Welcome to the VINCI Conference Call. I will now hand over to Mr. Gratiot Villard, Chairman and CEO of VINCI. Sir, please go ahead.
Thank you. Good morning or good afternoon, everybody. Thanks to be with us This afternoon. We are in Paris. I have Christian Pelicet Duroza, who is the guy We made the deal, Christian Laperi, with the guy who will pay for that deal and me, plus Gregor, Alexandre, etcetera.
What I could like first to say that, of course, we are very happy To make this major strategic move. Why? You probably remember that We permanently explained that our 3 main strategic goals were: 1st, To grow our energy business second, to broaden and extend the average maturity of our concession portfolio And third, more recently, to contribute to the climate challenge and particularly by reducing our CO2 footprint In line with Accord de Paris. If I go back to the first item to grow our R and D business. As you know, we multiplied by 4 or a little bit more than 4 We've shared this revenue over the last 15 years, while, which is important, improving the profit margin.
We always explain that this business of engineering, construction and maintenance in the field of energy And particularly electricity and communication that this business was in a phase of Consolidation at the scale of the world. 1st, because of the central role of energy and energy transition and second, Because of the growing need to design, implement Green solutions for our clients. Clients meaning transport and distribution lines, substations, Industry Automation, efficiency of industrial processes, smart buildings, smart public facilities, smart cities, Fixed and mobile communication networks and so on. And as you have noticed, these businesses proved To be very resilient during the pandemic. 2nd point, after having developed motorways, carports, High speed tradelines and airports, we believe we can now develop greenfield renewable energy assets.
We think That one of our competitive edge is to combine, 1st, a large network of deeply rooted local BUs, And I think to understand the local regulations, the local electrical grid, the way to obtain all kinds of permits and partly environmental permits And to combine Zest network of deeply rooted local business units with a central platform of expertise In legal, financial, marketing and so on. This is exactly what we did in the motorway business. You remember the Saskatchewan Bypass. I will not give any more details. But if you don't remember this project, I will.
I can give some more explanation. And third, related to environment, You know, everybody knows now that the big challenge for the coming years is environment and particularly CO2 footprint. And what we think is that the need for renewable energy will be huge so that to decarbonize electricity, To decarbonize industrial sector and to decarbonize mobility and to produce green hydrogen. And what we want is to contribute significantly to this enormous challenge. The good news is that ACS Industrial Services fits remarkably to these goals.
First, this company has a big part of what we call flow business, which looks like featurenergies, That's in very complementary geographical areas, mainly Spanish speaking and Portuguese speaking countries of Spain, Portugal and South America. 2nd, this company has a strong track record in what we call the EPC Business. That is to take bigger contracts like, for example, more or less 1,000 kilometers of transmission line in Brazil, EPC of renewable energy projects, power generation plants and so on. And third point, This company has a long and recognized record of developing renewable concessions projects. For example, they developed 4.4 gigawatts over the last 3 years, and they identified New opportunities for the short and medium terms of around 15 gigawatts, mainly in photovoltaic And onshore wind as well as 8 additional gigawatts of upcoming offshore wind projects.
So what we think is that it was a very interesting opportunity so that to cope with these three Main strategic goals. Of course, we will answer all your questions. But First, let me give the floor to Christophe, who once again has been the Guy, in charge of all this negotiation over the last month.
Hi, Joel. I am Christophe Pelesi Doradas, Business as President of VINCI SA. I can introduce you to this transaction. For instance, if you go to Slide 4, you will see what is the parameter of the transaction. Without going to all the details, you'll see on the left part of the slide the actual organization of ACS IS.
You will see on the right side the parameter of the transaction. You could see that we take over the full Parameter of the contracting with very small exceptions linked to the actual organization of ACS Group. And we decided in a total mutual agreement with ACS management to take over only 8 concessions Out of 67, basically because major concession that had been developed by LCS, Firstly, value creation was already done. And second, we jointly saw that management of this concession If you go to the following slide, you see in line with what Xavier said, The full rationale of that deal developed in 3 main parts, in 3 legs, if you want. The first is a contracting, We're in line with the actual Randison chart inside ACS.
