HOCHTIEF, a leading global construction company, has reported strong financial results for the year 2023. The company saw a 10% increase in sales, reaching €27.8 billion, and an 11% increase in operational net profit, amounting to €553 million.
With a significant net cash position of €872 million and a substantial order book valued at €553.3 billion, HOCHTIEF is poised to continue its growth trajectory. The company's strategy includes consolidating core markets, expanding in high-growth sectors, and prioritizing shareholder remuneration with a proposed 10% dividend increase.
Key Takeaways
- Sales increased by 10% to €27.8 billion in 2023.
- Operational net profit rose by 11% to €553 million.
- Net cash position improved significantly to €872 million.
- Record new orders valued at €36.7 billion, leading to an order book of €553.3 billion.
- Strategic expansion in high-growth markets and focus on shareholder remuneration.
Company Outlook
- HOCHTIEF expects an operational net profit between $560 million and $610 million in 2024.
- A 10% increase in dividends is proposed, reflecting the company's strong financial position.
- The company is committed to becoming climate-neutral by 2045 and continues to receive recognition for its ESG leadership.
Bearish Highlights
- Net finance costs increased from €45 million in prior years to €220 million.
- The commercial sector, representing 13% of Turner's backlog, is expected to remain flat before seeing growth.
Bullish Highlights
- Turner's order intake in 2023 was €3 billion, with expectations of significant growth.
- Investments in high-growth sectors such as data centers, energy transition, and digital technology are expected to drive future revenue and sales.
- Turner is considering the consolidation of Abertis, which could contribute €1 billion of net debt and €1 billion of EBITDA to the company's financial strength.
Misses
- Specific guidance on the factoring level and stake of EPS was not provided.
- The company did not provide specific guidance on the shift towards high-tech and data center projects.
Q&A Highlights
- Turner's potential margin improvement on a standalone basis is attributed to growth in higher-margin businesses.
- Seasonality and collaborative contracts were cited as reasons for impressive margins in the U.S.
- The company is exploring opportunities in sectors like hydrogen and methane projects, and incorporating a logistics company into its supply chain.
HOCHTIEF's robust financial performance in 2023 is marked by an impressive increase in sales and operational net profit. The company's financial strength is further underlined by its substantial net cash position and a record order book driven by significant new contracts. HOCHTIEF's strategic focus on core markets and high-growth sectors such as data centers and energy transition, coupled with its commitment to shareholder value through increased dividends, positions it well for continued success.
The company is also actively investing in sustainable practices, aiming to achieve climate neutrality by 2045, and has been recognized for its environmental, social, and governance (ESG) efforts. Despite increased net finance costs, HOCHTIEF's diverse project portfolio and strategic investments are expected to contribute positively to its financial outlook.
Turner, a subsidiary of HOCHTIEF, has shown notable growth with €3 billion in order intake and anticipates further expansion, particularly in the education and healthcare sectors. The potential consolidation of Abertis is expected to bolster Turner's financial profile, adding significant net debt and EBITDA.
HOCHTIEF's forward-looking approach is evident in its plans for infrastructure investment, prioritizing operational cash flow and equity recycling to fund projects. The company's North American operations are set to see an increase in operational EBITDA, reflecting an emphasis on engineering projects.
The earnings call concluded with discussions on the potential for margin improvement, driven by the growth of higher-margin businesses and the shift towards industrial and high-tech projects. HOCHTIEF's strategy of integrating a logistics company into its supply chain is anticipated to further enhance margins. As the company continues to navigate the evolving construction landscape, it remains available for further questions and engagement with stakeholders.
Full transcript - Hochtief (HOTd) Q4 2023:
Operator: Ladies and gentlemen, welcome to the HOCHTIEF Full Year 2023 Results Conference Call. I am the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] 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.
Mike Pinkney: Thanks, operator. Good afternoon to everyone and thank you for joining us for this HOCHTIEF 2023 results call. I am Mike Pinkney, Head of Corporate Strategy and I am 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 HOCHTIEF. 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.
Juan Santamaria: Thank you, Mike and team. Good afternoon to everyone and thanks for joining us. HOCHTIEF delivered a strong performance in 2023.
Operator: [Operator Instructions]
Mike Pinkney: Okay. Thank you, operator. Apologies, we had a problem on the line there.
