Earnings Call: Q4 2016

Mar 1, 2017

Good morning to everyone. Thank you very much, as usual, for joining us at this event, in which we'll be presenting our financial results for the 2016 financial year for the ACS Group. As every year, at the end of the presentation, there will be a Q&A session, so we can clarify any points that you would like clarified. First of all, let me start by summarizing the three highlights of 2016 for our group. First, I'd like to highlight the good performance during the year. As you know, the ACS Group's net profit in 2016 totaled EUR 751 million, up 3.5% compared to the previous year. Secondly, I think I should remind you that these results that were obtained during our process of transformation of the group that we kicked off five years ago. Now that process has been phased in. It has been successful with some significant operating financial improvements. Significantly, there has been a substantial improvement in operating margins and the management of a working capital. For an example, this year, the group's EBITDA margin improved by 30 basis points in like-for-like terms to now 4.5%, and the generation of funds from operations increased 20% to EUR 1.39 billion. It's also important, I believe, to highlight to you the very rapid process of financial deleveraging, which has been carried out over the last few years. That has meant that we've been able to substantially reduce our financial expenses. In particular, net debt fell 54% in 2016 compared to the previous year. EUR 1.21 million is the current figure. That is a net debt to EBITDA ratio of 0.6 times in 2016. Last but not least, I do believe that we are ever better prepared to be able to grow and take on the challenges of the future. Those new challenges, thanks to a more efficient and competitive structure, underpinned by a robust backlog, more than EUR 66.5 billion, and an excellent position as a leader in the market, particularly in developed markets and with potential for growth, such as North America, representing 36% of our backlog, Australia, which represents 25% of the total backlog, and Europe, 18% of the total backlog. Let me summarize for you the performance of our key operating figures in 2016. Sales were EUR 31.97 billion, 2.7% down in like-for-like terms, but that is without taking into account the contribution of renewable energy assets that were sold off during the first quarter of 2015. Nor does it take into account the impact of exchange rates changes. That slight fall off is because of the slowdown in construction activity in Australia, which was impacted by the completion of major LNG projects during the first part of 2015, as well as the fall off in industrial services production in Mexico due to the impact of the volatility of crude oil prices. However, I would also like to point out to you that both markets, Australia and Mexico, are now showing signs of recovery. Progressive recovery confirming the upward trend that we're expecting for this year. Gross operating profit, EUR 2.02 billion, 5.5% down on the figure that was obtained the previous year. In like-for-like terms, it fell 2.6%, impacted, as I mentioned just a moment ago, by the lesser activity of CIMIC in LNG. EBITDA totaled EUR 1.44 billion. That's up 1.7%, although in like-for-like terms, it's 6% as an increase. That is without taking into account the 2015 renewable assets and also the impact of exchange rates. The attributable net profit for the group 2016 totaled, as I have already mentioned to you, EUR 751 million, 3.5% up on the figure achieved in 2015. Stripping out the exchange rate impacts, that growth would be 4.3%. Lastly, our backlog stood at the end of 2016 at EUR 66.52 billion, up 12.9% compared to the previous year. 11.5% up if we strip out the impact of exchange rates, and thanks to the excellent commercial activity across all our businesses. The key financials for 2016. Let me highlight for you the following. Substantial reduction of our net debt by almost 54% compared to the previous year, thanks to a number of different factors. One is the improvement in our funds from operations from activities and also the sale of Urbaser, which was completed in December 2016. At the end of the financial year 2016, our net debt was EUR 1.21 billion. That is a 0.6 times the net debt to EBITDA ratio. Net financial expenses also fell by 20.4% because of the lower gross debt figure together with lower interest rates after the refinancing that we undertook during the year. Earnings per share was EUR 2.44. That is 3.7% up compared to the previous year. Lastly, let me point out the value that was created during this financial year for our shareholders. Total returns for shareholders, 15.6%, thanks to an upturn in the value of our share price, 11.43% during the year. It closed at a price of EUR 30.02, together with the dividend paid out during the year, EUR 1.152. Let me now take you into a more detailed analysis of our sales. Our source of revenue is highly diversified in geographical terms. That is an important point to note. With a global footprint, basically in the most developed economies in the world, the regions where the group generates most activities are North America, where our sales accounted for 46% of the total, Asia-Pacific 26%, and Europe 21%. Production in South America accounted for 6% of the total. In Africa, it was just below 1%. Thanks to this highly geographical and diversified business, we managed to mitigate the adverse situation in the macroeconomic environment, and also the cyclical factor, which is very much involved in construction activity in the small markets, and took advantage of opportunities for growth in more favorable environments and consolidated our footprint in countries with greatest potential for stable growth. The most important countries for us for turnover, United States, Australia, Hong Kong, Mexico, Germany, Canada, and Spain. Spain represents 13% of the total sales. Construction. Sales in 2016 totaled EUR 24.21 billion. These sales were mainly affected, as I said earlier on in the presentation, by the completion of some of the major LNG contracts towards the end of 2015 in Australia. Nevertheless, the business activity in CIMIC did recover substantially during the year, and by the second half of the year, sales were growing by 16.7% compared to the first half of the year. All of the other sales in construction grew by 3.3%, mainly underpinned by the excellent performance of our activities in North America. In fact, North America today accounts for 54% of total sales, up 