significant fixed translation impact, which lowers what would have been a solid net cash figure by well over 200 million euros. The next two slides give you more detail on the group's strong orders momentum. New orders show exceptional growth of almost 40% year-on-year, if it's adjusted, to 27.8 billion euros. This is 7 billion above the comparable 2022 period. and it's a consequence of the group's focus on high-growth areas, which accounted for over half of all the work secured in the period. Another benefit of the group's fatigue focus is that these high-tech infrastructure projects are a key ingredient in further driving the group's risk in progress. The vast majority of the group's new orders are now being secured under collaborative, alliance-style, or construction management services-type contracts. all of which incorporate robust risk-sharing mechanisms. At the end of September 2023, the group's order book stands at 56.1 billion euros, up by 3.3 billion year-on-year, or 14% on an FX-adjusted basis. Of this total, the proportion of lower-risk contracts is now around 85% of the total, and it is worth highlighting that the remaining 15% has a substantially improved risk profile compared with the past. Moving on, you can find more details of the solid performance of our divisions in the presentation, and I would just mention a couple of highlights. The Americas Division has delivered an impressive set of numbers. Revenues are 7% up year-on-year in USD terms. There's positive margin momentum and outstanding cash flow performance with a year-on-year increase of 185 million in the nine-month period and 150 million euros in the third quarter. and nine-month new orders growth of almost 50% in local currency. Seeming nine-month results show a strong revenue growth of over 20% in Australian dollars to $9.6 billion. Margin variations year-on-year are in line with the trend we saw in the first half, affected by higher revenue from the zero-profit Westgate Dino project and other project mixed effects. The cash flow metrics reflect seasonality and continue to be impacted by a transition to more lower-risk collaborative projects with lower associated mobilization payments which accompany them. Looking forward, we expect a strong cash flow performance in Q4. And CIMIC's new orders show growth of 14% to just over 14 billion Australian dollars. In terms of the numbers from our Euro division, two things stand out. The very high increase in new orders year-to-date to 2.6 billion euros versus 1.1 billion last year, and a strong cash flow momentum with a 17 million euro improvement year on year. Finally, in this section, I will talk later in more detail regarding avertis, but it's worth noting from the nine-month results that revenues were 11% higher at 4.2 billion euros, with average elite traffic 3% higher and tariffs up 8%. An EBITDA of 2.9 billion euros, was up 12% driving a 15 million higher year-on-year contribution from Abertis to Hoctiv's net profit. I wanted to take a few minutes now to update you on how we're advancing and delivering our strategy. Hoctiv continues to advance in the delivery of its corporate strategy. We have consolidated our core market positions and are rapidly expanding our presence in the structural growth areas of high-tech energy transition, and sustainable infrastructure. Furthermore, we have achieved another milestone in the next phase for our strategy with investment of equity in these high-growth areas, which makes use for extensive know-how and experience in PVPs. In essence, we are approaching our growth market opportunities in three key ways. Firstly, as an infrastructure services provider, both on the engineering and construction management side. as a supply chain and logistics partner, and thirdly, via equity investments. The Q3 highlights in our key growth areas are as follows. The digital infrastructure sector continues to expand in all our core markets. Data center market growth is being driven by the insatiable demand for higher computing capacity and artificial intelligence. During the third quarter, Toron was awarded orders for several new data centers in the U.S. worth 1.1 billion euros or 1.9 billion euros in the nine-month period, and our U.S. company is being presented with numerous opportunities. CIMIC has won several data center contracts in Hong Kong, Philippines, and Malaysia this year, worth approximately 450 million Australian. In Europe, Octi was awarded a data center contract in Warsaw. Furthermore, we have identified a significant pipeline of data center equity investment opportunities in Europe and Asia-Pacific. In Germany, for example, OKTIV, an infrastructure partner, will invest in decentralized and sustainable data centers in metropolitan areas. The infrastructure associated with sustainable mobility in smart cities is a long-term structural growth market. In a significant milestone for the business, A Hochtief JV has been awarded a contract to finance, plan, build, and operate a fast-charging network for electric vehicles by the German Ministry of Transport. This is part of the federal government's Deutschlandnetz tender, which targets a Germany-wide near-term rollout of fast-charging points. Total investment amounts to around 250 million euros, which will include a substantial double-digit equity investment. Signal models are expected to be replicated in several other European countries to meet the increasing demand of EV chargers and we are well prepared for the opportunities which will emerge. This project illustrates this group's strategy to invest equity in high-tech growth sectors where we can apply the financing, project management, and operation maintenance