Juan Santamaria: Yes. Thank you, Mike. So I was talking about the sales and the fact that they increased 10% on an FX-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 end of guidance range. The nominal net profit of €523 million compared with €482 million in 2022, showing an 8% increase or 14% FX-adjusted. HOCHTIEF’s cash generation was outstanding in 2023, with underlying cash flow from operating activities at €1.45 billion. As a consequence, the group ended the year with a strong net cash position of €872 million, an increase of €519 million compared with December 2022. The group’s order book stands at €553.3 billion and is up by €3.9 billion or 11% FX-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, implies an excellent level of cash generation, driven in particular by Americas and Europe. Furthermore, this figures is over €235 million higher than the 2022 level, which already showed 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 balance sheet perspective. HOCHTIEF 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 Penta disposal has been balanced by the other non-operating effects, principally around €180 million cash out for final CCPP settlement, €110 million of equity investments, including PEPs and FX impact of close to €120 million. During the year, rating agency S&P reaffirmed its investment-grade rating for the group. The next two slides in our presentation provide an insight in the development of the group’s orders. HOCHTIEF had record new orders in 2023 of €36.7 billion, an increase year-on-year of 27% in local currency terms and equivalent to 1.2x work done in the period. Demand has been solid at product group’s divisions, with particular strength in high-tech infrastructure markets where HOCHTIEF secured 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% FX-adjusted compared with December 2022. It’s a consequence of our strategy to further improve the group’s risk profile, lower risk contracts, which incorporate enhanced risk sharing mechanisms, now account for around 85% of our order book compared with approximately 65% 6 years ago. In terms of divisional performance, let me just mention some of the highlights. From sales of over €18 billion, 7% higher year-on-year in U.S. dollar terms, the Americas division delivered 14% operational activity growth to €422 million, above the top end of the guidance range of €380 million to €420 million. Margins expanded 20 basis points to 2.3%, with a strong fourth quarter and positive momentum. Outstanding cash flow from operations of over €1.1 billion was driven by both Turner and Flatiron, with €300 million increase versus an already strong 2022. For 2024, we anticipate continued growth in operational PBT to €440 million to €480 million. CIMIC generated a 20% rise in revenues to AUD13.3 billion and a solid NPAT of AUD434, up slightly year-on-year, in line with guidance. Operating cash flow factoring of AUD640 million benefited from a strong fourth quarter. Year-on-year variations reflect lower client funded mobilization payments due to a further increase in lower risk and alliance style projects. For 2024, we are aligning the guidance metric for CIMIC with that of our other operating divisions. We expect operational PBT for AUD490 million to AUD530 million compared with a figure adjusted for the Penta disposal of AUD487 million in 2023. In Europe, operational PBT of €64 million was stable year-on-year at the top end of the €55 million to €65 million guidance range with a strong cash flow result, which showed a €75 million rise year-on-year at the operating level. We expect operational PBT in 2024 between €60 million and €70 million. 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. HOCHTIEF’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 HOCHTIEF’s presence in rapidly expanding high-growth markets by harnessing our strong existing infrastructure skill set and local presence in key developed markets. To support this, we are 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. Let me run through these elements of our strategy in more detail. We are enforcing our strong core market positions and the risk in the business with construction management, alliance style and other collaborative type contracts, such as the one in Texas, Bator JV was awarded a contract to lead $1.2 billion redevelopment 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 category [indiscernible] transit project in Canada. At the end of last year, contractor JV was confirmed for Victoria’s AUD3.6 billion suburban rail loop east. CPV has a 40% share of the project, which includes the construction of a 16-kilometer section of the project’s 26 kilometers of green panels. CPV JV has also been selected to be the major construction partner for ATAM wall replacement in Queensland to provide long-term water security and storage solutions. And in Germany, the consortium includes 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 derisked the group order book with lower risk projects now accounting for around 85% of the group order 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 clarity for services nature, these projects further enhance the risk in drive. We are seeing a rapid expansion in data centers driven by the ongoing growth in cloud computing and the exponential option of artificial intelligence. During the year, Turner was awarded orders for new data centers worth $2.6 billion. Additionally, in 2024, new company was selected by Meta (NASDAQ:META) to build $800 million data center in Indiana, which will be fully powered by green energy. In addition, CIMIC has won several data center contracts in Hong Kong, the Philippines and Malaysia this year worth over AUD400 million. In Europe, the group was awarded a data center contract in Warsaw and we started construction of a sustainable edge data center in Germany. HOCHTIEF infrastructure supported by Turner has also been awarded a further data center project in Europe. We are strongly positioned in the energy transition market. CMIC’s subsidiary, UGL, was awarded an order for the expansion of a battery storage energy system for an airlines, one of the world’s leading producers offering yellow 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 CPP contractors, UGL will construct the AUD1.4 billion work 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 stewards capacity in an attempt to supercharge the country’s energy transition. Further, future investments will be required in transmission line capacity at a time when battery energy storage systems, which provides with 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 a product experience. For example, the solar market as well as in the installation of battery energy store systems and grid connections that we expect to continue growing strongly for many years ago. In the U.S., meanwhile, we’re a leading an electric vehicle battery gigafactory builder via Turner. During 2023, we secured new orders of USD 2.6 billion and had an EV battery order book of USD 2.0 billion at the end of December, including projects such as Panasonic (OTC:PCRFY) Energy’s EV battery production facility in Kansas and an electric vehicle battery plant for Honda (NYSE:HMC) and LG 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 AUD300 million 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 Thiess has been awarded a AUD240 million nickel mining contract marking the company’s second successful venture in Indonesia nickel market in 2023. Project underlines the company’s strategic target to significantly increase the proportion of business with 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 one of the Dynamic Personal Micro Transit project in San Francisco. Project is intended to provide an alternative transportation option through zero-emissions, autonomous vehicles operating in dedicated guideways. Social Infrastructure is another stractural growth market for HOCHTIEF. 