7.8%, mainly due to the business activity in United States and Asia-Pacific. The sale figure fell, as I said before, both in Australia and right across the rest of the region. Asia-Pacific currently accounts for 31% of our total sales, and we are expecting for this year, 2017, to record substantial growth in the business activities there because of the robust backlog we have currently, as we will see in a moment. Activity in Europe represented 13% of total sales. Down both in Spain, which is 12.7%, and in all of the other European markets where we have a footprint, 5.3% down. Lastly, South America reached a total of 2.7% as a share of our total sales. That is a fall off of 13.5%. Industrial services recorded sales of EUR 6.25 billion. That is down 3.0% compared to 2015 in like for like terms. Why? The downturn was due to less industrial investment activity in Spain and also the slowdown with regard to the development of oil and gas projects in Mexico. International business already accounts for 73% of the total, up 4.9%, bolstered by the major growth of more than 51% of the business in the region of Asia-Pacific. This is because of the contracts that we were awarded in recent years in Saudi Arabia, Japan, and the United Arab Emirates. North America accounting for 25% of sales in this business area, and South America 22% of the total, recorded a fall off in business volume activity because of the impact of the depreciation of the currencies and that slowdown in the Mexican market, the energy market I mentioned before. Although there are now signs of recovery, as I will talk you through in a moment. The services area sales in 2016 totaled EUR 1.53 billion. That is a growth of 2.2%. Let me remind you that the sale of Urbaser was completed in December 2016. Therefore, the contribution made by the company to the group's revenues is now zero, as it has been reclassified as a discontinued operation. in February this year, the sale of Sintax has been completed. That is our logistics services subsidiary. That means that this year, this financial year, it will make no contribution to the group's results. Clece will be the only activity in this area. Turning to operating margins. The group's operating margins have recorded an additional improvement. Our EBITDA, our gross operating profit in construction totaled EUR 1.40 billion. That is 2.3% down compared to 2015, solely and exclusively because of the lower sales figure in CIMIC, whereas all of the other businesses recorded an increase in EBITDA, 37.8%. The robust North American market and also the operating improvement recorded in Hochtief in Europe confirmed that positive trend in all our operating margins, which overall grew by 10 basis points to 5.8%. The EBITDA in industrial services totaled EUR 613 million. That is a fall off of 3%, excluding the effect of the sale of our renewable energy assets in 2015. Our sales margin was 10.1%. That is an improvement of 10 basis points, confirming the sustainability of our margins in this business area. Our EBITDA in services totaled EUR 78 million. That is without including Urbaser. Our sales margin was 5%, 10 basis points higher than the previous year. The ACS Group's net profit, as I said, in 2016 totaled EUR 751 million, 3.5% up compared to the previous financial year. Construction, in particular, grew by 2.2%, following the transformation processes that were implemented in Hochtief and in its subsidiaries, and the increased stake taken by the group in the company's equity. Net profit in the industrial services area fell by 3% in like-for-like terms, that is stripping out the impact of the sale of those renewable energy assets in 2015. That falloff is in line with the falloff in turnover that was recorded in 2016. Net profit in services increased by 14.9% and included the operating contribution made by Urbaser as a discontinued operation up until November 2016, when the sale was completed to a Chinese investment group. That was December last year. The corporation's profit totaled EUR 52 million. Let me point out that the capital gains obtained from the sale of Urbaser, EUR 357 million, have offset the exceptional provisions that were made in 2016. They were calculated with the most conservative assumptions. Those provisions cover both the impact associated with the new Spanish tax regulation that was passed through a decree law last December, as well as the probable impairment of the value of certain financial assets. As I said when starting off this presentation, funds from operations, cash flows before the variation in working capital increased by 20.3% in 2016, to a total of EUR 1.39 billion, thanks to the substantial reduction in financial expenses and a lower taxation payment abroad. We're absolutely convinced that the increase in our activity that we're expecting in 2017, lower financial expenditure stemming from lower leverage, and also the significant reduction in transformation costs will allow us to increase our generation of operating cash flows quite significantly over the next few years. Variation in operating working capital had practically a neutral effect in 2016. The good performance recorded by Hochtief offset the impact of the reduction of the average payment per year to suppliers. In Dragados, on the other hand, the variation in working capital in industrial services remained practically neutral, despite those receivables in Mexico that still have to be paid, and they've been included in a regularization plan that was agreed with our key customer in that country for a total of EUR 480 million, and which are being collected on a monthly basis this year and until mid-2018. Operating net investment CapEx increased by EUR 90 million to a total of EUR 332 million. That means that the net cash funds that are generated from operating activities totaled EUR 1.04 billion in 2016. Net operating CapEx in 2016 totaled EUR 332 million, with the following breakdown. Net operating CapEx in construction totaled EUR 277 million. Basically, that figure was for the acquisition of machinery for mining contracts by CIMIC. That was a total of EUR 132 million, and the investments made by Dragados in specialized machinery in North America. Net operating CapEx in industrial services totaled EUR 36 million. The EUR 18 million of services corresponded solely and exclusively to Clece's business activity, following the completion of the sale of Urbaser in December 2016. With regard to all of the other net financial investments, the group obtained a net balance of EUR 854 million. The breakdown is