Hochtief Ag

Ladies and gentlemen, welcome to the OCHIF full-year 2023 results conference call. I'm the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mike Pinkney. Please go ahead, sir.

Thanks, operator. Good afternoon to everyone. And thank you for joining us for this Hortif 2023 results call. I'm Mike Pinkney, head of corporate strategy, and I'm here with our CEO, Juan Santamaria, and our CFO, Peter Sassenfeldt. as well as our head of capital markets, Tobias Loskamp, and other colleagues from the senior management team of Hortif. We look forward to taking your questions, but to kick off, our CEO is going to run us through this strong set of numbers. Juan, all yours. Thank you, Mike and Tim.

Good afternoon to everyone, and thanks for joining us. Hortif delivered a strong performance in 2023.

Ladies and gentlemen, please hold the line. The conference will resume shortly. Ladies and gentlemen, please hold the line. The conference will resume shortly. Gentlemen, your line is open.

Okay, thank you, operator. Apologies, we had a problem on the line there.

Yes, thank you, Mike. So I was talking about the sales and the fact that they increased in percent on a fixed adjusted basis to 27.8 billion. And then I mentioned that the operational net profit rose by 11% FX adjusted to $553 million at the top of guidance range. The nominal net profit of $523 million compared with $482 million in 2022 showing an 8% increase or 14% FX adjusted. Optiv's cash generation was outstanding in 2023 with underlying cash flow from operating activities at 1.45 billion euros. As a consequence, the group ended the year with a strong net cash position of 872 million euros, an increase of 519 million compared with December 2022. The group's order book stands at 55.3 billion and is up by 3.9 billion, or 11% if it's adjusted year on year. record new orders in 2023 of 36.7 billion, up 27% in local currency terms, have driven this strong increase in the order backlog. Looking at the cash flow performance in more detail, underlying cash flow from operating activities of 1.45 billion euros implies an excellent level of cash generation, driven in particular by Americas and Europe. Furthermore, This figure is over $235 million higher than the 2022 level, which already showed a strong cash generation performance. As shown in the figures, the fourth quarter showed its characteristic seasonal strength. Net operating capex ramped up to $193 million in 2023 due to increased purchases of job-costed tunneling equipment at CIMIC, as well as one-off development capex for a major renewable project. On slide 6, we can look at the cash development from a balancing perspective. Hoek-Beef ended 2023 with a net cash position of €872 million. This is an increase of well over €500 million versus the beginning of the year, and is after distributing a total dividend to shareholders of €301 million in July 2023. I would note that €470 million cash received from the Ventia disposal has been balanced by the other non-operating FX, principally around 180 million cash out for final CCPP settlement, 110 million of equity investments, including PEPs, and FX impacts of close to 120 million. During the year, the rating agency, S&P, reaffirmed its investment grade rating for the group. The next two slides in our presentation provide an insight into development of the group's orders. OPTIV has record new orders in 2023 of $36.7 billion, an increase year-on-year of 27% in local currency terms, and equivalent to 1.2 times work done in the period. Demand has been solid across the group's divisions, With particular strength in high-tech infrastructure markets, we hope to secure important project wins in areas such as data centers and energy transition. The group's order book now stands at $55.3 billion and is up by $3.9 billion, or 11% if it's adjusted, compared with December 2022. It's a consequence of our strategy to further improve the group's risk profiles. Lower risk contracts, which incorporate enhanced risk sharing mechanisms, now account for around 85 percent of our order book, compared with approximately 65 percent six years ago. In terms of divisional performance, let me just mention some of the highlights. On sales of over 18 billion euros, 7 percent higher year-on-year in US dollar terms, the American division delivered 14% operational PBT growth to 422 million euros, above the top end of the guidance range of 380 to 420 million. Margins expanded 20 basis points to 2.3%, with a strong fourth quarter in positive momentum. Outstanding cash flow from operations of over 1.1 billion euros was driven by both Turner and Flatirons. with 300 million euros increase versus an already strong 2022. For 2024, we anticipate continued growth in operational activity to 440 to 480 million euros. CIMIC generated a 20% rise in revenues to 13.3 billion Australian dollars and a solid end part of 434 Australian, up slightly year-on-year in line with guidance. Operating cash flow prefactoring of 640 million Australian benefited from a strong fourth quarter. Year-to-year variations reflects lower client-funded mobilization payments due to a further increase in lower risk and alliance-style projects. For 2024, we're aligning the guidance metric for CIMIC with that of our other operating divisions. We expect operational PBT or 490 to 530 million OSI, compared with a figure adjusted for eventual disposal of 487 million OSI in 2023. In Europe, operational activity of 64 million euros was stable year-on-year at the top end of the 55 to 65 million guidance range, with a strong cash flow result, which showed a 75 million euro rise year-on-year at the operating level. We expect operational PBT in 2024, between 60 and 70 million euros. And at Abertis, we expect a similar level of net profit contribution in 2024 as in 2023. Let me update you on the progress we have made in delivering our strategy. Octave's objectives are to generate sustainable cash back profits, achieve attractive shareholder remuneration, and create value for all stakeholders. Our strategy to meet these targets is focused on, number one, consolidating our core market positions and significantly reducing the group's risk profile. Two, further developing Octave's presence in the rapidly expanding high-growth markets by harnessing our strong existing infrastructure skill set and local presence in key developed markets. To support this, we're working on extracting untapped synergies in the group. And third, during the year, we started to deploy the next phase of our strategy in relation to investing equity in the next generation infra-growth markets we have identified. We will run through these elements of our strategy in more detail. By reinforcing our strong core market positions and the risk in the business, with construction management, alliance style, and other collaborative-type contracts, such as, number one, in Texas, where Toron JB was awarded a contract to lead a $1.2 billion U.S. free development and expansion of the Austin Convention Center. Projects won by Flatiron to build out broadband fiber networks in California to provide access to underserved populations, as well as the Calgary Green Line light rail transit project in Canada. At the end of last year, a CBD contractor, JB, was confirmed for Victoria's 3.6 billion Aussie suburban rail loop east. CBB has a 40% share of the project, which includes the construction of a 16-kilometer section of the project's 26 kilometers of twin tunnels. CBB-JV has