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. And in Australia, CPB has been selected by the Queensland Government for stage one of the new $1.2 billion Bundaberg Hospital, whilst Turner, 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, HOCHTIEF 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 are pursuing. To meet these challenges, we have developed source blue, which is Turner supply chain specialist. In order to expand for built up, OCD is developing its presence in the Asia-Pacific region with recreation of a logistics hub to accelerate the group’s digital delivery capabilities. Capital allocation plays an increasingly important role in the strategic development of our company in terms of potential transformational M&A, both-on acquisitions, the deployment of equity capital in next-generation infrastructure in PPP investments. At the same time, shareholder remuneration remains a priority for HOCHTIEF. 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, HOCHTIEF committed or invested a total of around $150 million in these areas as well as €43 million in train of PPPs. We have identified a significant pipeline of data centers and good investment opportunities in Europe and Asia-Pacific. In Germany, for example, HOCHTIEF an infrastructure product are jointly building and operating a sustainable edge data center near Dusseldorf. The consortium has already purchased a further plot for a second project at this time and is in the process of securing a third and intend to replicate the model at other locations in metropolitan areas in the next few months. In a significant milestone for the business, a HOCHTIEF 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, which will include an equity investment of over €50 million. Similar models are expected to be replicated in several other European countries to meet the increasing demand of EV chargers, and we’re well prepared for the opportunities as will emerge. In early transition, at end of 2023, the Glenrowan solar farm in Australia commensed operations. Pacific has developed, invested equity and is managing the solar farm with its service subsidiary, UGL, undertaking construction, operations and maintenance work. During the year, Pacific has also acquired the development rights for the 300 megawatts Hopeland solar farm in Queenslnd, the second large-scale solar project to be owned and developed by the company. 2023 has also witnessed several important PPP project wins for the Group, including a 30-year PPP contract worth several hundred million euros to expand the new Frankfurt am Main Judiciary center. HOCHTIEF PPP 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 PPP building contract in Berlin, where the Group will refurbish and building offices for the Institute for Federal Real Estate and subsequently operate and maintain them over a 30-year period with a reduced carbon footprint. In the U.K., we are preferred bidder for a university stand housing PPP project. While in Australia, CPB, Pacific and UGL, as part of the Canberra Metro sort 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 with the first stage already operating on 100% renewable electricity. We also continue to allocate capital to boost our engineering know-how via bolt-on acquisitions such as that of the Canadian company Novopro with its strong know-how lithium processing technology. In addition, UGL reached an agreement in 2023, to buy the 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 Abertis, where we hold a 20% stake. In July 2023, HOCHTIEF ACS and Mundys reached a new strategic collaboration agreement for Abertis with the objective of strengthening the toll road operator’s global leadership in transport infrastructure concessions. As part of the agreement, Abertis acquired 56.76% interest in the SH-288 managed-lane highway in Houston for USD 1.53 billion, which has a remaining lifetime of 45 years. In October, Abertis announced that it has won a tender in Puerto Rico for 4 toll roads with its USD 2.85 billion bid for a period of 40 years. In early 2024, the shareholders contributed €1.3 billion in equity to support the financing of these transactions and the company’s growth strategy with HOCHTIEF, subscribing is 260 million share. Abertis will thereby maintain an optimal capital structure in accordance with its commitment to maintain its investment grade credit rating. Environmental, social and governance, ESG, remains a strategic priority for management. In 2022, HOCHTIEF made the commitment to become climate-neutral or net zero 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 road map, published a statement of principles on human rights and updated its living wage analysis. Our ESG leadership is widely recognized. In 2023, HOCHTIEF was again listed in 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 cited as one of the drivers of the upgrade. So a new wrap up as follows. HOCHTIEF delivering for its shareholders in terms of profits, cash generation, shareholder remuneration and corporate. Due to its local developed market presence, regional diversification and global footprint, HOCHTIEF very well positioned for dynamics, opportunities that lie ahead of us as a global infrastructure solutions provider. This shows our engineering know-how and complemented by our logistics and systems capabilities. In 2023, a further derisking for order book was accompanied by strong growth in new orders, particularly in the faster-growing market related to the utilization and transition and sustainable infrastructure. Operational net profit increased 11%, f/x-adjusted and was backed by an outstanding level of customer 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 security committed or invested in high-growth areas, where we see very significant value creation opportunities going forward. As a consequence of this high performance, we will be proposing an active dividend of €4.5 or €4.4 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 million and $610 million, which represents an increase of up to 10% compared with last year. So let me stop here, and I will welcome any questions you may have.