as follows: EUR 60 million corresponded to the net investment in concession assets, EUR 140 million in investment, and EUR 115 million in divestment. EUR 870 million corresponding to net financial divestments, including the sale operation in the case of Urbaser, which was a divestment of EUR 1.14 billion, together with EUR 20 million received via dividend halfway through 2016, made up the total of EUR 1.16 billion. That was the total price. As things stand today, still outstanding for collection, is a minimum of EUR 185 million and a maximum of EUR 420 million, in line with certain operating parameters, certain KPIs that have to be delivered on over the next few years. Transactions made by CIMIC totaled a net investment of EUR 623 million, including the acquisitions of Sedgman, Devine, UGL, and the sale of Nextgen, together with the acquisition of treasury stock for a total of EUR 287 million. Lastly, the forward sale operation with a prepaid collection, EUR 90 million for shares in Iberdrola, whereas the investment also including a call option to cover and hedge the risk and the implicit risk is for those bonds in 2013 and 2014. In total, net divestment, EUR 471 million, and completely ends our exposure in Iberdrola. I understand. This was possible, the evolution of our net debt to our solid cash flow generation from our various operating businesses of a total, as we've said, of EUR 1.045 billion. Secondly, the divestment of Urbaser, which together with the EUR 979 million we had received as an interim payment in 2016, have enabled us to write off the EUR 731 million the company's net debt amounted to, and we still have to be paid a minimum of EUR 185 million. With these large cash inflows, we could have been almost entirely without debt. However, we have decided to continue making investments and strategic acquisitions, particularly through CIMIC, including the recent takeover of UGL. The price paid was EUR 317 million, and the net debt we've incorporated was EUR 102 million. The other financial investments made by the group, which have impacted our debt in 2016, total EUR 317 million, including our increased stake in CIMIC through the purchase of treasury stock for a total of EUR 287 million. We've also used EUR 457 million to pay ACS dividends to our shareholders, as well as to minority shareholders in our subsidiaries, as well as treasury stock purchases in ACS and Hochtief. Final net debt totals EUR 1.214 billion, which is equivalent to 0.6 times EBITDA in 2016. Of that debt, EUR 202 million are for projects without recourse. Now, I would like to emphasize the improved financial position after this major effort to reduce our debt levels since the beginning of 2012, when we decided to reduce risk levels in the group's financial structure. We've managed to reduce our debt by 75%, from EUR 4.952 billion at the end of 2012 to the EUR 1.21 billion at the end of 2016, which again is 0.6 times EBITDA. With this structure, we're financially more solid and commercially more competitive in an environment in which flexibility and the ability to adapt and evolve are going to be key in order to maintain our leadership and keep growing. Net debt in the group is essentially at the corporate level with net debt of EUR 2.179 billion. This debt was established with the acquisition of our stake in Hochtief, with a market value at the end of 2016 of over EUR 6.13 billion. If we add to that the value of our stake in Saeta Yield, the value of our stakes in listed companies is of EUR 6.3 billion, which we have included in this slide. On the other hand, our construction and industrial services businesses have a net cash position. Also, as part of the improvement in our financial structure, I would like to point out the significant fall in our net financial expenses, coming down 28% in the year, as well as the implicit cost of our gross debt, which is at 3.7%, with an improvement of over 80 basis points in the year as a result of lower interest rates obtained after the refinancings we completed. For 2017, we expect to obtain an additional improvement through the same processes. Moving on to financial expenses, which as I have said, have come down in total 25% in 2016. Currently, around 70% of our financial expenses are connected to the group's gross debt, coming down 24% in 2016. Other financial expenses include, on the one hand, bonding lines, as well as other technical guarantees needed for our operations, particularly in the U.S. On the other, restructuring costs derived from the rationalization of our financial structure, including fees for early repayment, as well as the cost of derivatives, as well as expenses from factoring and other commercial discount instruments. Another very important part of our financial restructuring includes the consolidation of the group's strategic plan, focusing on core activities or those complementary to our core business, and divesting of those assets and businesses which do not meet these criteria. Amongst the major acquisitions in the year, I would like to mention those carried out by CIMIC. First of all, the most relevant was our takeover of UGL at a price of AUD 3.15 per share with an investment of over AUD 500 million. This is a company that provides engineering, construction, and maintenance services for large corporates and public institutions in Australia and internationally. We believe, therefore, it is a good opportunity for diversifying the activities of our Australian subsidiary. The operation was completed at the end of 2016. Secondly, at the beginning of last year, we took over Sedgman, which is a leader in the design, construction, or operation of ore processing plants and associated mining infrastructures. It is a business which is very complementary to this mining business, and it enables us to offer integrated services to our clients in this sector. Finally, in January this year, we also took over Macmahon, which is a mining services company operating mostly in Australia, although also present in Southeast Asia and Africa. It is a business which fits in very well with this mining business, reinforcing its leadership in the region. The offer was at AUD 0.145 per share with an investment of close to $150 million. This is still ongoing until we end off the takeover period over the next few days. On the other hand, the main divestments in the year for non-strategic businesses were, as we mentioned earlier, the sale of Urbaser, which was our urban services and waste treatment business, which was completed in December 2016 for EUR 1.164 