You see the 2 parts, Support Services, With 3 divisions inside support services in ACSIS. On the right side, the EPC part. EPC means, of course, engineering, procurement, construction. And you know it's large project built in the countries Of the geographical footprint of ACSIS, mainly Spain, Portugal and South America, Large turnkeyelectronicallical project in several fields. And of course, also in that EPC segment, You find the EPC development of renewables, which means a full synergy with the concession Slide that you see on the second part of the slide.
And you find again here The 8 concession that we take over, to be very honest, these 8 concessions are relatively small in the transaction. They are there because there is, of course, a synergy today with contracting. And our aim is to develop new concessions. So that's what you see on the Right side of the slide, where we have an ambition with the actual management team to develop Gigawatts of Renewable in the usual and main segments of the business As you know, of course, photovoltaic, onshore wind and offshore wind and the aggregate view of the main quantities and the main Metrics of the portfolio were contemplated in a discussion And connection with ACS Management. If you go to the following slide, you have very synthetic figures About it's Slide 6.
On Slide 6, there are very synthetic figures about how we could analyze The business of AT STS, at the perimeter that will be part of the transaction, if you compare to the VINCI is now the actual expertise. And you have so you see that for 66% in term of expertise, As you understood, in different geographical areas, for 66 persons, the experiences are similar to what is in Dansy Energy. Out of this 66, 42 is what we call pro business, let's call it small and medium sized Contracts, small and middle sized projects and the remaining 24 corresponds to the synergy like activities, But with larger projects, we speak about, for instance, high voltage transmission lines Like in Brazil, where SCS has built a very strong position, our PV plants, photovoltaic plants that are, let's say, delivered Turning to the concessionaire, which in its role will sell synergy to the market, to utilities And to the consumers, industrial consumers or the national utilities of certain countries. And for 34%, it's expressed that we are not present in VINCI Group. We have none in particular The big EPC in the oil and gas sector in certain combined cycle plants, for instance, the wind farm offshore EPC or certain offshore platform, for instance, that are not present in our actual perimeter of expertise.
You are on the right side of the slide. You see the geographical breakdown, Well, you see the importance of what we call in our internal number of key countries of HSIS, in particular, Spain, Mexico, Brazil, Peru, Chile, and you see the respective percentage of activity in these countries. So if we go to Slide 7, You will find here the main metrics that we could go through in the due diligence. These figures are not very similar of the ones you were familiar with ACS, I guess, Because as you noted, it's not the same perimeter. And you have we have seen in Slide 4 what were the main differences.
So these figures that we have there As the figures, let's say, pro rata and brought to the perimeter of the transaction, You see that there is an activity in the range to be very synthetic of €6,000,000,000 per year with an EBIT Earnings before interest and taxes in the range of €350,000,000 €400,000 per year for this perimeter. This is in average for year 2018, 2019, 2020. And as you noted, year 2020 It's a bit special because it is a COVID year, and these figures take this into account. If you go now to Slide Hey. We have the focus about one of the key interest of this transaction With the development of energy renewable project, when you say development, we mean not only building, Not only designing, but also developing the wood project from the greenfield part from the greenfield stages To what you could call the ready to produce status where the object is totally Built, connected to the grid, has its own all its permits and in a very simple manner, You push a button and the electricity can be produced.
And this is this value chain that we are targeting. And ICS RS As shown by its proven track record that it was able to develop such a GW, the figure that has been taken into account and That has been explained to the market by ACS in the last days It was 4.4 gigawatts over the 3 last years, and we identified a perimeter of 25 gigawatts, Out of which, 8 gigawatts of offshore wind and around 15 gigawatts of onshore Wind and photovoltaic. We don't put all these Gira in the same category because the offshore wind It's very often public call for tenders. And let's say the role of the development team is very different in this project Then in the other type of projects, because the other type of projects, you have a very Detailed, thorough kind of work in order to deliver this project, to look for the land, to look for the permits, To look for the connection permits. And so in a way, the work that is done by the team For onshore wind and for total sales, it's much deeper than for the offshore offshore wind project.