Mike Pinkney: We are ready for questions, operator. Thank you.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Graham Hunt with Jefferies. Please go ahead.
Graham Hunt:
i:
Juan Santamaria: Okay. Thank you much, Graham. Let me start with the America outlook. So I mean, we’ve seen in the U.S., a very strong pipeline in general, certainly in data centers, probably, I mean, largest market 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 around 400x in 2030 versus 2020. So this is driving a huge investment. Right now, in 2023, we had new orders in that set of €2.6 billion and we ended up order book at 3.6% and more related to Turners current in the U.S. market is around 10%. We are expecting that 10% increase between 15% to 20% in the next 2, 3 years. So we are very bullish when it comes to our potential contribution in data centers. And the more sustainable that we can and the more complex when it comes to a connection to energy sources and fiber connection, which has been the case in the U.S., the more we can provide Pali. When it comes to electric vehicle battery manufacturing and recycling facilities, there’s a global demand that we’re looking at a global strategy of 250 additional giga factories 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 2 years ago. So this is very new for us. And since then, we have won $2.6 billion 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 recently. And those projects will start the oven. Healthcare, which is a traditional market for Turner, but the fact that all these projects are getting to the next level when it comes to utilization, paperless, technology, biopharma, equipment, etcetera. And we expect that 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. It’s not more, okay, being a little bit conservative. And nowadays, it’s like 20% of Turner’s order backlog when you look at the foreseen at December 23’. 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 THB80 billion in the...
Operator: [Operator Instructions] Ladies and gentlemen please hold the line of conference, will resume shortly. Thank you.
Juan Santamaria: And back, sorry for disconnects. I was talking about commercial, but I was saying 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 are 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. And then we’re getting to the rationale export facilities, which we told about. 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 prequalified. Examples are semiconductors, for example, semiconductors 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 allow, when it comes to cash flow performance, we expect that from 2024 as it’s been 2023, in general terms. So we had a strong performance in Q2. We had a strong performance in ‘23. We expect a strong performance in place. When you talk specifically about these Abertis and some of put investments is, if at the end, we continue in our plans to potentially consolidate this, which, I mean, still in progress, and we haven’t landed on anything. So it’s a question mark, that will bring a €1 billion net debt consolidation [indiscernible] 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, etcetera. 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 spend. When it comes to Abertis, we would need to take it back on the 20% of the €1.3 billion capital raise. And when it comes to equity, it’s pretty much the normal annual equity investments in our PEP is already reflected in our cash flow. In the same way that the €150 million invested in €23 million, it’s already embedded in our net cash performance. So I don’t expect major differences in that sense. And then you’re asking for HOCHTIEF, 20% participation in Abertis. Abertis is a very solid operator. And there’s plenty of opportunities that is going to not only keep the dividend current €600 million in the long-term or in preparative but also bring additional opportunities in the long-term. So that gives very solid and stable dividends to 20% of HOCHTIEF, which, it’s obviously very beneficial for the organization.
Graham Hunt: Thank you very much for the detail. I appreciate it.
Operator: The next question is from Luis Prieto with Kepler Cheuvreux. Please go ahead.
Luis Prieto: Hello. Good afternoon. I had three 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 don’t know if I can extrapolate that into the future. Could you provide us an idea of what sort of margin is baked into terms of order book? I guess that’s my real question. The second question is regarding the equity and infrastructure projects take 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 transport concessional projects, etcetera. So I’d like to get a better understanding of how long those projects are and what sort of returns do you have? And then the third and final question, you told us in January that Elliott seemed willing to exercise it with option in tranches. Is there any visibility on the 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 HOCHTIEF. Thank you.