billion, with an earn-out of up to EUR 235 million, depending on its performance over the next few years. At the end of the year, we were paid 900 and some million, and we still have to be paid 180 some million between 2018 and 2019. With this divestment, we have been able to capture the value we had created in Urbaser, as well as significantly reduce our debt levels and the investment requirements, since this was a business that is very capital intensive. Secondly, we divested of Sintax, which is our logistic services subsidiary, completed in February this year, obtaining EUR 155 million, which have already been paid in February. Finally, we have also divested of that 29% CIMIC had in Nextgen, company in the telecommunications sector, providing network connectivity services and data centers for AUD 181 million. In 2016, we have continued to make significant efforts to maintain and consolidate our leadership position in markets that we have considered strategic because of their political and regulatory stability, visibility of business growth, and general potential. Overall, our backlog has grown almost 13%, up to EUR 66.5 billion. By geographies, Asia Pacific, with over EUR 25 billion, represents 38% of the total, including both mining projects, which are very capital intensive and long-term, as well as infrastructure and industrial development projects in Australia, Hong Kong, and the Middle East. Secondly, we have North America contributing almost EUR 24 billion, which is 36% of the total backlog. Thirdly, we have Europe with over EUR 12 billion and 18% of our backlog, of which 6.7 billion or 10% in Spain. Fourthly, we have South America with 7% of the backlog or EUR 4.39 billion. Finally, Africa contributing 1% of the total. The backlog and projects under contract or construction represent EUR 55.76 billion or 25 months of production. That is up 14% as a result of significant activity, mostly in North America, but also in countries in South America. In this slide, we have a list of the main projects the group has been awarded in 2016. You can see that they are all very major projects consolidating our leadership as the top international contractor for infrastructures in the world. Growth of our industrial services backlog was 4%, with EUR 8.762 billion or 17 months of production, with 77.7% of those contracts international. To point out the over 40% growth in South America, thanks to the awards of transmission lines in Brazil, as well as our greater presence in Asia Pacific, which already represents 21% of our backlog, up almost 5% with respect to 2015. Also in this slide, you will be able to see the most significant international projects that we have been awarded in our industrial services area, which, as I have said, 77% of that backlog is already international. Finally, our current services backlog is of EUR 1.99 billion or 16 months of activity, up 21.2% in the year. Ninety-six percent of this backlog is in Spain, although there is increasing volume in Europe. Including amongst the most relevant awards in the period, various contracts for cleaning services in public buildings, hospitals, Guardia Civil facilities, and city councils, as well as senior citizen homes, as well as home care services, where we are the leading company in Spain. Finally, I would like to review our position in main strategic markets in which we are market leaders with very positive prospects for future growth. First of all, the U.S., with 38% of our total sales and 50% of our construction turnover. Total turnover in 2016, EUR 12 billion. We finished the year with a backlog of over EUR 19 billion. We are currently, without any doubt, leaders in the American construction market with very significant double-digit growth over the last years, thanks to the excellent commercial activity, both by Turner, Dragados, as well as Flatiron and the other subsidiaries we own in the country. Amongst recent projects that we have been awarded, I would like to mention the new tunnel in Chesapeake Bay in Virginia, the extension of LAX, the Harbor Bridge of the Corpus Christi Ship Channel on the US 181 highway in Texas. Just to mention, these are just a few of the most relevant projects we have been awarded in the year. Secondly, we have Australia, which represents 15% of our turnover, where we have a leading company, CIMIC, with very positive growth prospects given the high population growth as well as the scarce infrastructure network in the country. Our current backlog is EUR 16 million, including infrastructure projects, particularly for transport, as well as contracts for constructing and managing mines. I would like to mention that CIMIC's recent acquisitions have significantly increased their backlog. With UGL, the backlog is at AUD 34 billion, which is 17% up in the last year. Finally, we have the international diversification of this great group. Without including Spain, where demand is not expected to grow short term, our backlog has been growing in countries like Canada, which is already 5% of the total, Germany with 4% of the backlog, and where we are moderately optimistic with respect to potential investments in infrastructure of the largest European economy. Hong Kong, where CIMIC has a very relevant position, and other countries with tremendous growth potential and with backlogs representing between 2% and 3% respectively, like Indonesia, Mexico, Peru. Finally, I would like to give you just a brief outlook of where we are now and our vision. Thanks to a very effective transformation process we have undertaken, we are now ready to continue to grow and deal with the future's new challenges. We are leaders in markets with great growth potential. Our financial structure is very solid and efficient, and we are able to make significant investments thanks to our strong cash flow generation and our low debt level. As a result, we can face the new challenges that arise in an increasingly global, competitive, and demanding market, which requires a flexible and adaptable business model, as well as investment for the development of increasingly sophisticated and advanced infrastructures. Our goal for the coming years is to increase shareholder return whilst maintaining the growth of our net attributable profit and reinforcing our leadership position. To do that, we have three main objectives. First, we want sustainable growth of our businesses, and we expect to increase our total average annual turnover 10% each year in the coming years based on that solid backlog we have just described. As a result, we also expect