Of course, as you know, the CapEx prices also are very different following the categories of projects. And this Has been obviously taken into account in our business plan. If you go now to the Following Slide number 9, you have a very let's say, I would say very classical kind of statistics about Actual VINCI status by kind of business And then how you could add up in terms of revenue and in terms of EBIT, the target company, if you mean, if you want, With the figures, the relevant figures, and you can find the total So total VINCI pro form a tomorrow, where you see a pro form a revenue of €51,000,000,000 and a pro form a EBIT of €4,900,000,000 And you see in each of these categories, the increased portion Of the, let's say, energy contracting business with this new perimeter that will be added To the actual expertise perimeter of VINCI. If you go now to Slide number 10, you can see In the same kind of analysis, how having the actual breakdown for VINCI With the actual breakdown per country and per continent, how if you add up the If you add up the target company perimeter and what becomes the VINCI pro form a tomorrow, Adding up ACHIS to the actual perimeter, how is the split between France And the main continents.
And you will note that for the first time with this acquisition, our international percentage The percentage of business done out of France meets and is above the 50% level. If we go to Slide 11, We'd like to give you a very synthetic flavor of the figures of the transaction. As usual, the transaction is the sum of 2 components. 1 component is the Actual price value of the parameter of HCSCS has been the object of the transaction. This enterprise value is €4,200,000,000 And then you have to add up what is usually called a bridge between this enterprise value and the equity value.
The value of the bridge is around €700,000,000 It's mainly cash element plus certain adjustments. And you have a 3rd component that has been discussed, I would say, in a very deep manner with our Counterpart, which is what we call the contingent additional payments, we're expected to pay For each gigawatt that is already ready to produce for a period up to 8.5 years Under certain parameters that it would be very I mean, without going through all the details, we have set it to pay 40,000,000 terawatt up to a cap of 15 gigawatts and up to a cap of 8.5 years. So it means an additional quotation payment maximum of EUR 600,000,000, EUR 600,000,000 It would add up to the 2 previous covenants of Enterprise Value and Bridge. If you go to the final thing, I would say it's quite simple because The acquisition would be on our side fully paid in cash with existing cash and credit lines. In terms of the kind of tactical capital you usually do to see what is the impact on the earnings per share, We could say that the impact for year 1 will be mid- to high single digit range under certain calculation that Well, obviously, maybe in debt, and we think there is no significant impact and then this balance sheet strength with this financing If you go to Slide 13, Some words on the method.
Sorry. This company has been very successful over the last 10 or 20 years. This is due to an excellent management team and excellent CEO. Jose Maria Castillo Lacapex, who has been in charge of this company for now many years, Put in place a very impressive team. We met some of them, of course, not all of them, but some of them, Despite COVID, we had to make this meeting through video.
So it's not exactly the same, but we made a lot of This kind of video meeting. And so what we intend to do is to consider that It would be totally crazy to dismantle a winning team, and the best is to keep The team and the organization as they are now. So our idea is to ask The current CEO of the company, Jose Maria Castillo at CapEx, to continue managing that business With his existing management team, of course, we will organize many links and many ways So that to integrate them within the group and so that to develop synergies between us And particularly in the Renewable Energy business, where they currently are focusing on some part of the world, we think that Taking our time, we should be able to develop this kind of expertise in other parts of the world where We, at VINCI, have the feeling to have this network of DP rated TEUs, Giving us the possibility to try to develop from scratch this kind of asset. So the idea is to keep the team As they are now because they made a wonderful job so far, not to try to integrate with VINCI Energies.
So what I mean is that Arnaud Rizzo, who is in charge of VINCI Energies, will continue to report directly to me, and Josemaria will report Directly to me, too. And the good news is that the geographical Organization of VINCI Energies on one part and ACS IS on the other part are totally complementary. We are not very developed in Spain. They are, of course, very big in Spain. We are not very developed in South America.
They are very well developed in South America. So it is totally making sense in terms of geographical footprint. And second, the company will, of course, become the main center to develop renewable concession within The VINCI Group. On top of what Christophe explained about The contingent payment, which will be made every time we will have been able to develop ready to build 1 giga of renewable energy. We agreed with ACS Group that we will Put in place a joint venture.