also been selected to be the major construction partner for a dam wall replacement in Queensland. to provide a long-term water security and storage solution. And in Germany, a consortium, including Hochtief Infrastructure, won a €426 million contract for the second part of a new bridge across the River Rhine between Cologne and Leverkusen. Overall, we have significantly enriched the group order book with lower-risk projects, now accounting for around 85% of the group or their book at the end of 2023, as I mentioned earlier. In terms of high-growth markets, we have continued to expand our presence and geographical reach. Furthermore, with our collaborative or services nature, these projects further enhance other risky drive. We are seeing a rapid expansion in data centers driven by the ongoing growth in cloud computing and the exponential adoption of artificial intelligence. During the year, Turner was awarded orders for new data centers worth 2.6 billion U.S. But additionally, in 2024, a used company was selected by Meta to build an 800 U.S. million data center in Indiana, which will be fully powered by green energy. In addition, Simicast won several data center contracts in Hong Kong, the Philippines, and Malaysia this year, worth over 400 million U.S. and Europe. The group was awarded a data center contract in Warsaw and started construction of a sustainable AIDS data center in Germany. Octave infrastructure, supported by Turner, has also been awarded a further data center project in Europe. We're strongly positioned in the energy transition market. CEMIC's sub-series UGL was awarded an order for the expansion of a battery storage energy system for NEOL. one of the world's leading producers of renewable energy. This is the third project of this type we have been awarded in 2023. As a leading designer and contractor of sustainable electricity generation and storage assets, UGL has already delivered 17 major renewable energy generation, storage, and transmission line projects. Along with CBD contractors, UGL will construct the 1.4 billion Aussie Himalayan West transmission project, which will significantly increase the capacity of the electricity network in Australia's eastern states. The Australian government announced plans at the end of November last year to underwrite 32 gigawatts of renewable energy generation and energy storage capacity in an attempt to supercharge the country's energy transition. Huge investments will be required in transmission line capacity at a time when battery energy storage systems, which provide food stability, are still in the process of catching up on the renewable energy capacity built up in recent years. UGL is uniquely well positioned in the Australian renewables market with unproven experience, for example, in the solar market as well as in the installation of battery energy storage systems and grid connections. that we expect to continue growing strongly for many years to come. In the U.S., meanwhile, we're a leading electric vehicle battery factory builder by a turn. During 2023, we secured new orders of 2.6 billion U.S. and had an EV battery order book of 2.0 billion U.S. at the end of December. including projects such as Panasonic Energy's EV battery production facility in Kansas and an electric vehicle battery plant for Honda and LD Energy in Ohio. Lithium and other metals are key to support the global energy transition in relation to electric vehicles. UGL has been awarded a $300 million Aussie project in Western Australia for the provision of construction services at a lithium hydroxide plant Another element that is essential for energy transition is nickel. Our company, TIS, has been awarded a 240 million Aussie nickel mining contract, marking the company's second successful venture in the Indonesian nickel market in 2023. The project underlines the company's strategic target to significantly increase the proportion of business commodities needed for the energy transition in the coming years. The group benefits from its excellent reputation as a service provider to the natural resources industry and the full integration of MACA, which it acquired during 2022. The infrastructure associated with sustainable mobility and smart cities is a long-term structural growth market as well. In North America, Flatiron has been selected as lead contractor for Phase 1 of the Dynamic Personal Microtransit Project in San Francisco. The project is intended to provide an alternative transportation option through zero-emissions autonomous vehicles operating in dedicated guideways. Social infrastructure is another secular growth market for Hocktee. In August, NFL team, the Tennessee Titans, announced that a consortium, including Turner and an AECOM subsidiary, will build its new stadium project, which has an expected value of 2.1 billion U.S. And in Australia, CPP has been selected by the Queensland government for stage one of the new 1.2 billion Ossie Vandenberg hospitals. While Stoner, the leading healthcare facility builder in the U.S., broke ground for a $550 million U.S. hospital project in Texas. To maximize the benefit of the growth opportunities Octavia is pursuing, we're working to extract synergies across the world. An example of this relates to supply chain and logistics, which are critical to success for our clients in data center, EV, battery, and other high-tech infrastructure markets we're pursuing. To meet these challenges, we have developed SourceBlue, which is Turner's supply chain specialist. In order to expand SourceBlue's capabilities, Octave is developing its presence in the Asia-Pacific region with the creation of a logistics hub to accelerate the group's digital delivery capability. Capital allocation plays an increasingly important role in the strategic development of a company in terms of potential transformational M&A, both on acquisitions, the deployment of equity capital in next-generation infrastructure, and PPP investments. At the same time, shareholder remuneration remains a priority for Hochdiel. During the year, we also started to deliver on the next phase of our strategy in relation to investing equity in high-tech and energy transition growth sectors. In 2023, Octiv committed or invested a total of around 150 million in these areas, as well as 43 million euros in traditional VPs. We have identified a significant pipeline of data centers that would invest in opportunities in Europe and Asia Pacific. In Germany, for example, HOCTIF and an infrastructure partner are jointly building and operating a sustainable aids data center near Düsseldorf. The consortium has already purchased a further plot for a second project of this type and is in the process of securing a third and intends to replicate the model at other locations in metropolitan areas in the next few months. In a significant milestone for the business, a HOCTIF joint venture has been awarded a contract to finance, plan, build and operate a fast charging network for electric vehicles by the German Ministry of Transport. Total investments amount to 250 million euros, which would include an equity investment of over 50 million euros. Similar 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 that will emerge. In order to transition, at the end of 2023, the Glen Rowan Solar Farm in Australia commenced operations. Pacific has developed, invested equity in, and is managing the solar farm with its services of series UGL, undertaking construction operations and maintenance work.