net profit this year, like for like, to grow between 8% and 10%. Secondly, we will continue to improve our operating and financial efficiency, introducing new measures to help us improve our services, reduce our costs, and generate greater synergies. Finally, we will continue to improve the group's financial structure. To do that, we will continue to assess various alternatives that might help us simplify and improve our capital structure. As ever, we will be open to any strategic opportunities that might develop that might enable us to increase our market value. Ultimately, we will continue to grow, offering our shareholders an attractive, exciting, and particularly profitable project in a promising sector, which is that of infrastructure development. Thank you very much. Okay. Now, basically, if you have any questions, we will be happy to answer them. I think we might have some questions coming in over the Internet too. Well, there are several coming in over the Internet. For example, Tobias Lockson from HSBC is asking us, what do we think about falling volumes in Spain in construction, industrial services, and how do we see the outlook for 2017? Well, in principle, economic activity in Spain, and we believe it has hit the bottom now. It has bottomed out, and we believe that on the building side, certainly there is now an upturn. There will be growth, not significant rates, maybe 2%-3% as the rates have been up to now. Infrastructure, well, we do not expect a lot of recovery there because if we have a deficit in the budget, as the government has now, then you would expect the investment of that kind would perhaps not be a priority right now. But we will have to wait for a couple of years before infrastructure starts to be developed again. But building will increase. Industrial services, what has happened is that surplus capacity has forced down investment. Once again, I believe that the trend has bottomed out. Our key client companies, electricity utilities, industrial facilities, corporates too, have also had a cap on their investment over recent years. From now onwards, we believe that there will be an upturn in investment, not at significantly high rates, but there will be no negative growth. We believe this has bottomed out, so there will be low growth rates. Tobias is also asking, as well as some other investors who have sent in question of the webcast: what is the update on the almost EUR 1 billion net profit figure that we had given after the sale of Urbaser, and what is the horizon to reach that figure? Well, let's see. As everybody knows, we are involved in a transformation process which began over four years ago in order to become global leaders in infrastructures, particularly in developed markets. This process is ongoing and I think has been very successful in every way. Yes, the goal, as I said, to have EUR 1 billion net profit included many elements, some of which we've already achieved and others are still ongoing. The ones we've achieved, debt reduction, which was very important, reducing the rates at which we were repaying that debt, and growing our operating margins. As everybody knows, we have acquired growing stakes in companies in which we had invested. But a year ago, we decided to put a stop to that process because there was a disproportionate difference between the valuation of these companies and ACS's valuation, but we're still in that transformation process. Very common question in all the emails we've received is when will Mr. Fernando Perez be appointed CEO? Well, let me see. Marcelino has done magnificent work over this period of four years, and I've said that before. Not an easy job to buy companies, with activities essentially based in U.S. and Australia. As I've already mentioned, trying to complete our transformation process. There's no doubt in my mind that the work that has been done has been absolutely extraordinary, and that work can be seen in the results of these companies. Now we have to see how we can coordinate the different business areas and the different geographical areas and simplify the organizational structure of the company. I would hope he comes and joins us as soon as possible. I'm very happy about him coming here. Lots of questions, too, about the wall that President Trump seems to want to build on the border with Mexico. Do we have any comments on that? Well, of course, we can only talk about what we know, and then you get questions about the wall. I have to say that it's definitely not our area of specialty. Everybody knows that we've been doing business in the U.S. for 12 years, that we are the leading contractor in the U.S. with EUR 12.2 billion in turnover last year, with a backlog of EUR 19 billion last year. We grew that backlog by 21%, but they have the list of projects and tenders we've taken part in, which is where we think we can add value. These are projects, as you can see, essentially infrastructure development. More questions. There's several questions about our credit rating, whether we're going to ask for it or not. Well, we are actually waiting to publish our financial results for the year. We believe that the financial structure the group has now does allow us to go forward with public rating, and we will get a very acceptable rating, we believe. Over the next few weeks, we will start to work alongside the credit rating agencies to work towards that rating. We believe that perhaps somewhere around the summer, we might have completed that process, but that isn't up to us, of course. It's up to their assessment. Lastly, well, there are a lot of questions coming in, I know, but especially there are questions about our dividend policy. Will we increase our dividend payout policy? We always said that our payout policy was going to be to pay out about 50% of our profit. At the end of the month, on the 24th, isn't it, of March, we will have the board call for a general shareholders meeting, and that's where we will discuss it. Good morning. I'm Santiago Marina from Caixabank, and I have a couple of questions. First is about the infrastructure plan in the U.S. What will be Turner's role in that plan, if any? Do you think it will have a relevant role to play? Or will the companies that will be getting the business be just Dragados and Flatiron? As for your restructuring and simplification process, 2016 was supposed to be the year of the full integration of Hochtief. In the end, because the prices were so different, I guess, for ACS's shareholder, it wasn't really the right time for a capital increase. Hochtief's