We will have 51% of this joint venture and ATS will have 49. We will fully consolidate this joint venture. And every time we We'll add 1 gigawatt. We will propose this joint venture to buy these assets At market value, and of course, they will have the right not to buy it Through the joint venture, but if it is the case, these assets will go within this joint venture, on which we will have a stake of 51%. This joint venture the key terms of these joint ventures are Under ongoing negotiation, but it should not be a big issue in the coming weeks.
So what we plan is to try to finalize the period by year end or maybe at the very Early beginning of 2022. The reason why it takes us so long is that we have to go through Many antitrust authorities, the European antitrust authority, but also antitrust authorities in different countries. We do not anticipate big problems because of the very complementary geographical network of VINCI versus The company, but it will take time. And so we think that it is reasonable to take that the closing itself and so the payment itself We'll be able to be put in place by our end or a little bit later. Maybe one word about the rationale of the price because it's maybe a little bit Difficult to understand.
The enterprise value is €4,200,000,000 plus the contingent payment according to the number of gigawatts we will be able to develop over the next years, Okay. So of course, the rationale of the transaction in terms of value Enterprise value of the, let's say, pure contracting business is highly dependent on the success we will have or not In terms of development of renewable energy, in case we are able to Develop 15 gigawatts over the next 8 years, we will create big value. Out of this value, we will have to pay the contingent payment we just explained. But as a result, it will reduce The enterprise value of the pure contracting business. That's why it's very difficult at that point of time To give more information about the kind of multiple we took in place because it will be Highly dependent on the success we will have in terms of development of renewable energy assets.
But it remains that Globally, let's say that it is a fair deal. We are ready to answer your questions.
Thank you. We have the first question from Jean Christophe Le Chef Romulan from CIC.
On ACS, sales numbers, if we look at the presentation Of ACS made in February, they show an EBIT margin of 9.5% And you assume 6% margin in average. What is the explanation of this difference? Could you elaborate a bit? And by the way, we had The Slide 9 with the presentation of the renewable projects, I didn't fully catch what's monsieur pelisse de Rosa told. Many thanks.
Okay. Maybe I will explain because if Scott is explaining again. Maybe you will not understand better. Sorry, sorry, I was just I was kidding. No.
The idea of this Slide 9 no, 8.
8, sorry.
1st, they already Proved their ability to develop renewable assets. They've been doing it over the last 10 years or maybe 12 years. And why? Because they have been lucky to grow in Spain, which is The European country, which has been the most proactive in terms of development of renewable energy in the past. Okay.
Okay. So they really have a very good track record of development of greenfield assets, Okay. And as an example, over the last 3 years, we have been able to develop something like 4.4 gigawatts Of renewable energy, as it is explained on Slide 8. So this is the proof that they are able. They just did it so far.
You do not find these assets either in within ACS Or HSIS because most of these assets were sold pre sold or sold after being built To outside investors.
Okay. Okay.
So what is important for us is that we want to develop that business from scratch. We want to develop greenfield renewable assets. So what is interesting for us is there are capacity to develop these renewable energy Asset. The right hand side of the slide shows the potential Of assets which could be developed, we identified something like 25 gigawatts, Which could be developed. Of course, some of them will be really developed and some of them Maybe it will not be developed because of the problems, environmental permits, connection to the grid, etcetera.
And Out of this 25 gigawatts of potential identified projects, you have to take into account that 8 Gigawatts are made of offshore wind. And as Christophe explained, we make a big difference between PV, solar plant, onshore wind farms and offshore wind farms because in the case of Offshore wind farms, you generally well, you systematically win through and often bid Just like what has happened in the United Kingdom, for example. So what is important is that the potential pipeline Of identified gigawatts for the next years is something around 15 gigawatts of Either TV or onshore wind farms. And this is why our contingent payment is, Let's say calculated on the basis of this 15 gigawatts. I go back to your first question and I I can start to answer your first question.
I think the key answer to your question that the parameters are not similar. As you noted, There was in the ACI, a combination of contracting business and concession business. And as you know, the business in terms of Investment, CapEx, if you want, and margin, whether EBITDA or EBITDA are Totally different. So basically, of course, basically, the parameters are different. The kind of business and the proportion of each of them in the two parameters, let's say, before and after, it's very different.