During the year,

Pacific has also acquired the development rights for the 300-megawatt Auckland Solar Farm in Queensland, the second large-scale solar project to be owned and developed by the company. 2023 has also witnessed several significant PV project wins for the group, including a three-year PV contract worth several hundred million euros to expand the new Frankfurt and Main Judiciary Centre, Octave BP Solutions will construct new buildings and subsequently operate them in an eco-friendly manner for a period of 30 years. The company also won a major BP building contract in Berlin, where the group will refurbish and build new offices for the Institute for Federal Real Estate and subsequently operate and maintain them over a 30-year period with a reduced carbon footprint. And in the UK, we are preferred bidder for a university student housing PPV project. While in Australia, CPV Pacific and UGL, as part of the Canberra Metro Consortium, will finance, design, build, and operate the next stage of Canberra's world-class light rail system. This collaborative contract will achieve significant carbon reduction benefits when the first state is already operating on 1% renewable electricity. We also continue to allocate capital to boost our engineering know-how via both acquisitions, such as that of the Canadian company NovaPro, with its strong know-how in lithium processing technology. In addition, UGA reached an agreement in 2023 to buy a telecommunications service arm of an Australian installation and maintenance contracting company, Skybridge. Let me move on and mention the key highlights of the year in relation to Aberti. where we hold a 20% stake. In July 2023, OCTIV, ACS, and Mundis reached a new strategic collaboration agreement for Abertis with the objective of strengthening the toll road operator's global leadership in transport, infrastructure, and concessions. As part of the agreement, Abertis acquired a 56.76% interest in the 288-mile-long highway in Houston for $1.53 billion, which has a remaining lifetime of 45 years. In October, Apertis announced that it had won a tender in Puerto Rico for four total roads with its 2.85 US billion bid for a period of 40 years. In early 2024, the shareholders contributed 1.3 billion euros in equity to support the financing of these transactions and the company's growth strategy, with Hoctiv subscribing its 260 million shares. Abertis will thereby maintain an optimal capital structure in accordance with its commitment to maintain its investment rate. Environmental, social, and government remains a priority for management. In 2022, OPEC made the commitment to become climate neutral by 2045 and publish its Sustainable Plan 2025. In the last 12 months, international working groups have continued to develop and implement measures to advance on short- and long-term ESG targets. For example, the group has developed a decarbonization roadmap, published a statement of principle on human rights, and updated its living wage analysis. Our ESG leadership is widely recognized. In 2013, Hofti was again listed in the Dow Jones Sustainability Index for the 18th year in a row and we achieved top positions in the ranking compiled by S&P Global. In addition, MSCI upgraded its ESG rating for the group to AAA from AA, making it the highest rated amongst its peers, with an improved safety performance, seated as one of the drivers of the upgrade. So let me wrap up as follows. Octiv is delivering for its shareholders in terms of profits, cash generation, shareholder remuneration, and corporate swapping. Due to its local developed market presence, regional diversification, and global footprint, Octiv is very well positioned for the enormous opportunities that lie ahead of us as a global infrastructure solutions provider. This is underpinned by our engineering know-how and complemented by our logistics and systems capabilities. In 2023, the further the risk for order book was accompanied by a strong growth in new orders, particularly the faster-growing markets related to digitalization, energy transition, and sustainable infrastructure. Operational net profit increased 11% if it's adjusted and was backed by an outstanding level of cash flow for operations, resulting in year-end net cash of $872 million. And we started to deliver on the next phase of our strategy with $150 million of equity committed or invested in high-growth areas, where we see very significant valuation opportunities going forward. As a consequence of this high performance, we will be proposing an active dividend of 4.4 euros per share, a 10% increase on the previous year, and consistent with our dividend policy, which is a payout of 65% of nominal net profit. Our guidance for 2024 is to achieve an operational net profit of between €560,000 and $610 million, which represents an increase of up to 10% compared with last year. So let me stop here, and I would welcome any questions you may have.

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

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking questions. Anyone who has a question may press star and one at this time. The first question is from Graham Hunt with Jefferies. Please go ahead.

Thanks very much for the questions. I've got three. Could I start with U.S. construction outlook? The book-to-build in Q4 looked a little bit softer than what we've been seeing. I just wonder where you see the order book trending in 2024. Second question on net cash. I just wondered if you could talk through some of the moving parts there. You've got the TEEF potential payments there. Abertus contribution and potential equity investments through the year. So just wondering where you expect net cash to land in 2024. And then third question, just related to that, could you speak to the strategic rationale for the 20% stake in Abertus? Why does it make sense for Hochtief, given the strength of its portfolio in construction and the opportunities it sees that you've just stepped through, Why does it need 20% of Abertus within its portfolio? Thanks.