share price is still going up. ACS' hasn't gone up as much. What might we expect in 2017 in that integration process? Well, as everyone knows, over there, we have two key activities in the U.S. building, but not of residential buildings. Major projects there. Turner, of course, has been doing that very successfully over recent years. Then we also work on infrastructures that we go through Dragados, Azusa, and Flatiron to undertake those projects. If there is to be a recovery of this business activity area in the U.S., I think both groups, the big major groups, the infrastructure groups, Turner and ourselves, will of course benefit. We have grown by 21%, as I mentioned earlier. As things stand today, there is no major infrastructure project in the U.S. that we're not involved in. The high-speed train, the metro. Of course, we are experts in tunneling. We invested, particularly in machinery there. That was Dragados that made the investment. This is an adventure that started 12 years ago, and we are very happy at the position that we have reached, the track record that we have now. As regards to the remuneration for the companies, if things had been different back then, we might have done things differently. But in 2017, without a doubt, we will continue to work hard on reorganizing the structures to make sure we have coordination between the activities of both groups, by product and by geography. In U.S., Dragados and Azusa work together closely. There is Turner and there is Flatiron, of course, there. The idea would be to coordinate our operations. It is essential, of course, isn't it, to be able to achieve an improvement in our margins and, of course, at the end of the day, contribute better value to our shareholders. But we will report to you on that regularly, of course. Yes, Florentino, if I can just add there. With regard to the infrastructure plan, the company, and they will, of course, take a large part of the business there, and there has been substantial growth and the expectation is for further growth. Hello. Antonio Rodriguez from BBVA asking the question. I have a couple of questions, actually. The first one is about your margins in construction, Dragados. What are your expectations for 2017? The second question is about the integration process that you were talking about just now, the integration with Hochtief. You stopped buying up shares about a year ago because of the share price, I believe. I would like to understand, how come ACS has ceased buying up shares? But Hochtief has continued to do it. No. They stopped buying shares. A little later, though, depending on the value. I know that we, when it got to 100, we stopped buying, and I do not remember exactly, but I think it was almost a year ago or nine months or so that we stopped buying shares. Turner. Sorry, in CIMIC. To be precise, ACS bought the last Hochtief shares on October 12th, because that is when Qatar released their package into the market, and we bought those at EUR 77 per share. That was when Hochtief had a buyback plan. I think at the end of the year, it was about 83, so they kept buying. But when it got to 100, which was around February, the price seemed too high, and they stopped. We have not bought any shares ourselves since then, nor has Hochtief, as far as I know. We do not buy more Hochtief shares except for the ones that Qatar sold us for EUR 77, which was October 12th. We did not buy any more. Although Hochtief did buy some treasury stock until the price got to 100, which we thought was high enough that it did not warrant buying back anymore. The purchases by Hochtief or CIMIC, or CIMIC also of its own treasury stock. I do not remember exactly what the price was, but they stopped because we felt that there was just too much of a mismatch, not so much between Hochtief and CIMIC, but between CIMIC, Hochtief, and ACS. We can stay like this forever, really, if need be, because we own almost 72% of Hochtief, and Hochtief owns 70 some percent of CIMIC. Anyway, we would like this process of integration to be completed at some point. I can say that we're working on it, but always, of course, without having an adverse impact on shareholders. What Florentino was saying about operational integration, in practice, the companies are managed as if they were all 100% owned. There's really no difference in terms of choosing whether a project goes to Dragados or Hochtief. It's whichever can offer best market conditions that will get it. If another can contribute its experience to the other, they will partner. Dragados is partnering with Hochtief and CIMIC in the construction of tunnels where they have a great deal of experience. So operationally, the integration has not been impacted by the size of the stake. In fact, right now, the way ratios are We would only buy more Hochtief or CIMIC shares if it made financial sense, because operationally they're fully consolidated and fully integrated. So having some minority shareholders sharing the risk with us is actually a good thing because they can benefit together with us if the value goes up. So it's no limitation operationally. We just want to make sure everything's integrated so it's agile and effective, but it doesn't make sense if the value ratios don't make sense. As for Dragados' margins for next year, growth in the U.S., what do you expect for 2017? In Dragados, essentially, its most important business is Dragados US. As you know, getting into a market like the U.S., the project we're involved in, including the New York underground and other major projects, have gradually improved our position. Because initially, of course, with entry costs, our margins were not what we would have liked. But they have been improving. What I can tell you is that our net profit in Dragados, we hope for next year to be at around 3%. Coming up from 2.5% to 3%, or from 2.3% to 2.8%. But anyway, this year we will be growing at every level. Turnover, margins, profit, as a result of the work that has been done to transform our structures. Which has been a complete success in my view, but which did require a lot of time and effort given that our two main markets, one is Australia and the other is the U.S. And it's not just about us sending our best people there, but about them communicating our culture and expertise, which is developing projects effectively and making money. So we have constant monitoring of our projects, which is a system that is now fully deployed, and we are now very satisfied with the effectiveness. Because in construction, really, it's all about controlling