Obviously, there are certain also set in certain very limited cases some accounting options where we made different choices. But The main parameter and the main answer to your question is the difference of perimeter.
Okay. You removed Some concession assets.
Yes.
Okay. And final question, could we have an order of magnitude of CapEx and So the
net profit in order to
calculate our numbers?
Not today, Jean Francois, sorry, Sorry. Okay.
There is a problem.
I mean, there is a big difference between ongoing CapEx, Pieces of equipment, the computers and so on, not a big number. And CapEx related to the development of renewable energy assets. And in this case, it's going to be a big numbers. And you understood that When previously, ACSIS was developing greenfield renewable energy assets, They were regularly selling these assets to outside buyers. In our case, I don't mean that we will do only that, but in our case, the idea is to develop the assets from scratch, To engineer them, to build them, to finance them and then to keep them in the long run, Exactly according to what we did in the motorway business or the airport business.
Generally, we keep our assets in the long run.
Okay, Okay. And you have also kept some operation asset issued from Yes, that's correct.
No, no. That's relatively minor, honestly.
Minor, okay.
Yes. The 8 greenfield concessions, You can see that on Slide 5 are mainly transmission lines concessions, which are not Really, concessions, but let's say it this way, available scheme. What we mean is that in the case of Brazil, when you win a 1,000 kilowatters transmission line, You have not paid according to the power which will be put on the line. You are paid according to This asset to be available so that to transport the electricity.
Okay. It's very clear.
Thank you. Next question from Louis Greato from Kepler Cheuvreux. Sir, please go ahead.
Good afternoon, gentlemen. Luis Peter from Kepler. I have a couple of questions. The first one If you could provide us with an idea of what's in that €700,000,000 Net cash and other favorable adjustments that contribute to the equity value. And if there's any way to get a feel for what that number was At the end of last year, we know that Industrial Services for ACS had a net cash position of €479,000,000 And I would like to know if that's fully comparable to the 700,000,000 or I need to make further adjustments to either figure.
And the second question, and I know it's very early to say, but Should we expect VINCI's renewable portfolio to be held mainly inside the company? In other words, not in the JV All the way around? Does it get a feel for how the JV will work? Thank you.
Well, I'll answer your second question first and I So that to give some time to my colleague to answer the first one. Well, as we explained, the idea is that as soon As we will have been able to develop 1 giga of radio battery, we will have to make the proposal To this TV to buy it at market value, okay? So what we anticipate is that most of our developed assets Will spend their entire life in this new joint venture. But it was important for us to keep the consolidation of this JV since our culture is to keep Full consolidation of our concession assets in the long run. So maybe sometimes Our partner in the JV will not accept to The duty to buy the asset in such a case, we will keep the asset 100% on our side.
And maybe sometimes, if it is clever, we will sell the assets. But once again, the main idea is that most of the assets will go Intelligent Venture.
Yes. I think The bridge is mainly made up with 2 components. Of course, there is calculation of the cash Very well at the end of the year. You have taken notice that perhaps we don't take over the green bond That was part of the financing of this year. So there was an in-depth speculation or discussion of the year And also certain arrangements linked to the lease.
We don't think it's likely this transaction could take place before end 2021. So there are certain arrangements
Okay.
Thank you very much. Appreciate it.
Thank you. Next question from Elodie Rall from JPMorgan. Madam, please go ahead.
Hi, good afternoon. Thanks for taking my questions. So my first one would be on this 15 gigawatt pipeline indeed. If you could give us an idea of the economy of this potential pipeline, how do you think about valuation of this potential pipeline? Should it be developed?
So Therefore, it would be helpful if we understand what kind of CapEx and EBIT you could generate for what you would need and then generate for each gigawatt What is the IRR that you expect from this 15 gigawatt investment? So a little bit of color about how you think about this potential opportunity would Really helpful, I think. And my second question is simply do you see any cost synergies on top of revenue synergies In this transaction, you've talked a lot about revenue, but not so much on the cost side. And lastly, do you expect the combined Vision to continue to generate a 6% margin over time. Is this the goal as it was for VINCI Energies?