capabilities built up over many years in PVPs. Energy transition is a key megatrend for the foreseeable future, and one where Hoctave can add a lot of value for clients. Already a leading EV battery gigafactory builder in the US, Piatano would have an order book of 1.8 billion euros at the end of September, including Panasonic Energy's EV battery production facility in Kansas and an electric vehicle battery plant for Honda Energy Energy in Ohio. In Australia, Pacific Partnerships has acquired the development rights for the 300 megawatt Hopeland solar farm in Queensland, the second large-scale solar project to be owned and developed by the company. Pacific will develop, invest equity in, and manage the delivery and operations of this solar energy project, which will have the potential to generate enough independent electricity to power approximately 100,000 average-sized homes in Queensland. Simic Sub-Series UGL has won an order for an expansion of a battery storage energy system for NEOEN, one of the world's leading producers of renewable energy. This scheme is key to support the global energy transition in relation to electric vehicles. UGL has been awarded several contracts with energy and minerals processing clients in Western Australia, including a $300 million project for the provision of construction services at a lithium hydroxide plant. The client, Abemar, is the industry leader in lithium and its derivatives. Also, during the third quarter, Simic Subsea Research Man acquired a Canadian engineering and metallurgy company, Novopro. With a strong know-how in lithium processing technology, Octiv gains additional access to opportunities in this expanding sector, as demand for batteries and electric vehicles increases, while enhancing the group's North American presence and offering to clients. This bolt-on acquisition is consistent with this strategy of expanding our presence in the added value chain of high-tech infrastructure. Another element that is essential for the energy transition is nickel. Our company, TEAS, has been awarded a $240 million nickel mining contract, marking this its second successful venture in the Indonesian nickel market this year and reflecting its capability to deliver world-class mining solutions for the metals industry. The project is also consistent with the company's strategy of diversification by commodity. Another growth market related to energy transition is hydrogen. The developing energy market opportunities related to hydrogen and ammonia provide significant potential for the group. In Australia, for example, Garmin has a stated ambition to become the world leader in hydrogen by 2030, with potential related investments of up to 300 billion Australian dollars. CIMI has been involved in several major front-end engineering design studies based on its engineering expertise, and we are currently constructing a hydrogen-ready power generation plant in New South Wales. Social infrastructure is another long-term structural growth market for Hoctee. In August, NFL team, the Tennessee Titans, announced that a consortium, including Turner and an AECOM subsidiary, will serve as construction manager on its new stadium project with an expected total value of $2.1 billion American dollars. The joint venture will oversee the pre-construction and construction management services. Turner and Acom have successfully worked on 17 of the 30 most recently completed NFL stadium projects, including the Sophie Stadium in Los Angeles, which will host the opening and closing ceremonies of the 2028 Olympic Games. In Australia, CPD Contractors has been selected by the Queensland Government as Managing Contractor for stage one of the new Bindaberg Hospital. CPV will lead the design phase of a project with total value of 1.2 billion Australian dollars, which is part of the regional government's 9.8 billion Australian dollars health and hospitals capacity expansion program. Fence is another structural growth area in which the group is strongly positioned due to its existing sector and security credentials and relationships which stretched over decades. UGL has won a contract to provide SWATIC advance advice, planning, supply management, operations, and maintenance for the Australian Defence Forces Fuel Network. The contract will generate approximately $500 million in revenue for UGL over six years. UGL will provide all operational maintenance services throughout the Defence Fuel Network nationally. as well as strategic asset advice and management of the Australian Defence Forces' fuel supply requirements across Australia. The CPV joint venture has also been selected by the Australian Government's Department of Defence to undertake design development activities for the Woomera redevelopment programme. Pending government and parliamentary approvals, a delivery phase consisting of upgrades to buildings, services and infrastructure is expected to follow. with an estimated value of between $500 million and $700 million. In the U.S., the Army Corps of Engineers awarded Turner Construction Company a $389 million contract to construct two buildings at an earth base outside Omaha, Nebraska, and make operations more resilient to potential flooding. Supply chain and logistics. are critical to success, especially for our clients in data centers, EV batteries, and the other high-tech infrastructure markets we're pursuing. To meet these challenges, we have developed SourceBlue, which is Turner's supply chain specialist with a rapidly rising procurement volume of over 1 billion euros in the last two years. The business utilizes its strategic relationships, digital systems, and logistics expertise to deliver transparent and