Okay. Thank you so much, Ram. Let me start with the American outlook. So, I mean, we see in the U.S. a very strong pipeline in general, certainly in data centers. probably, I mean, largest in marketing in the world, especially because of the artificial intelligence. And if you look at the forecast, pretty much the power demand in computing is going to increase more than, I mean, around 400 times in 2030 versus 2020. I mean, versus 2020. So this is driving a huge investment. Right now, In 2023, we got new orders in that sector of 2.6 billion, and we ended up order book at 3.6. And more related turners, current share in the U.S. market is around 10%. We're expecting that 10% to increase between 15% to 20% in the next two, three years. So we are very bullish when it comes to our potential contribution in data centers And the more sustainable they become, and the more complex when it comes to connection to energy sources and fiber connection, which has been the case in the U.S., the more we can provide value. When it comes to electric vehicle battery manufacturing and recycling facilities, I mean, there's a global demand, and we're looking at a global strategy of 250 additional gigafactories by 2030. So that means investments of around $3 billion in projects around the U.S. and Europe. And these are in identified projects with associated brands behind them. We started working on these projects two years ago. So this is brand new for us. And since then, we have won $2.6 billion US dollars in 2023. And we will start ramping up sales in 2024. And we do have very strong prospects in this sense because it was not included in our book, in our order book until very, very recently. And those projects will start to grow very soon. Healthcare, which is a traditional market for turnovers, But the fact that all these projects are getting to the next level when it comes to utilization, paperless technology, biopharma equipment, et cetera, we expect that Turner is going to increase its order intake significantly. Just to give you an example, in 2023, the order intake was $3 billion for Turner versus $2 billion pretty much recently, a few years ago. And we expect that to grow probably by 5% per annum through the next years, if not more, being a little bit conservative. And nowadays, it's like 20% of turners order backlog when you look at the figures at December 2023. Education, our order intake in 2023 was 2.5. That's pretty much like 13% of our current backlog. And we expect a very high level of investment in this area with a growth rate of 7% in 2024 in a market with a size of approximately $80 billion in the US.

Ladies and gentlemen please hold the line. The conference will resume shortly.

Ladies and gentlemen, please hold the line. The conference will resume shortly. Thank you.

I'm back. Sorry for disconnecting. I was talking about commercial, but I was saying, and this is very important, this used to be a huge market for Turner, and it was a big part of its backlog. However, right now it's only 13%. We're not expecting that to go any lower. It will remain flat probably for some time before it goes up, but eventually it will ramp up again. Okay. And then we get into the other traditional sectors like sports facilities, which without a doubt, I mean, it's pretty much right now 9% of our backlog of around 2.5 billion, and we believe that that's going to remain steady or growing a little bit over the next years. But then there's a lot of sectors that Turner is not involved yet, but it starts to get pre-qualified. Examples are semiconductors, for example, semiconductor fabs, or other digital projects that will start getting involved. So we believe from a U.S. perspective that the pipeline is going to be big, but more important, we believe that we're going to be increasing margins in the Americas. So that's regarding the first question. I'm sorry that I took a long answer. Then we get into the net cash discussion. I mean, thinking aloud, when it comes to cash flow performance, we expect that from 2024 as it's been in 2023, right, in general terms. So we had a strong performance in 22. We had a strong performance in 23. We expect a strong performance in 24. When you talk specifically about these opportunities and some of the good investments, these opportunities If at the end we continue in our plans to potentially consolidate this, which, I mean, is still in progress and we haven't landed on anything, so it's a question mark, that will bring a €1 billion net net consolidation in our books, but it will also bring more than €1 billion EBITDA in our books. And as I have said in the past, that debt is already adjusted in all our ratings and analysis of banks, et cetera. So it's a positive effect in our rating and financial strength because the market always saw that as a debt transaction, not equity. So the debt is already adjusted while the EBITDA was not. So it will have a positive effect in our overall financial strength. When it comes to Abertis, we would need to take into account the 20% of the 1.3 billion capital raised. And when it comes to equity, it's pretty much the normal annual equity investment in our PEP is already reflected in our cash flow. In the same way that the 150 million invested in 2023, it's already embedded in our net cash performance. I don't expect major differences in that sense. And then you're asking for a 20% participation in Abertis. Abertis is a very solid operator. And there's plenty of opportunities that it's going to not only keep the dividend 600 million, current 600 million euros, in the long term or in perpetuity, but also bring additional opportunities in the long term. So that gives very solid and stable dividends to the 20% of off-theaf, which, I mean, it's obviously very beneficial for the organization.

And thank you very much for the detail. I appreciate it.

The next question is from Luis Prieto with Kepler Sugar. Please go ahead.

Hello. Good afternoon. I had a few questions, if I could. Thanks for taking them. The first one is, how sticky will the operating margin jump at Turner be over coming quarters? We've seen a big jump in Q4, and I want to know if we can extrapolate that into the future. Could you provide us an idea of what sort of margins baked into Turner's order book? I guess that's my real question. The second question is regarding this equity and infrastructure projects, the tech infrastructure projects that you've been talking about for a while now. I assume that those assets have shorter investment cycles and we're all very used to the long-term transfer confessional projects, et cetera. So I'd like to get a better understanding of how long those projects are and what sort of return do you have. And then the third and final question, you told us in January that Elliot's willing to exercise its good option in tranches? Is there any visibility on timing you could provide us with? I'm thinking more about not only, obviously, the amounts you have to pay, but also the consolidation of the asset, when we will have to consolidate that asset back into parking.