risks, as you know, and execution. And it took some time in the U.S. and in Australia, but now we are, I think, at an optimum level of control and monitoring. Thank you very much. Good morning. My name is Joaquin Ferrer from KPSB. I have a couple of questions. One about industrial. Could you give us your outlook for 2017? It looks like your total backlog has slowed down slightly versus September. It's been growing a little less. Particularly South America, it looks like it will only be bringing in 20% of this backlog when Mexico, in the past, had been growing. Could you give us a few indications about how the business might evolve? As for working capital, I know it's early to give us an estimate, but can we assume that you have a cushion of EUR 240 million in Pemex, since that's half of the EUR 480? Let me see. The industrial group's activity, as everybody knows, it did manage to have a turnover of EUR 7 billion, and with the sale of the renewable energy assets, that fell to EUR 6.5 billion. We have, of course, seen growth that has been undermined by activity in Pemex particularly. We're expecting turnover of EUR 6.5 billion this year. That would be the same figure as when we had the renewable assets. That was EUR 7 billion, and then it dropped to EUR 6.5 billion. We have already recouped part of what we lost in Pemex, and next year we will be able to recover all of that part that we'd lost. As I said before, this is now a growth trend following on from Pemex. This year it will be EUR 6.5 billion, and next year it should be EUR 7 billion. Also, because we have recouped some of the Pemex activities, and because the contracts that we did achieve to try and offset the loss of the renewable energy projects are also paying off. That was when we sold off the assets to Saeta. That was EUR 500 million. Yes, we will have growth in Dragados. Yes. In industrial activity, in Hochtief too. Hochtief, I think, will grow right across the board in all its activities in Americas, in Europe, and Asia Pacific. This year, it's very likely that our growth in sales will be around 10% with the backlog that we have today. As a result of that, and a result of the improvement operating margins, we would be expecting growth in like-for-like terms to be between 8% and 10% for our net profit. The question about working capital, Joaquin. It's not quite right that we have that buffer for the outstanding payments because our suppliers, our providers, are helping to actually underpin that. Not to the same extent, but they are. What happened in Mexico, and this has to do with the working capital. The fall of the oil price, that $30 figure, really has had an impact. A lot of the projects that we'd already started up, we were asked to actually Bring them to a standstill for a point, but fortunately, everything has actually picked up again, the refinery projects. With the oil prices that we have at the moment, it seems that Pemex's activity is starting to pick up again. That traumatic period, it was a traumatic period, it has coincided with a tax issue because it suffered from the oil price fall. Some of the investment, it had to really stop investing. Then there was also an additional tax burden imposed on them by the government. But everything seems to have returned to the normal flow of things. Even the privatization plan for the industry, that was a sectoral plan in Mexico, and it had been passed, it had already been launched, but it coincided with the fall off in the price. They were hoping to have brought in foreign investment. It seems that all that came to a standstill for a time, but it's now picking up again. The idea is that in principle, our working capital should be flat. There should be no investment in working capital this year. If things work out, then we may have a slight outperformance of that, but the idea of no investment in working capital. Good morning, Juan Carlos Calvo speaking. In view of the share price, ACS, and the fact that it seems to be very cheap compared to Hochtief and also CIMIC, and your balance sheet in ACS is less leveraged than before, you have much less debt. I wondered whether you are thinking of any financial steps that you can take to try and correct that imbalance, perhaps some sort of share buyback plan, something like that? Quite obviously, it would have to be going beyond what you normally do with the scrip dividend. We are reconsidering the scrip dividend, but that's for the board to decide. We will make that decision at the end of the month. We are reconsidering that. You know that some shareholders are divesting right now, and so now would not be the time to do a share buyback. We have to wait for those to be available and then do it. I, of course, feel very pleased that in spite of the divestments, price has stayed up, and share is performing well. Anyway, it's something that we have seen throughout 2016, but we're not planning. We're reconsidering the scrip dividend, but we're not planning to do any significant buyback program. In any case, the scrip dividend has no effect on the number of shares because you know that you amortize the same number that you issue, so it's neutral. There are more questions coming in over the Internet. Martin Woodford from Bank of America, Merrill Lynch is asking a couple of questions. One is whether ACS is planning to divest of any additional non-strategic assets like Clece or any others in 2017 and 2018. The Clece company, as you know, is the only company that is now doing what we call the service activity, but it is a benchmark company here in Spain for services to citizens. It's got almost 72,000 people in the workforce, and it's working to really improve the standard of living for millions of people. That activity requires people to be highly specialized and qualified because Clece has. What it has done, has started to bring onto its workforce people with disabilities, 6,500 people. These are vulnerable groups in society, people who are marginalized, are victims of gender violence. We believe that in this group, it's a very big group, that it is a key component. Our group are very happy with the company being part of it. At the moment, we are not planning any sale of Clece. Any other assets is the question, too. We do have some assets that are becoming mature. The idea is asset rotation, of course. Highways, for instance, when they become mature assets, we do sell them off, and then we invest in new concessions. We haven't done that yet. What other assets have we got? Well, it's not just highways, but energy concessions, too. Any