collaborative solutions that improve project schedules, costs, and procurement challenges. The company transforms the traditional procurement process by increasing visibility throughout complex supply chains. It can thus provide clients with reliability on where equipment and products are sourced, experience with over 130 supply chain experts and procurement specialists. Furthermore, it offers Early engagement with designers and engineers, facilitating collaboration and complex challenges from design to delivery. This rapidly expanding business has seen revenues double in the last 12 months. In order to expand SourceBlue's capabilities, Octiv is also developing supply chain in the Asia Pacific region with the creation of a logistics hub to accelerate the group's digital delivery capabilities. Capital allocation will play an increasingly important role in the strategic development of our company, with both transformational M&A and bolt-on acquisitions. As described earlier, we have begun to deploy equity capital in several high-tech infrastructure growth sectors. In addition, we continue to boost our engineering know-how via bolt-on acquisitions, such as the Canadian NovoPro transaction I mentioned earlier, and most recently, via the agreement by UGL to buy telecommunications services arm of SkyBridge. The company is an Australian installation maintenance contracting company, which specializes in the fiber, wireless, and satellite telecoms markets. The acquisition includes the transfer of intellectual property and engineering capabilities and supports UGL's continued strong growth in the sector. Let me move on and talk to you about the recently important developments at Abertis. In July 2023, we reached a new strategy collaboration agreement with Mundis with the objective of strengthening Abertis' global relationship in transport infrastructure concessions. Our partners are committed to promoting an investment plan to expand the portfolio of assets and their management and promote Abertis' growth and value creation while maintaining an optimal capital structure in line with the requirements of credit rating agencies. The agreement also includes a new governance scheme whereby the partners will appoint 12 board members in equal shares, as well as the appointment of the chief executives. Thus, Mondes will continue to appoint the CEO and the secretary of the board, while Hochtief ACS will appoint the chairman and the CFO. In addition, the ACS group agreed to transfer a 56.76% interest in the 288 Manas Lane Highway project. in Houston to Abertus for 1.53 billion U.S. dollars. The total concession has a remaining lifetime of 45 years until March 2068 and is a high-quality transportation asset comprising 17 kilometers of mass lanes with dynamic tolling where tolls can be adjusted to maintain traffic above the target speed. The acquisition leverages Abertus' existing presence in the U.S., and will achieve synergies within a solid regulatory framework. In mid-October, Avertis announced that it had won a tender in Puerto Rico for four toll roads with its 2.85 billion bit US dollars. The company has been awarded the concession right to operate four highways in Puerto Rico for a period of 40 years, expiring 2063, after a competitive privatization process. Tall roads comprise 192 kilometers, representing over 60% of the island's tall traffic, including highly strategic connections to the capital, San Juan metropolitan area, with alternative routes being very limited. They also inject attractive tariff mechanisms with increases exceeding inflation and a solid legal system in which US federal laws apply. And also, worth flagging that there are significant operating efficiencies with Abertis' existing Metropista concessions. These two transactions are aligned with Abertis' long-term strategy of owning, operating, acquiring high-quality strategic toll roads that continue to extend the group's concession-based cash flows. Furthermore, these transactions reinforce Abertis' core exposure to hard currencies while leveraging its existing presence in the U.S. Both concessions contribute to cash flow generation from inception, given existing high traffic levels and EBITDA margins. The shareholders will contribute 1.3 billion euros to support the financing of these transactions. Abertis will thereby maintain an optimal capital structure in accordance with the commitments to maintain its investment grade rating, which S&P has just confirmed. So, in conclusion, let me briefly summarize where we are and how we see the business developing. Octiva achieved a strong set of results. Sales and profits are growing at double the rates in local currency terms. Margins remain robust, and we reported a strong Q3 cash flow performance. And new orders show exceptional growth of almost 40% year-on-year, as I suggested. The SOTEI focus on rapidly expanding high-tech energy transition and sustainable infrastructure markets is driving a strong orderable growth, a positive profit momentum, and further improving risk profile. And we have started deploying capital in high-tech infrastructure sectors, including renewable energy, data centers, and electric vehicle fast-charging networks. We continue to consolidate and expand our engineering and technical know-how via bolt-on acquisitions, and we're rapidly developing our logistics and supply chain services, and our delivery on ESG targets remains on track. Looking forward, we expect a seasonally strong cash flow performance in Q4, and we confirm our guidance for 2023 for an operational net profit in the range of 510 to 550 million euros. Thank you very much to everyone for listening, and now I welcome your questions.