Juan Santamaria: Thank you, Luis. So starting with margins and Turner. 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 the increasing margins in Americas as we have been pretty much retain over 2022 and 2023. And 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 Disney projects and 2024, we’re working on a few initiatives to create a lot of potential value in a lot of the projects that we are participating, such as data center, some of such as the energy projects, including photovoltaik wind and storage and also other opportunities in the energy transition and digital. And you’re right. This is not civil. We’re seeing 1 to 2 years construction. So we see the value very, very, very fast. A data centers, what we’re seeing in the market is as soon as a data center is built with a hyperscaler contract or a colocation agreement the value, it comes to 20 to 30x 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 Day 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 all of information on this in the Capital Markets Day. However, we are also working on traditional contracts. We have an abundant of the traditional BP (NYSE:BP). We’re working in the U.S., and we are participating in four, five projects. We are also participating in Chile, but work in the UK. in a couple of PDPs. Optiv has recently won a few projects between the UK, Germany and Asia. We look at Pacific right now in Australia. Not only we continue investing in course, not only we’re investing in some of the island 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 will try to give a lot of men valuation in all these assets in the Capital Markets Day. 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 time line 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 in light.
Luis Prieto: Thank you very much.
Operator: The next question is from Marcin Wojtal with Bank of America. Please go ahead.
Marcin Wojtal: Yes. Good afternoon. Thank you for taking my questions. Firstly, if I can follow-up on TS. Could you perhaps indicate what was the net profit of TS 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.
Juan Santamaria: Marcin, 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?
Marcin Wojtal:
TS:
Juan Santamaria: Okay, okay. So starting with TS. So the contribution of TS in 2023 was AUD110 million. In 2022, that was AUD92.6 million. And TS is having a very, very, very strong operational performance. However, the financing costs have increased so much that is unfortunately deteriorating this margin. From an EBIT perspective and an EBITDA perspective, the company is working very, very good. But unfortunately, and just to put in perspective TS, I’m not sure if it was 2019 or 2020. But I think that by 2019 or 2020, TS was at €45 million net finance cost and now is at €220 million. So in spite of that, the contribution to us has been €110.3 million. So we expect as soon as the financing cost will start coming down, we expect that to improve. Now at 100%, I mean, because I gave you the position, I mean, the numbers and contribution to us to CIMIC. But at 100%, the profit was €313 million positive, right? And this is after minority interest. So I mean, overall, very good performance and continue diversifying continuous transitioning environmentally speaking, so, I mean, very, very good performance. Asia Pacific growth, in Leighton Asia, Leighton [indiscernible] is looking, I mean, we see tremendous growth in the same area that Turner, data centers, battery fabs, digital technology, etcetera. But Singles cross, we might see a big increase in Hong Kong once again as a lot of clients have pretty much prequalified and taken to the final stages Leighton Asia project, 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 in a few projects is very encouraging. So we will see growth in revenues and growth in sales again and hopefully, in cash in Leighton Asia. And then in terms of funding, so a couple of things. We will talk more in the Capital Markets Day about this because we are working on it. But eventually, or basically, to give you an overview, even right now, we’re expecting additional net debt coming from this and coming from the priorities increase, we do have non-core assets 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, obviously, as you can imagine, equity in all these projects is a commodity, right? Worse, we can 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 to the 20%, 30% that we will keep, plus generating a profit. So this way, not only we will 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 we will give more clarity during the year
Operator: The next question is from Victor Acitores with Societe Generale (OTC:SCGLY). Victor, please go ahead.
Victor Acitores: Hi, good afternoon, Juan and team. I have three questions, if I may. The third one is that you can provide the factoring level for the group to hod keep on the end of the year. The second one is that if you can provide the stake of EPS at the end of the year, I think that you provide the level of 13 on November 78.2% adjusted high treasure sensitive lead of the year? And finally, my question is on cash flows on CIMIC. You mentioned in the call that the migration of the derisking of the backlog to, let’s say, alliances that contract lump sum. Is creating some, let’s say, overhang on working capital on the lack of prepayments. When do you think one 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 on the subsidiary. Thank you.
Juan Santamaria: Thank you so much, Victor. So starting with factoring, our level right now is €900 million. So very stable versus the €860 million last year. When it comes to the treasury shares, let me try because I don’t have the ACS now with me. But let me give one second, we see if we are around. Victor, I mean, we don’t have that information with us. And there was also some discussions here with, I mean, it’s relevant for this call. So allow us to follow-up with the ACS department, and we will provide an [indiscernible].
Victor Acitores: Not a problem.
Juan Santamaria: Then the winding of the working capital at CIMIC which was the next 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 within Leighton Asia throughout 2024 and 2025, right? So that will be a plus in cash flow. But at the same time, yes, we will have worst case finishing in 2025, but most of the peak of the work will be in 2024 this year and cross rail finishes as well pretty much the bulk of the world this year. I don’t dare to say how much will be compensated one or the other, right? But probably in 2024, 2025, we do have upside, we have the final unwinding. Certainly, the winding finishes ‘24, ‘25, but also we do a lot of upside from Leighton Asia. 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?