Thank you. Thank you, Luis. So, starting with margins and turnovers, So yes, no doubt we are in a positive trend and positive momentum and this is going to continue. I wouldn't like to give specific figures to make sure that I don't make any mistake or misguide. But it's positive and we're expecting another increase in 2024 versus 2023. We are clearly looking at a positive path in increasing margins in as we have been pretty much communicating over 2022 and 2023. When you look at the guidance or the PBT, you could see that there's a 14% year-on-year increase at the top end, right? So that also gives you a sense that we're expecting that positive increase. In terms of a Disney project, And in 2024, we're working on a few initiatives to create a lot of potential value in a lot of the projects that we're participating, such as data centers, such as the energy projects, including photovoltaic wind and storage, and also other opportunities in the energy transition and digital. And you're right. This is not civil. We're seeing one to two years construction. So we see the value very, very, very fast. Data centers, what we're seeing in the market is as soon as a data center is built with a hyperscaler contract or a collocation agreement, the value comes to 20 to 30 times EBITDA. And those are the transactions that we're seeing in the market. So we have a very important pipeline. We will discuss more in the capital markets today because we want to make sure that the pipeline that we reflect has the permits and it's pretty much negotiated before we give numbers. But clearly, there's a big opportunity for us in that sector as in other sectors. So we will be giving a lot of information on this in the capital market space. However, we're also working on traditional contracts. We haven't abandoned the traditional PPPs. We're working in the U.S. We're participating in four or five projects. We're also participating in Chile. We're working in the U.K. in a couple of PPPs. Octiris has recently won a few projects between the UK, Germany, and Australia. I mean, we look at Pacific right now in Australia. Not only we continue investing in Corsair Rail, not only we're investing in some of the Nissan projects, we continue deploying equity, and there's plenty of projects that will finish construction soon, and the value will materialize as well. So we'll try to give a lot of... valuation of all these assets in the capital markets. When it comes to Elliot, a good question, the timing. It's difficult to give a timing because it's very binary. We are just expecting the green light. So I prefer not to give a timeline because it doesn't depend on me. But certainly, because this is something that has been on the table for a while, everything is pretty much prepared. whenever the transaction is given a green light.

Thank you very much.

The next question is from Marcin Wojtow with Bank of America. Please go ahead.

Yes, good afternoon. Thank you for taking my questions. Firstly, if I can follow up on T's. Could you perhaps indicate what was the net profit of this for 100% of the company in 2023 so that we can make some estimates as to what that will do potentially to your net profit if you increase your stake from 50% to 100%? And I was also curious, how are you going to fund that potential transaction? Is that going to come from available cash reserves or you're planning perhaps some debt issuance or any other funding structure, if you could give some clarity here. And my second question, could you comment a little bit about the outlook for your Asia-Pacific division? You're guiding for some growth for 2024, but is it revenue recovery or profitability improving or both perhaps? Thank you.

Marci, my apologies. So I got the question around this. I got the question about Asia-Pacific growth, but I think that I missed another one, or those were the two?

And also funding of this transaction, please. How are you going to fund it? Okay, okay.

So starting with this. So the contribution of this in 2023 was 110 million Australian dollars. In 2022, that was 92.6 million. And this is having a very, very, very strong operational performance. However, the financing costs have increased so much that it's unfortunately impossible the deal rating this market. From an EBITDA perspective, the company is working very, very good. But unfortunately, and just to put it in perspective, this, and I'm not sure if it was 2019 or 2020, but I think that by 2019 or 2020, this was at $45 million net finance cost. And now it's at $220 million. So in spite of that, the contribution to us has been 110.3 million. So we expect, I mean, as soon as the financing cost will start coming down, we expect that to improve. Now, at 100%, because I gave you the position, I mean, the numbers, the contribution to us, But at 100%, the profit was $313 million positive, right? And this is after minority interest. So, I mean, overall, very good performance and continued diversifying, continuous transitioning, environmentally speaking. So, I mean, very, very good performances. Asia-Pacific growth, in Latin Asia, Latin Asia is looking, I mean, it's seen tremendous growth in the same areas that Turner is seeing, data centers, battery farms, digital technology, et cetera. But, fingers crossed, we might see a big increase in Hong Kong once again, as a lot of clients have pretty much pre-qualified and taken to the final stages Lighten Asia and their projects. Something that didn't happen since many, many, many years ago. So, I mean, fingers crossed because we are in the final stages and nothing is secure. But just the fact of being able to be in the last short list of two in a few projects is very encouraging. So we will see growth in revenues and growth in sales again and hopefully in cash in Lighten Asia. And then in terms of funding, so So a couple of things. We will talk more in the capital markets day about this because we are working on it. But eventually, I mean, or basically to give you an overview, even right now we're expecting additional net debt coming from this and coming from the opportunities to increase. We do have a non-core asset. potentially, I mean, that we could offset. But the year investment in a lot of these infrastructure projects pretty much can be done with operational cash flow, right, within the free cash flow that we generate every year. So we, I mean, obviously, I mean, as you can imagine, equity in all these projects is a commodity, right? Worst case, we could just... retain a small percentage of the equity, 20% to 30%, and finance the rest. But our idea is pretty much to take positions up to 50% of the projects and recycle 10% to 20%, which would be more than enough to compensate for the injection of the equity for the 20%, 30% that we will keep, plus generating a profit. So this way, not only will we be generating value in the long term because we retain percentage of the projects, but also we are rotating equity and being able to continue investing in new projects. So we are working on a plan that will give more clarity during the year.

The next question is from Victor Asitores with Societe Generale CRB. Please go ahead.

Hi, good afternoon, Juan and the team. I have three questions, if I may. The first one is that if you can provide a factoring level for the group, the hotkey at the end of the year. The second one is that if you can provide the stake of ETS at the end of the year, meaning that you provide the level of 15 of November, 78.2 adjusted high treasury shares, that is the level at the end of the year. And finally, my question is on cash flows on CIMIC. You mentioned in the call that the immigration or the risking of the backlog to, let's say, alliances and contracts is creating some, let's say, overhang on working capital, on the lack of payments. When do you think, Juan, that this working capital is going to normalize? And then all the growth that you're expecting coming from EBITDA in CIMIC will be reflected on the cash flow? on the subsidiary. Thank you.