We're ready for questions, operator. Thank you.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from the line of Graham Hunt with Jefferies. Please go ahead.

Hey, gentlemen, thank you very much for the questions. Maybe just two from me. I'm trying to understand where you're expecting the balance sheet to end up at the end of this year and then how much capital you have to go out and do deals just based around some of the transactions that are going on. So first, can you Confirm that Hockteeth will contribute to the $1.3 billion for Abertus. How will this all be financed? And then if we account for that and the option that you have on Teeth, outstanding, are you comfortable with where your balance sheet is today, and how much headroom would you have to go out and do deals beyond this? And I'll follow up with a question on construction, if that's okay. Okay.

Thank you so much, Graham. So let me start with the balance sheet. We expect a very strong Q4 in cash in line with last year, and we're going to be comfortable in the net cash zone at the end of the year from a balance sheet perspective. The $1.3 billion of capital increase, yes, I confirm that Hoxbeth will be contributing its 20% share. When it comes to this, I mean, as I had mentioned in the past, we are just waiting to see. There are three years ahead of us. We are waiting to see if Elliott wants to execute the put or part of the put. From our perspective, we welcome this because our adjusted debt includes the obligation of paying the put plus the obligation of the dividends but it's not plus the share of thesis debt, but it's not recognizing EBITDA. So that would be something very positive for us. So we would welcome. And in terms of firepower, I believe we do have significant firepower in terms of investments for different reasons. The first one is the fact that we're going to be in a comfortable net cash zone. So obviously that has leveraged. But of course, I mean, when you look at the counselors that we are consistently generating every year, there is significant room for it. In addition, as I said before, if we were able to integrate this, basically we would be increasing the EBITDA for the same amount of debt that even accountably is not being consolidated, it is from a rating energy perspective. I mean, I hope I did answer the questions.

That's very helpful. And then just a very quick follow-up on U.S. construction. Obviously, very strong order intake this quarter, and I think you say in the statement that most of this is low risk. Can you give any sense on the profitability of these projects?

Yes. I mean, we're expecting margins to grow in the U.S., and we're expecting margins to grow in the U.S. for two reasons. The first one, when it comes to Turner, as they get into more sophisticated projects, we expect margins to grow. The more value we provide, the more the margins are, with the same construction management low-risk model. When it comes to Flatiron, margins on paper are exactly the same as they used to be, right? So it's typically way above the traditional ones buildings. However, these contracts have low risk, so we believe that they should be achievable. While in the old traditional EPC design build, on paper, there were two-digit margins, but to be honest, between escalation and our challenges, it used to be very difficult to achieve. So I expect margins in North America to grow.

Thanks very much.

Thank you. The next question is from Luis Prieto with Kepler Shoebrew. Please go ahead.

Good afternoon, Juan, and the rest of the team. Thanks for taking my questions. I had a couple of them, very brief. And apologies if I'm repeating something because I had technical issues before. The first one is you've been pretty clear now and obviously in previous occasions that you're shifting your segmental exposure to new markets with high growth. You just said that you expect to see margins increase on the back of this in the U.S., and I would assume in other places like UGL, et cetera. But in the particular case of the U.S., the cost plus, the project management approach that you have, would you need to change the way you do and carry out work in order to see that margin increase? Or do the segments that you're attacking require at some point shifting to a slightly more asset-heavy model? And my second question is, and it's based on the numbers that I've done here pretty quickly, I don't know if I'm right, but the Q3 margin for Asia-Pacific would be diluting more than 100 basis points year on year. And I would like to know if there's anything needed for there, if it's the tunnel gradually coming to an end and then hampering these numbers, or what's behind this dilution? Thank you.

Thank you, Luis. So let me start with margins in North America. So in terms of the potential increased margins of Turner, Turner is getting to more sophisticated projects. Now, to get into those more sophisticated projects, three things, and this is applied to the entire group, okay? Because what we're doing in Turner, we're doing in Europe, and we're doing in Asia-Pacific. There are three keys to start delivering more complex projects for big clients. The first one is increasing the engineering capability. The second one is to increase the supply chain and logistics capability. And the third one is obviously systems. And digital systems, we thought, what comes with it? So that transition is the one that we have started or we started some time ago and is being paid off. The more complex is the project, the more the client wants to make sure that your value proposition is strong. So I believe that margins are going to continue increasing without taking additional risk in the extreme If we were able in the long term to jump into semiconductor thoughts and we were able to do the balance of plant in nuclear buildings, if we were able to jump into other high-digital and high-tech projects, we would see that all we're doing to build that capability will be paid off with higher margins without changing the risk profile. On the contrary, the more commoditized and easy the project is, the more competition and probably eventually the more risk. That's why we are working on a plan to move into more engineering-driven areas. In Asia-Pacific, well, there's a couple of things driving margin. The first one is the Westgate Talent Project, as you said, which the settlement was achieved in December 2021, but also the higher financing costs. We are partly compensating with lower tax rate, and I think that it was 20.1% in the first nine months of 23 versus 22.4%, and this is mainly due to the higher share of equity accounted and JV profits. So, I mean, basically those are the reasons.