Victor Acitores: Yes. It’s only to see in terms of looking for the midterm [indiscernible], the conclusions you may in mind, you are able to buy to refinance the debt, lowering the cost of financing and then your timing normalized your net debt net cash positions will materially increase or the other and the cash flows are going to materially increase going forward in terms to give you optionality on the capital allocation.
Juan Santamaria: Because I was just referring to a specific business of CIMIC today, right? And CIMIC today doesn’t have this. If we do incorporate this, the cash flows of these are liable. I mean in Aussie dollars, the operational cash flow of this is close to AUD2 billion right 1.6%, 1.7%. They do have a steady 100% cash flow conversion, which is very, very solid, right? So that obviously will be integrated into our numbers. At the same time, if we were – even if the interest rates do not go down, just by being able to refinance part of this 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 have been explaining, so overall, I mean the Asia Pacific region between the growth in the new areas that we are pursuing between the growth in energy and as well that is booming and the consolidation of this, we should be I mean we are optimistic for the region.
Victor Acitores: Okay. And I have another follow-up question, if I may. In the case, you mentioned during the call, the attractive investments in renewables already with some plants already production of some rights already being in the backlog. How much of CapEx, let’s say, or the net debt of CIMIC at the end of the year is reflecting the investments on equity and the project finance debt of these parks already in the balance sheet in terms of renewable?
Juan Santamaria: So, the €150 million that I have said, that specifically for the energy projects in Australia. In addition to that, there is – I think that it was around €45 million additional in for each one, right. And these were more in UK. But when you when you look, for example, Glenrowan and Hopeland, I mean only those two jobs three months comes up to 460 megawatts of energy. We do have up to 1 gigawatt already awarded in other projects. So, that will I mean generate good value to us. And we have identified projects for another gigawatt that we are in negotiation basis. So, we are going to be very ambitious. And Australia, when it comes to renewables, is moving right now because basically, it’s not as developed as the European market. But certainly, I mean if you just follow the Australian Government announcements, they said, and this was at the end of November 2023, that they are going to underwrite 3 gigawatts of renewable energy projects and energy storage capacity. So, I mean there is a – I mean we are very, very bullish with the energy market in Australia. The wind power projects expect to increase like 30% in ‘24, but it will continue to increase. And we could go I mean through the transmission network business that we are tendering for a couple of PP 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 renewable projects. So, I mean it’s a market that we can expect to grow significantly.
Victor Acitores: And only one thing more is that in years, you mentioned that the attributable net profit in Hopeland [ph] is €110 million, that is equivalent to the dividends that you collect in the year, or in order to put in reference with the €180 million at the time of the relation with Elliott or no?
Juan Santamaria: So, no, I mean that was the net profit. But that was the net profit contribution to us at 100% level, it was €313 million. And the only thing is that it’s not that we get 50% of that because €180 million goes to Elliott and the remainder comes to us. And this is one of the challenges that we do have with Elliott agreement.
Victor Acitores: Okay. So really, in terms of cash flows from PS [ph], is linked also to the net profits or not the case is that for example, I have to understand how much of the cash flows you are receiving today from Elliott…?
Juan Santamaria: Yes. I mean so this year, in 2023, we received AUD54 million, right. And last year, we received AUD89.5 million. In 2024, we expect to increase that significantly, especially if we were able to consolidate part of that because that 10% we will need to add 10% plus the improvement in the performance. But answering your question, yes, it’s linked to the impact. The problem of that is timing could be different. And remember that at the end of the process, by the end of June ‘26, there is 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.
Victor Acitores: Because for some here in margin that nothing happens in that the situation today remains and nothing is coming from Elliott for example, situation. For the 2026, in the catch-up of the AUD180 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 nearly around €100 million per year is going to be recovered in 2026, is that correct?
Juan Santamaria: No or before. So, because the performance of this is we believe that is going to increase and improve significantly. Anything about the €180 million from Elliott comes first to us and we catch-up on dividends. So, if PC is able to deliver more than €360 million after tax in 2024, and I am not saying that it will go. I don’t have the numbers right on, but if it does, anything about the €180 million comes to us, if nothing happens, So, we are catching up on dividends before 2026.
Victor Acitores: Okay. Super. Thank you, Juan.
Operator: The next question is from Marco Limite with Barclays. Please go ahead.
Marco Limite: Hi. Good afternoon. Thanks for taking my questions. I have 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 AP-7 Court ruling. And I think that you have mentioned the intention of Abertis to keep the dividend flat to €600 million. So, just curious what is the strategy there to keep the dividends despite, let’s say, some pressure also from a credit rating perspective. Thank you.