infrastructure assets, we do, of course, divest once they reach their financial adequate positions, but they're not key individually for us, or overall they are. There are a number of questions about our working capital, our operating working capital. That is ACS stripping out Hochtief, because people are saying that Hochtief has good performance. There has been a little impairment there for ACS. There are a number of questions that we would have to answer through email. But essentially, the quick question, why is it that ACS has not done this as well as Hochtief? Well, if you look at working capital in ACS, excluding the companies that came from Hochtief, there's been an improvement in industrial services in spite of the delay in payments from Pemex and worsening in Dragados. Dragados has had a significant impact because volumes in Spain are really very small, and they have replaced those volumes in Spain pretty significantly with much more relaxed working capital parameters, because in Spain you can pay suppliers longer term, and we have confirming, while abroad you have to pay in under 90 days. The fact that you've replaced the volumes in Spain with volumes elsewhere, has meant a significant impact in working capital for Dragados, and that's been their difficulty. But we don't think there's going to be more transfer of business from Spain to the rest of the world. They're not going to be using up more working capital, so they should recoup a little. Olivia Peters from Berenberg is asking whether we can give a bit more color on the plans we have to improve our operating efficiency and rationalize our costs throughout ACS and Hochtief. Go on, Mercedes. Each company is independent. Each company has its own structure, its own organization. It's very hard to say today, globally, overall, what is it that we're doing. We do have a very good system to actually monitor risks in the infrastructure works and the projects, and we've exported that to Hochtief and CIMIC. It's working very well. The expectation is that this will work better and better as we move forward. The U.S.A. is one country where we believe there has to be improvement, Dragados U.S. in particular. We are very optimistic about that improvement. I have to say, it has not been easy to take our methods to very different places in the world, so far away. It's been difficult. We're happy with the result, but we want to keep making year-on-year improvements. This year, we will see a general across-the-board improvement. You will see that in the financial parameters that we're reporting to you next year at a profit level, working capital level, and other financial key indicators that you're familiar with. Lastly, one of the small investors asking about the capital gains for Urbaser. It's at the low end of the range that we did initially give as guidance. Do we expect any improvement there? The capital gains, the gain was EUR 357 million in the case of Urbaser. That capital gain figure is the definite figure. There's a EUR 235 million earn-out, additional figure there. Now, that depends on the operating profit performance for Urbaser. Urbaser incorporated into the company, excluding the operations in China now. That growth figure, it's all about reaching certain thresholds. They will pay out until 2023 there with that figure of the EUR 235 million. Now, we haven't booked it yet. We haven't accounted for it yet because it doesn't actually depend on us. It's not up to us. There isn't 100% certainty about this. The capital gains that we have achieved, essentially, we've used them to put in provisions for two key areas that we feel are important. Royal Decree-Law 3/2016, which was a royal decree issued by the Ministry of Finance here in Spain, have imposed on us an obligation to revert a lot of the, or to refund a lot of the tax credits that we had been able to include as tax deductions. If you have booked them on your balance sheet, according to this, a new piece of legislation, you have to revert the figures and put your provisions in. So we have said this is a provision of approximately EUR 155 million. So this is conservative provisions. The remaining amount, we have put in there for provision for a portfolio for all risks for all our international markets. Our financial assets, essentially, are stakes in joint ventures or minority stakes that we hold in companies. That is what we've done with that capital gains. That's it. Of course, the cash has been used to reduce debt. Guillermo. Good morning. I'm Guillermo Fernandez Gao from Deutsche Bank, and I have two questions. One about your margins in the U.S. again. The question is, in Flatiron specifically, I understand the margin is currently impaired by some legacy projects. My question is whether midterm, we would expect to see it reach a similar level to that of Dragados, and when that might happen. For Turner, it's the margin they have because that's the risk they take, but would you be considering increasing the risk-taking a bit in order to increase the margin a bit? The second question, industrial services. You've given us a very useful list of equity invested in all concession projects in Iridium, but it'd be useful to know the equity you've invested in different projects, in renewables. Well, you've already said how much yield, but the other less visible projects we're not as familiar with, perhaps. Okay, as the second thing, Turner. It's what it is. There's zero risk, almost, and a very tiny margin. We could, of course, increase the margin without increasing the risk. You can do that, and we have, in fact, improved it in the last three years. Flatiron, when we acquired it was a company that was very poorly managed, that was losing money. Last year, it made money, and it is now on track for improving its margins and bringing them closer to what we generally have here. As for industrial investments, less frequent and less numerous, but obviously quite a few as you've listed. Perhaps later, if you call us, we can go through them one by one. I just wanted to say that we don't have any renewables left. Well, we do have a few which are under construction. Yeah, but they're already in runoff. They'll be sold to Saeta. Then we have those transmission lines in Brazil. They're not very big investments. But we can run through them. We don't have a lot of other investments in industrial right now. Well, thank you very much for joining us. I don't think there's any other questions, so we'll leave it at that. Thank you. If you stay around, we can have some coffee together.