Excellent. Thank you very much.

Thank you. The next question is from Augustin Sandra with Stifel. Please go ahead.

Yes, good afternoon. Thank you for taking my questions. I've got two, if I may. The first one is kind of following up on my usual questions on the risk profile of the company. I was wondering if anything has changed regarding the risky projects that were previously mentioned in previous conference calls. And if you're currently comfortable with your level of provisions, risky projects, And I'll ask the second one immediately also. So it was on Asia Pacific. I was wondering if you could please elaborate on the environment you're currently seeing in Australia and how you see it evolve in the next few quarters. It seems to me like the growth environment has been quite strong for more than a year, but it seems like your backlog has been growing faster than sales. So I'm wondering how that could evolve going forward.

Okay, so thank you so much, Augustin. Starting with the risk profile, I mean, I guess your question, if I understood correctly, was more about what we do have in our risk backlog. That includes projects such as Harbor Bridge, which was sorted out and we reached an agreement and a settlement with the clients. for 400 million U.S. dollars. The rest of the projects, I think we had the hospital in Adelaide, which is a litigation that should come up within the next years, but we believe that we do have good provisions. We had the Rostat tunnel in Germany, which I think that it's being very positively resolved, obviously waiting for the outcome within the next months, but we are optimistic. And the rest of the projects, I think that we do have all the right provisions. So I'm comfortable with the level of provisions we have for those projects, number one. Number two, all those risk positions have one theme in common. Assuming we do have the right provisions, they can only mean cash for us, right? More cash, less cash, right? But it won't affect our cash flow profile, okay, which is the other thing. Now, in terms of the backlog by contract type, we've done a huge effort to continue our path to the risk, the companies. And that's why we're trying to avoid design build or we're trying to avoid EPCs, et cetera, as I said in the past. So basically, or if we do, but sometimes we actually design-build because it's the third or fourth project we do in the region, so we are very comfortable with the project itself, but we exclude escalation and we exclude certain things that we're not comfortable with. So overall, I believe that when we talk about the risk backlog, and right now around 85% of our projects are construction management alliances, etc., and 15% correspond to a design-build project with exceptions and caveats that I said before, I believe that we are pretty much migrating the company in the right way. In Australia, a couple of comments about Australia. The first one is Australia, I will talk about Asia about to you right now, but Australia, I believe, that has a huge potential when it comes to transmission lines, renewables, substations, et cetera, and photovoltaic, all these projects, natural resources, lithium, iron ore, et cetera, hydrogen, and other industrial factors. So that's increasing significantly. When it comes to traditional civil projects, I think that it will be a little bit flat with a huge investment, but flat. And depending on the region, it could decrease a little bit, but well compensated by the other high growth areas. So I think that the market will continue preserving all the right fundamentals. In the case of CIMIC, one thing that is happening to the group, not just for CIMIC, but also for Turner Flatiron and Asia is that we're winning a lot of projects that, because they are collaborative, the downside of, I mean, collaborative jobs have one upside, which is they are more or less good margins and are the risk. The downside of those projects is that you start for a long time just doing engineering, right, and working with a client on engineering. which has the effect of not being able to reflect in your backlog anything different from your engineering, right? So that's something that is currently, I mean, a lot of the projects we're announcing are not reflected in our backlog overall because you can only reflect the design portion initially, which is very low. And that's what causes a mismatch between revenues and working hand in some regions, and it's happening in Australia.

Thank you. And if I may just ask another question, which was regarding actually following up on a previous question asking you about the headroom for deals. You said that you wanted to keep an investment-grade credit rating. How does that translate in terms of leverage for you?