Thank you so much, Victor. So starting with factoring, our level right now is 900 million, so very stable versus the 860 last year. When it comes to the treasury shares, let me try, because I don't have the the ACS info right now with me. Give me just one second. Let me see if we have a round. Victor, I mean, we don't have that information with us. And there was also some discussions here whether I, I mean, it's relevant for this call. So allow us to follow up with the ACA department and we'll provide that info if that's okay.

No problem.

Okay. Then the winding of the working capital at CIMIC, which was the next question. It's a good question. It's a good question. I mean, on one hand, at CIMIC, we do have a lot of potential settlement agreements that should come with Enlighten Asia throughout 2024 and 2025, right? So that will be a plus in cash flow. But at the same time, yes, we will have Westgate finishing in 2025, but most of the peak of the work will be in 2024 this year. and cross-year rail finishes as well, pretty much the bulk of the work this year. I mean, I don't dare to say how much will be compensated one or the other, right? But probably in 2024, 2025, we do have upsides. We have the final unwinding. Certainly, the unwinding finishes 2024, 2025, but also we do have a lot of upsides from light and ACF. So, I mean, difficult to predict what will be the net, but certainly... we hope to be stable. And then the... Did I answer all the questions, Victor?

Yes, yes. It's only to see in terms of looking for the midterm. At the end, Elliot, if I'm doing well, the conclusions in my mind, you're able to buy Elliot, you refinance the debt, lowering the cost of financing, and then you'll see me normalize it. So your net cash positions will materially increase, or in the other sense, cash flows are going to materially increase going forward in terms to get you options on the cash allocation?

Because I was just referring to the specific business of CIMIC today, right? And CIMIC today doesn't have this. If we do incorporate this, the cash flows of this are unbelievable. I mean, in OC dollars, the operational cash flow of this is close to $2 billion, right? 1.6, 1.7. They do have, I mean, a steady 100% cash flow conversion, which is very, very, very solid, right? So that obviously will be integrated into our numbers. At the same time, Even if the interest rates do not go down, just by being able to refinance part of these debt at CIMIC books, I mean, that will have a significant benefit on that. And of course, if interest rates go down, that will be a very big impact. In addition to what I've been explaining, so overall, I mean, the Asia-Pacific region between the growth in the new area that we're pursuing, between the growth in energy in Australia that is booming, and the consolidation of this, we should be, I mean, we are, I mean, we're optimistic with the region.

And I have a follow-up question, if I may. In the case you mentioned during the call, the attractive investment is in renewables already with some plants already operational, some rights already being in the backlog. How much of CAPEX... the net debt of CEMIC at the end of the year is reflecting the investments on equity and the project finance debt of these parks already in the balance sheets in terms of renewables?

So the 150 million that I said, that's specifically for the energy projects in Australia. In addition to that, I think that it was around 45 million additional infrastructure and these were more in use. But when you look, for example, at Glenrow and Hopeland, I mean, only those two jobs pretty much comes up to 460 megawatts of energy. We do have up to 1 gigawatt already awarded in other projects, so that will generate good value to us. And we have identified projects for another gigawatt that we are in negotiation phases. So we are going to be very ambitious. And Australia, when it comes to renewables, is moving right now, because obviously it's not as developed as the European market. But certainly, I mean, if you just follow the Australian government announcements, pretty much they said, and this was at the end of November 2023, that they are going to underwrite 32 gigawatts of renewable energy projects and energy storage capacity. So, I mean, we are very, very bullish with the energy market in Australia. The wind power projects expect to increase like 30% in 2024. but it will continue to increase. And we could go, I mean, through a transmission network business that we are tendering for a couple of PVP projects in that area, energy storage. I think that we do have like six projects identified in our pipeline. Some of them associated also with our projects. So, I mean, it's a market that we can expect to grow significantly.

And only one thing more is that in TS you mentioned that the acceptable net profit in Aussie dollars is $110 million. Is that equivalent to the dividends that you collect in a year? Or is that to put in reference with the $180 million title at the time of the relationship with Elliot? Or not?

So, no, I mean, that was the net profit. But that was the net profit contribution to us. At 100% level, it was 313. And the only thing is that it's not that we get 50% of that, because 180 goes to Elliot, and the reminder comes to us. And this is one of the challenges that we do have with the Elliot agreement.

Okay, so really, in terms of cash flows from TSM, Is it linked also to net profits or not? I don't understand how much on the cash flows you're receiving today from Elliot. Yes, it is. 100, no?

Yes. But this year, in 2023, we received 54 million Australian dollars. And last year, we received 89.5. In 2024, we expect to increase that significantly. Especially we were able to consider part of that because we would need to add 10% plus the improvement in the performance of this. But answering your question, yes, it's linked to the impact. The problem is that the timing could be different. And remember that at the end of the process, by the end of 2026, there's a catch-up of all the dividends that we haven't obtained, right? So, I mean, so yes, it's a complex mechanism. But eventually we will be able to catch up on the cash flows.

Because, for example, here, imagine that nothing happens, that the situation today remains and nothing is coming from Elliot, for example, a situation. For the 2026 in the catch-up or the $180 million that you were entitled to collect that you are not receiving in the last year, that catch-up means that the gap existing, that is really around $100 million per year, is going to be recovered in 2026. Is that correct?

No, or before. Or before, obviously. Because the performance of this is going to increase and improve significantly. Anything above the 180 from Elio comes first to us until it gets up on dividends. So if this is able to deliver more than 360 million after that in 2024, and I'm not saying that it will or it won't. I don't have the numbers right now. But if it does, anything above the 180 comes to us. if nothing happens. So we will stop cutting up on dividends before 2026.

Okay, super. Thank you, Juan.