Juan Santamaria: Okay. So, with the terminal guidance or with the HOCHTIEF Americas guidance, we are expecting, and I think we mentioned that an operational EBITDA of €442 million, €480 million. So, yes, that reflects the increase in 2024, okay, in 2024. You remind that a lot of these big projects, all the initial phases are engineering, right. And because they are collaborative and destruction management, you don’t really start ramping up construction until engineering process is given. So, it’s not that at least that you win a project or you win projects six months, seven months, eight months ago are already ramping up. They are not, we are still in engineering phase with our company projects, especially when it comes to the big hubs, etcetera. 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 on that. So, there is a lot of work won, announced that is not in our work in hand for term because we are in early stages in engineering. Only when you have that minimum construction to be done if 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. So, anyway, what I am trying to say is that it’s reflected in 2024, but that will continue growing and as those big projects come into place and the timing for it is not mathematical. When it comes to Abertis, so there is two strategies, one is Abertis [Technical Difficulty]
Operator: Ladies and gentlemen, please hold the line, the conference will resume shortly.
Juan Santamaria: Sorry again for this. So, I was talking about Abertis, so that on one hand. On the other hand, there is opportunities right now that we are…
Marco Limite: Sorry to interrupt you, but I think we all miss the whole answer on Abertis. So, if you could repeat for us, please, would be helpful.
Juan Santamaria: So, we will start with Abertis. So, Abertis, when you look at Abertis right now, okay, first, there is 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 on 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 shape the EBITDA significantly in the future. We will provide more details as we get how we advance in negotiations. So, that’s an opportunity, but there is a lot of other opportunities within the current business that – and you will see during the year, and we are preparing, as I mentioned, the financial modeling for the Capital Markets Day. You will see and you will be able to look at the numbers and assumptions on the long-term dividend for Abertis with the current spot share. About that, we are looking for opportunities. We are bidding and tendering as well. And as you know, we are tendering to other opportunities, but so far they are confidential, but there is an important pipeline. That pipeline comes from potential platforms that could come to the attention of authorities and those discussions and the greenfield projects like was within the €288 million. I mean from Optiv and ACS perspective, we do have a huge pipeline of traditional PPs besides all these high-growth areas. We do have a very big creeping pipeline in traditional. And those could eventually end up in Abertis 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 is likely potential situation where they will be tender, right. They will get back to the government, all these concessions. They will readdress or reorganize on the geographical zones, and they will return. If that’s the case, Abertis is in a good position to be competitive in those tenders. And so there is other opportunities in that sense, right, on top of what I have explained. But I think that we will be much more visible in the Capital Markets Day when it comes to Abertis, and we are going to invite management, CEO and CFO of Abertis to dedicate quality time on the Abertis model on the 17th of April.
Marco Limite: 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 are still confident that whether it’s more investments or CapEx, you can still keep the current credit rating and yes…?
Juan Santamaria: Yes, because that whatever we do with the model and the dividends, it’s always based on investment grade, right. All our modeling, all our assumptions, all our sensitivities are always within investment-grade restrictions. We are committed to it.
Marco Limite: Okay. Thank you very much.
Operator: The next question is from Dario Maglione with BNP Paribas (OTC:BNPQY) Exane. Please go ahead.
Dario Maglione: Hello. Good afternoon. Actually, if I can follow-up on Abertis discussion with the French Government on Sanef [ph], maybe if you can give us more color. And then second question on Asia Pacific. If I look at the adjusted EBIT and they exclude associates, so the others, the margin seems to be down year-on-year from 4.4%, I believe to 3.9%. I just wonder why margins for the underlying business is going down. And then the third question on Ps. 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, the short-term there is some kind of oversupply in the mining market, excluding copper. So, I just wonder if you could give us some indication of the outlook for this and how revenues are linked to production and so on? Thanks.
Juan Santamaria: Okay. Thank you. Thanks Dario. So, let me start with Abertis. So, the conversations around Sanef, they are ongoing. I mean not much to mention at this stage. But of course, as well as those evolve in a way or the other, we will let you know, okay. The second question regarding the margins, so there is a few things that have contributed to the margins low in Asia Pacific this year. The first one is starting with EBITDA, Project [indiscernible] has increased approximately AUD650 million, the revenues at year margin, and those are protection for hyper escalation that we had under the contract. Unfortunately, they cover and you look at the increasing revenues in Asia Pacific, you see a big jump, and that has to do with your margin. So, it dilutes the EBITDA, Westgate versus last year, AUD150 million at zero margin. And then the amortization and 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 it’s we are talking about more than AUD100 million affecting those margins, okay. So, I mean something to be mined. So, 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 for each one of the commodities. In general, what we are seeing is that the volumes in general, we see an increase, and we can share with you, some of the forecast. We are expecting growth, even there is a decrease in the commodity price, we are seeing an increase in the portfolio. 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 are 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 steady or going down, increasing copper, a little increase in nickel and in iron ore a little bit down. But at the end of the day, what drives our production of steel is falling. We are not traders. So, we are not really going forward by the commodity price, but by the volume, which is what 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 for you.