I mean, when you work with, well, first of all, I think that we do have, before even getting into the leverage and debt, we do have a strong cash flow that allows for, I mean, annual investments. How much potentially I mean, close to 500 million euros every year. And that's organically. That's without the need of bringing debt in. On top of that, we do have, obviously, our ability to finance. In the case of Hoctiv, I mean, which is very straightforward, except for the TIS component, because the TIS component, as I said before, The adjusted debt, it's in our books, and it's reflected of the put plus the $180 million that we need to pay every year, but not EBITDA, right? So if you were to adjust by that, probably, I mean, you would be talking about, in the case of Octave, two or three times EBITDA when it comes to the possibility to get debt. and we believe that we're going to be finishing the year in a comfortable net gas area. So that gives you a sense between the organic gas flows plus the potential leverage. I mean, it gives us a lot of firepower potentially.

Okay. Thank you very much.

Thank you. The next question is from Asitoris Victor with Societe General. Please go ahead.

Hi, Juan and Mike. Good afternoon. I have one question on the slide number 12 on CIMIC. It's just in case you can confirm that in the last conference calls that the working capital duration that we have seen in the quarter is mainly no issues and is mainly explained by sales growth and the risking of the backlog. Thank you.

Thank you. Thank you, Victor. Yes, I mean, a couple of things that it's important to, when we talk about the networking capital, okay, because the networking capital, especially when we talk, and I'm not sure you're referring to statutory or the underlying, but in the case of the statutory networking capital, this year we are including ETHIS, which was a one-off that we had last year and this year, which if you take that out of the equation, the year-on-year variation in the network and capital outflow figures would be pretty much in line with the business, right? And not very different from last year, right? So we can follow up on this more detail offline, but that's something to mention. The other thing to mention is is first that the first nine months, 2023, reflect typical seasonality, number one, and we are going to see that being changed in Q4, right? Very strongly, and we're very comfortable about that, right? Typically, a lot of reconciliations, they come towards the end of the year, and we are in November, and we already know that those are coming, so we are very comfortable in that sense. There's always a component, of lower client-funded molization payments as we move forward to a low-risk strategy. So that affects always. I mean, you don't have some of the big advance payments that we used to get because of alliances, et cetera. But as I said before, we expect a seasonal very strong cash flow in the fourth quarter, and we expect also – Because a lot of, as I said before, a lot of our legacies and risk, as soon as we continue settling them, those will bring cash over time. So that's another positive of our balance sheet. So we expect to improve cash flow going forward.

Thank you.

Thank you. The next question is from Marcin Wojtel, Bank of America. Please go ahead.

Good afternoon. Thank you for taking my question. I wanted to ask you about profitability outlook for your Asia-Pacific division. Do you expect your EBIT margins to improve over the next 12 months? My understanding is that in 2023 you still have some dilution from legacy projects. So once that dilution over time occurs, goes away, is it logical to assume that your margins will improve?

Yes, we're expecting so. I mean, we do have a little bit of a – I mean, worst case, we'll continue in 2024 over the next 12 months. So from that perspective, and we'll have higher financing costs still, but the business will improve margins. So overall, improvement.

Thank you.

Thank you. The next question is from Dario Maglioni with BNP Paribas. Please go ahead.

Hi, good afternoon. Three questions. One is on Tarna. Can you maybe tell us what percentage of Tarna revenue or business is project management? and what percentage instead is engineering, designing, and kind of higher value added activities. And the second question is on Ambertis. So the positive news, of course, was that S&P ratings maintained the rating of B minus. However, they also mentioned that they would want to see some leverage in 2024, and potentially that will mean in fact, they will correctly lower dividends. So I just wanted to get your view on the dividends from Abertis for next year. And then the last question on order intake, which was really strong also in Q3. It can be volatile, so I just wonder what should we expect for Q4 and next year in your view. Thanks.