The next question is from Marco Limite with Barclays. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. I've got two. One is on your guidance for North America. I was curious to what extent you are already reflecting some margin increase already in 2024. And the second question is on Abertis, given that this is the first call after the AP7 court's ruling. And I think I did mention the intention of Abertis to keep the dividend flat to 600 million. So, yeah, just curious what is the strategy there to keep the dividend despite, let's say, some pressure also from a credit rating perspective. Thank you.

OK, so with the Turner guidance, or with America's guidance, we are expecting, and I think we mentioned that, an operational activity of 442 to 480. So yes, that reflects the increase in 2024, OK, 2024. Bear in mind that a lot of these big projects, all the initial phase are engineering, right? And because there are collaborative construction you don't really start ramping up the construction until the engineering process is finished. So it's not that obvious that you win a project or even projects won six, seven, eight months ago are already ramping up. They are not. We are still in the engineering phase because there are complex projects, especially when it comes to the big fabs, et cetera. You will need to collaborate on the design. You only get into the contract at the end of that period. And depending on where you are in the negotiations, you include that in your backlog or not. So there's a lot of work, one, announced that is not in our working hand, because you are in early stages in engineering. Only when you have a minimum construction to be done, you start reflecting. That doesn't mean that engineering is finished. It means that you have signed a contract for a piece to be starting at some point. Anyway, all what I'm trying to say is that it's reflected in 2024, but that will continue growing as those big projects come into place, and the timing for it is not mathematical. When it comes to Abertis, so there's two strategies. I mean, Abertis... Abertis...

Ladies and gentlemen, please hold the line. The conference will resume shortly.

Sorry again for the disconnect. So I was thinking about Abertis. So that on one hand. On the other hand, there's opportunities right now that we are... Sorry to interrupt you, but I think we all missed the whole answer on Abertis.

So if you could repeat for us, please.

So we'll start with Abertis. So Abertis, when you look at Abertis right now, first, there's a few opportunities. that we are negotiating with clients out of Europe in existing projects that will pretty much increase significantly the life of the concessions, potentially increasing fares, obviously in exchange of additional capex in those projects, and that will increase the EBITDA significantly and for a longer period. That will not require any capital increase. Those are organic, but that will reshape the EBITDA significantly in the future. We will provide more details as we advance in the negotiations. So that's an opportunity to see. But there's a lot of other opportunities within the current business that you will see during the year. And we are preparing, as I mentioned, the financial modeling for the capital market state. And you will be able to look at the numbers and assumptions on the long-term dividend for Aperitif with the current structure. On top of that, we're looking for opportunities. We're bidding and tendering Australia, as you know. They were tendering to other opportunities, but so far they are confidential. But there's an important pipeline. That pipeline comes from, A, potential platforms that could come to the attention of Aperitif and there's discussions, and B, Greenfield projects, like what we did in the 288th, I mean, from an octave and ACS perspective, we do have a huge pipeline of PVPs, traditional PVPs. Besides all these high-growth areas, we do have a very big pipeline in traditional. And those could eventually end up with laboratories at the right time. But on top of that, and I know that everyone is assuming that the French contract comes to an end and nothing else happens. But the base case, or at least what the government is saying, is that there's likely a potential situation where they will be tendered, right? They will get back to the government all these concessions. They will readdress or reorganize all these geographical zones, and they will be tendered. If that's the case, Avertis should be in a good position to be competitive in those tenders. So there's other opportunities in that sense, right, on top of what I have explained. But I think that we will need much more visibility in the capital markets today when it comes to Avertis, and we're going to invite management, CEO and CFO of Avertis to dedicate time quality time on an approach and the approach model on the 17th paper.

And if I may just ask one follow-up question on this topic. I appreciate the argument about extending concession with CapEx commitment, but let's say you're still confident that whether it's more investments or CapEx, you can still keep the current credit rating and, yeah.

Yeah, because whatever we do with the model and the dividends is always based on investment grade, right? All our modeling, all our assumptions, all our sensitivities are always with the investment grade restrictions. We are committed to it.

Okay, thank you very much.

The next question is from Dario Maglione with BNP Paribas Exam. Please go ahead.

Hello, good afternoon. Actually, if I can follow up on Aberti's discussion with the French government on SNF, maybe if you can give us more color. Then second question on Asia-Pacific. If I look at the adjusted EBIT and the excluded associates, so Thies and the others, the margins seem to be down year on year. from 4.4, I believe, to 3.9. I just wonder why margins of the underlying business is going down. And then the third question on teeth. Of course, we all know that it's a good business in the long term and we understand the demand outlook and so on. My understanding in the short term is some kind of oversupply in the mining market. excluding copper. Sergio, I just want you to give us some indication of the outlook for this and how revenue are linked to production and so on.

Thanks.

Okay, thank you. Thank you so much, Mario. So let me start with a purchase. So the conversations around Saned, they are ongoing. They are ongoing. I mean, not much to mention at this stage. But of course, as soon as those evolve in a way or the other, we will let you know, OK? The second question regarding the margins. there's a few things that have contributed to the margins at low in Asia Pacific this year. The first one is starting with EBITDA. Cross-zero rail has increased approximately 650 million Aussie dollars, the revenues at zero margin, and those are protection for hyperscalation that we had under the contract. Unfortunately, They cover, and if you look at increasing revenues in Asia Pacific, you see a big jump, and that has to do with a zero margin. So it dilutes the EBITDA. Westgate versus last year, $150 million Aussie dollars, a zero margin. And then the amortization depreciation changes versus last year. When it comes to PBT, you need to add $37 million net finance cost in addition to last year, right? So, I mean... we're talking about more than a hundred million dollars affecting those margins. So, I mean, something to be mindful. So, I mean, it's a specific situation, right? Don't look at this in a long-term trend. This is about a year. Now, Going to the commodities, right, and the market. I mean, certainly we would need to go commodity, I mean, to each one of the commodities. In general, what we're seeing is that the volumes in general, we see an increase. And we can show with you the... I mean, some of the forecast. We're expecting growth. Even if there's a decrease in the commodity price, we're seeing an increase in the export volume. So when you look at the export volumes, we are looking in the 23 to 28 period, 11% increase in met coal, 4% increase in thermal coal, 18% in gold, 13% in copper, 50% in nickel, and 17% in iron ore. We can pretty much go through each one of them. You're right. When it comes to global price in terms of U.S. dollars per ton, met coal is going down, thermal coal is going down, gold, the expectation is slightly higher. Slightly steady oil going down, increasing copper, little increasing nickel, and iron ore a little bit down. But at the end of the day, what drives our production as this is volume. We're not traders, so we're not really moving forward by the commodity price, but by the volume, which is what drives our business. I can follow up with more detail on any of the commodities that I mentioned. And I think that those were the questions, Ariel.