Dario Maglione: Thank you, Juan.
Operator: The next question is from Nicolas Mora with Morgan Stanley. Please go ahead.
Nicolas Mora: Yes. Good afternoon gentlemen. So, just two quick ones. First one on the U.S. When we look at the margin you reported in the fourth quarter, it’s very impressive. I don’t think we have seen a PBT margin above 3% for a very long time. What’s – can you help us understand what’s in there in terms of potentially just the step-up from rest of the year to Q4. So, there must be a few one-offs. Is there or is it the new way of recognizing profits on especially the more IT ish contracts in construction? That will be the first question. Second, when we look at the cash flow, there is 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 Abertis 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, that would be great. Thank you.
Juan Santamaria: 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 is a conciliation relationship with clients, it’s not – I mean so there is always a lot of seasonality. And you can see that on the projects if we come back to the client, I mean same place, we are finishing the year, pay me what you owe for the year, right. I mean we try to keep the relationship, especially in [indiscernible]. But one thing that I would like to mention the U.S. and that’s why I believe that is probably misleading a lot of potential numbers, right. But there will be full clarity this year. We always report HOCHTIEF Americas. But bear in mind that HOCHTIEF Americas external flat, right. And that’s why you don’t see Turner margins 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 from Flatiron are collaborative alliances or target price. But there has been unwinding of past projects, and that has affected the margin that using HOCHTIEF Americas, okay. So, just bear with me because you will see in the Capital Markets Day, full transparency on term 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 the equity accounted company, JVs, consortiums, etcetera. But we will follow-up with you to make sure I would clarify the other question.
Nicolas Mora: Okay. And just coming back on the U.S., what you are seeing is basically at Flatiron over the past couple of years, there has been zero margin.
Juan Santamaria: Basically…
Nicolas Mora: Yes. Okay. So, that means that we are getting close to the again, 3% EBIT margin and Turner on a standalone basis.
Juan Santamaria: But we believe that we are going to be able to grow that.
Nicolas Mora: Okay. But and from here and considering again where you stand in terms of the kind of the higher margin businesses, the data centers, the EV batteries and so on, which are continuing to ramp up into ‘24, ‘25. Is the kind of pace of margin improvement, and we have seen underlying most likely, which is around 20 bps, 30 bps per year is something that is realistic or now getting to a bit of a stretch because you are already on a quite high level compared to peers more focused on project management.
Juan Santamaria: So, what number have you given, Nicolas, what…
Nicolas Mora: Well, I mean sustainably 20 bps to 30 bps of margin increase per year. So, that would give you a 10% growth in PBT, you are supported by margins and then the rest will come from revenues, which is kind of what’s embedded in your high end of your margins in ‘24.
Juan Santamaria: Okay, it’s difficult because I don’t want to give numbers or guidance that I see it. Obviously, the challenge is two things. The first one is that revenues continue growing a lot, right. So, obviously, there is going to be a big increase in or continues being a significant increase in profit in absolute terms, just even if you keep the margins on the revenues. The change also is the project mix, right. And this is why it’s so difficult because obviously, the less commercial residential projects, Turner on that, which is pretty low margins, the better, the more data centers, et cetera, that increases. So and when you look at the work in hand and the backlog it’s going short in that direction. Now, if you look at margins in some of the new construction mining projects, it’s I mean we are looking at 5%, 6% gross margin per a project and increasing that in the more sophisticated projects when you look at residential building, etcetera, and the low sophistication construction management, some of them had 2%, right. How much we are going to be end up is through the mix on the average is difficult because it depends on the timing, on the number of projects and the revenue. So, I mean I don’t certainly is going up because that’s the nature. I mean, Turner is becoming more industrial, more high tech, and more data every year. And the objective is to really get into the areas. The objective is to bring Turner into hydrogen projects, methane project, they are applying for it. I mean we are also working on SourceBlue, which is the main supply company of the group on a global basis. We are incorporating to that supply chain, a logistics company, a lot of industrial and components with and that logistics business has higher margins. I mean it should grow, but it’s difficult for me to give a guidance and I don’t want to take the risk.
Operator: Gentlemen, there are no more questions registered at this time.
Juan Santamaria: Okay. Thank you so much everyone. I look forward to answer any questions within the next days if you need. Thanks a lot.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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