Okay. Thank you, Daria. So starting with Turner. Pretty much Turner is, everything we do is, in Turner, is construction management, right, from that risk perspective. So there's no change, right? We have more sophisticated projects with higher margins and less sophisticated projects. There was a time in which most of Turner were buildings, residential and commercial. Right now, that's around 15%. But when you talk about the high growth areas with more margin than usual, that could be getting close to, of all the new intakes, it's around the 50% and increasing, which is changing the backlog of Turner. That's why And I'm confident that we will be able to increase margins over time. Regarding Abertis, I mean, right now from our objective is, and we're going to keep the dividend policy for now, and we believe that we can meet the investment grade conditions. So, I mean, I believe that in that case, no change. And then regarding the order intake, I'm very positive about the order intake, not just now that we're in full. As I said before, there's a lot of backlog, not reflect, I mean, a lot of intakes not reflect in our backlog. I mentioned before. a significant amount from Turner, around $7 billion, $5 billion from Flatiron, $5 billion also from CIMIC, one not even included in our backlog. And when we look at the pipeline and what's coming, we believe that we will continue to grow. So in that sense, we believe that there's a very positive momentum. And if you look at this fatigue segment in terms of data centers, batteries, lithium, hydrogen, sustainable mobility, and, of course, more long-term. But there's a lot of talks in terms of engineering in nuclear. The demand is unbelievable. And that's what I believe that has really changed in our organization within the last 12 or two years. We are transitioning not only to keep our core business, not only to do what we've been doing up to now, but to be able to access some of those areas that to some extent are new to us. That's why we are at the beginning of being able to capture the different areas that before we were not able to capture for all the reasons I mentioned.

Okay. Thanks, Juan. And actually, if I can add one more question on Australia. So you mentioned that you expect the traditional civil engineering market to be flat to small town depending on geography. But also it seems like the government is planning a lot of works over there and there is a big backlog we should pick next year. So I'm just trying to understand how to reconcile your view and the backlog from the government side. Thanks.

Well, I mean, Australia overall, in terms of global investment, is going to increase significantly, right? That's the point. What I'm talking about, I mean, you need to get more into the details about what's going to double or triple, which everything around energy, plants, industrial, that's going to boom in Australia. Even renewables, I mean, the amount of work, transmission lines, substations, I mean, a lot of the hydrogen plants that we are right now just going through the field, but eventually will become big opportunities. So I believe that that will continue growing significantly. When it comes to transport and investment, you need to go step by step. South Australia has an unprecedented plan that probably could make us potentially triple or even triple multiply our backlog significantly in 2024 if things go in the right direction. Victoria is evaluated. That's the one that I would say that from a transport perspective that's a little bit flat. But flat is unbelievable. I mean, I think that Victoria has investments higher than any country in Europe, for example, which is not difficult on the other hand, but significantly versus the U.S. or even versus Canada. So we believe that that will continue. And in some worlds, I think that because of the change in government, it's waiting for the new government to decide what to do. But there are significant projects that we're pursuing. So overall, a huge increase in Australia. I was just, when we were talking about floods, it was mainly traditional transport projects.

So thanks.

Thank you. The next question is from the line of Nicholas Mora with Morgan Stanley. Please go ahead.

Yes, good afternoon, gentlemen. Just a quick one for me. On the margins in Northeast America, especially at Turner, we see a moderate uptick quarter after quarter. I think you're on 2% PBT margin at the nine-month level. When and how fast do you think you can take this to levels we see elsewhere at some competitors? For example, looking at the Excite Financials, these guys do 5%, 6% a bit margin. When is the timeline for mocked? margin uptake, especially at Turner, because you've got some fast churning orders in there, data centers, especially EV manufacturing plants, biopharma. All these have been in the backlog now for more than 12 months for some projects. So should we expect from now on a big uptick in margin? That would be the question. Thank you.

Thank you. Thank you so much, Nicolas. It's a good question, how fast we're going to see margins increasing. I mean, certainly it's going to be a steady increase. How fast? Let me try to work that out and provide more visibility within the next months, right? Because we also need to understand the engineering period, the design period for a lot of these projects, which is not a fixed period of time, right? I mean, typically the client, you design with the client, and when the client believes it's ready, then you go for construction. But there's no fixed time for design. So I believe that it will be steady. How fast? Difficult question, but I will try to provide more visibility within the next month. I'll take that, and I will get back to you probably next time, or if we have before, we can take it offline.

Okay, and if I may, just on Abertis, so you've announced two deals, I mean, you, ACS, Mundis, over the past few months. What do you think, I mean, how do you see these deals from an Abertis perspective, not on SH288 from an ACS perspective, from an OT? Because it seems the values continue to go up. The equity IRs are pretty tight on the budget. Is this really a must-do deal for Albertis at that very high level of price, especially on SH288? I think Puerto Rico, you can maybe just give us a view on a feel for the multiple and where you see the growth there. Thank you.