Thank you. Thank you, Juan.

The next question is from Nicolas Mora with Morgan Stanley. Please go ahead.

Yes, good afternoon, gentlemen. Just two quick ones. First one on the U.S. When we look at the margin you reported in the fourth quarter, it's They're impressive. I don't think we've seen a PBT margin above 3% for a very long time. Can you help us understand what's in there in terms of potentially just the step up from rest of the year to Q4 is so high? There must be a few one-offs. Is it the new way of recognizing profits on especially the more IT-ish contracts in construction? That would be the first question. Second, when we look at the cash flow, there's a very big amount now which is restated in non-cash components of income. Can you help us understand a little bit what this is made up of? I mean, usually it was just traditionally a bit of Aberti's dividend and a little bit of fees, but it seems that the numbers don't quite add up this year. If you can help with that, it would be great. Thank you.

Okay, thank you, Nicolas. So a couple of things on the U.S. Well, starting for the question, it's seasonal. It's just, I mean, things are not mathematical when it comes to construction revenues and margins associated. Sometimes, especially when you get into collaborative contracts, there's a reconciliation relationship with clients. It's not, I mean, so there's always a lot of seasonality. And you can see that at the end of the project. If we come back to the client, I mean, saying, please, we're finishing the year. Pay me what you owe me for the year, right? I mean, we try to keep a relationship, especially in collaborative. But one thing that I would like to mention in the U.S., and that's why I believe that is probably misleading a lot of potential dynamics, right? But there will be full clarity this year. We always report co-active Americans. But bear in mind that co-active Americans are external and flat out, right? And that's why you don't see Turner Margin growing that fast. But bear in mind that you have Flatiron attached. And Flatiron has been for two consecutive years working in collaborative contracts. And 100% of the jobs, 100% of the jobs from Flatiron are collaborative alliances or target price. There has been an unwinding of past projects. And that has affected the margin that you see in competitive operators. Okay, so just Bear with me because you will see in the capital markets they fool transparency on numbers. When it comes to cash flow, I think that the non-cash impact, but we will follow up with you because right now, I mean, I think that it's just equity-accounted companies, JVs, consortiums, et cetera, but we will follow up with you to make sure that we clarify the questions.

Okay, and just coming back on the U.S., what you're saying is basically at Flatiron over the past couple of years, there's been zero margin.

Basically.

Yeah, okay. So that means that we're getting close to the 3% EBIT margin and Turner on a standalone basis.

But we believe that we're going to be able to grow that, yeah.

Okay, but from here and considering again where you stand in terms of the higher margin businesses, the data centers, the batteries and so on, which continue to ramp up into 24, 25, is the pace of margin improvement we've seen underlying most likely, which is around 20, 30 bps per year, is something that is realistic or now getting a bit of a stretch because you are... you're already on quite a high level compared to peers more focused on project management.

So what number have you given, Nicolas?

Well, I mean, sustainably 20 to 30 bps of margin increase per year, so that would give you 10% growth in PBT per year supported by margins, and then the rest would come from revenues, which is kind of what's embedded in the high end of your margins in 24%.

I mean, okay, it's difficult because I don't want to give numbers or guidance that I shouldn't. Obviously, the challenge is two things. The first one is that revenues continue growing a lot in terms, right? So obviously, there's going to be a big increase or continues being a significant increase in profit in absolute terms, just even if you keep the margins on the revenues. The chance also is the project mix, right? And this is why it's so difficult, because obviously the less commercial residential projects, donor attacks, which is pretty low margins, the better, the more data centers, battery packs, et cetera, that increases. And when you look at the working hand and the backlog, it's going certainly in that direction. Now, if you look at margins, In some of the new construction mining projects, I mean, we're looking at five, six gross margin per project and increasing that in the more sophisticated projects. When you look at residential building, et cetera, and the low sophistication construction management, some of them have 2%, right? How much we are going to end up through the mix on the average is difficult because it depends on the timing, on the number of projects and the revenue. I mean, I don't – certainly it's going up because that's nature. I mean, Turner is becoming more industrial, more high-tech, more digital every year, and the objective is to really get into the areas. The objective is to bring Turner into hydrogen projects, methane projects. There's a plan for it. I mean, we are also working on SourceBlue, which is the main supply company of the group, on a global basis, we're incorporating to that supply chain a logistics company, a lot of industrial and digital components with, I mean, and that logistics business has higher margins. I mean, it should grow, but it's difficult for me to give back items, and I don't want to take the risk.

There are no more questions registered at this time.

Okay, thank you. Thank you so much, everyone. Look forward to answer any questions within the next days if you need. Thanks a lot.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant and thank you for participating in the conference. You may now disconnect your lines. Goodbye.