Yeah, so one question which is, I mean, one point that I believe is very relevant when we talk about the 288. These projects are very easy to evaluate, okay? Because at the end of the day, once the construction is finished, it's about traffic, it's about the third, it's about the forecast, which typically you don't change, right? I mean, you can increase... the tariff, you can increase the tariff. You can obviously look at real traffic compared to old traffic, but you're not changing the projections. So at the end of the day, it comes to discounting cash flows. So when you look at the 288 and the amount I mean, the increases in the tariffs, the increasing in the real traffic, and the real traffic continues to grow. So when we bought the 288 with the traffic at that point, and you compare current traffic and current flows with the ones when we bought, these managed lanes are increasing very, very, very fast. I mean, we provide visibility on that. because eventually, as everyone knows, we're planning for a capital market stay eventually sometime in 2024, and our intention is to provide visibility. But what I can anticipate is that it's very objective. I mean, it's not because it was good for ACS and for Abertis. It's a win-win for everyone. And since we bought, right now the value of that job is above what Abertis committed to pay. And we will show you at due time. So I think that is a good transaction, obviously, for Hoctave ACS because they keep 50% of that asset with Abertis, right? And number one, it's a good transaction for ACS Hoctave because we keep 44%. But right now, if we were going to the market in 2024, I can assure you that it will be way above the 2.7, way above, and we'll show you. And it's good for Abertis because I think they got a good price. And in terms of the life expectations of all their concessions, it increases because it's a very long-term, both Puerto Rico and 288. So I believe that it's a very good mix. It's a U.S. asset. It's U.S. dollar's currency. It's a long-term project with very good traffic and improves, obviously, the EBITDAs and the margins in the in the long term. So very good from that sense. Now, in the case of Puerto Rico, pretty much 60% of the island's toll traffic. And that, together with our existing projects, we almost have almost the entire toll network in the island, or a significant part of it. It's 40 years. It's four highways. I mean, same thing as the 288. It's very long term. I believe that we were reflecting. I mean, there was not a lot of capex on the project. So from that perspective, I don't think there's a lot of risk. But there's a lot of synergies that we haven't – we only took into account part of the synergies, but not all the synergies when evaluating the 288. If we had taken all the synergies with Metro Pista's concessions in Puerto Rico, we would have been able to offer a higher price. So those two assets are very good for Aberti's. Now, what's next? But in any case, we're going to offer our visibility. So, I mean, don't take my words for now, but we will offer visibility at the time in all these assets. What's next for Abertis? We are analyzing Aspelia, Baselink. We are analyzing assets in Chile. We're looking at brownfield assets in the U.S., We're looking at other brownfields, and then you have all the greenfield assets that potentially ACS can, over time, pass to avertage. So that's where we believe the future is. Regarding the French one, we need to wait to see what happens in the future, if they are going to be tender or what's the plan. We don't have visibility at this stage.

Excellent. Thank you. Thank you. We have the next question from the line of Graham Hunt with Jeff Rees. Please go ahead.

Yeah, thanks for allowing just one quick follow-up. Just to confirm that with all these capital allocation plans, you're sort of penciling in or your base case assumes maintaining or increasing your hog teeth dividend as it is for euros last year and sort of where that could land in 23, sorry, 24. Thanks.

So, yes, I mean, we will continue, yes, and we'll continue with our dividend policy of the 65% of the net profit.

Thanks. Thank you. The next question is from the line of Marcin Wojtol with Bank of America. Please go ahead.

Yes, thank you so much. One more question, if you allow me. And this one is on Abertis. Abertis continues to have an important dispute with the Spanish government on the so-called AP7 guarantee. Could you please provide an update? Is there anything new to communicate? Are there any dates or timeframes that we should be aware of? And what is your current thinking on that process?

Well, I mean, within the next month, we should hear from the Spanish Supreme Court. The last date was January, and what we don't know is when they are going to communicate. But I believe that at the beginning of January, they are thinking of making a decision, and when they will be communicating to us. That's what is more unclear. What are we expecting? I mean, it's in the hands of the Supreme Court. Our position, obviously, from a legal perspective, is that we believe we do have a good case. But, of course, it's in the hands of the Spanish Supreme Court, and I prefer not to extend further on this topic.

Thank you very much.

Thank you. There are no further questions at this time. I would now like to hand back the conference to Mike Pinckney for closing comments. Over to you.

Okay, thanks, everyone. Thank you for joining us.

Yes, and from my side, I mean, I always appreciate your time and your questions, which show that you're really looking at the company and working with us to understand it better. We will continue to pretty much continue to be transparent, to offer all the information. And as I said before, we are looking forward to a capital market stage sometime in 2024 to make sure that we provide a lot of the questions that you're asking in further detail. So thank you so much, everyone.