And have you forecast the top line growth as well? Thanks.
Okay. Many questions, operator. First question, it's really too early. So I will not give any numbers. I will only give some principles.
1st, There is a big difference of CapEx between PV, onshore wind farms and offshore wind farms, Okay. 2nd, if you do your homework and if you look at what's going on in the market, you will have a good idea About the value creation at development stage. What I mean is that in this value chain, There is a big premium, which is normal for the 1 in charge of development of the asset. When it is developed, When it's ready to build, which means more or less 1.5 years after ready to produce because when we say ready to build, We mean everything is okay. I mean we know what will be the EPC price made by ourselves in house or subcontracted Outside, we have all the environmental permits.
We know where to connect. We know the cost of the connection with electric Great. We are ready to build, which means that 1 or 1.5 years later, we are ready to produce, okay? So there is a big value creation for the world in short of the development. When it is ready to build and when it is ready to produce, Then it becomes something which is interesting for, for example, let's say, infrastructure funds.
What I mean is that they are happy with quite low internal rate of return. So what I wanted to say is that The value creation in terms of internal rate of return depends whether or not you buy brownfield assets already producing electricity Or if you develop yourself because in such a case, you keep the value creation of the development for you, Okay. 2nd, we didn't take into account any kind of cost synergies. Why? Because as we told you, we will keep VINCI Energies and this new company separate, Okay.
So it means that Vint Cerne Office will continue to develop, will continue to make organic growth and external growth Just like what they did over the last 10 years, based on their culture, which is focusing a lot of On expertise and continuing to develop their international footprint, okay? And ATSIS Continued, just like what they did over the last 10 years. The culture within ATS I had is not to make acquisitions. It is to develop, Let's say organically. And since they are very ambitious in terms of margin, the only way to protect The margin, and it answers your last question, is to be very selective, which means not to have a big organic growth over the year.
Okay. Okay, thanks.
Thank you. Next question from Nabil Ahmed from Barclays. Sir, please go ahead.
Hello, can you hear me?
Yes, Nabil.
Yes, good afternoon. Thanks for taking my questions. I have 3. I hope you will forgive me for that. The first one was on Profitability.
I guess my question is, is the 6% the right number for a large EPC business? My perception was that it was higher risk than the typical VAR T and L given there and therefore, brought more profitable. And actually, it could be the case. So it is actually more profitable if you look at the large electrification project EPC business within IITF. And if that's okay, that would mean that the other more VINCI energy like, as you call them, businesses are below VINCI margin.
So to make a long story, so my question is, is it well managed in all businesses? And if not, are you seeing potential to improve margin? I'll put my answer
yes, sorry, this was your first question. So waiting for your other questions.
No, no, go ahead.
No, no. The answer is very simple. 6% is probably conservative. And of course, as usual, you find that within this group, just like within VINCI Energies or Any part of VINCI, some parts of the world or some business units, we are which are making more than that And some of them which are making less than that. And so the game is to try to reduce the number of business units making less And to optimize the number of business units making more.
2nd, on, let's say, other projects, EPC projects, You're right. I mean, they historically made more money than that and more heavy than that on some projects and particularly Transmission lines in some part of the world. But since we are speaking about big projects, sometimes You have not so profitable projects. So 6% on an average is probably a good level, Maybe a little bit conservative. Just like what you know, within VINCI Energies, we already told you that The reality of the EBIT margin of VINCI Energies is more than 6%.
Everybody knows that.
I would add that in the APC business, you have to be very careful about what you could call the variance of this EBIT numbers. So as David said, you could have very concerned project, but other than that, that you have to be very careful about The margin at the end of the project. So the volumes could be Important that you have to be very careful. And that's why, as you have said, you have to be very selective in the acquisition of these projects.
Okay.
The cultural feat is that we are, generally speaking, Quite conservative, as Vincini, and they are generally conservative.
Got you. The second question I had was on the 15 gigawatt pipeline. I'm referring to The 25 less what you define as offshore wind farm.
I mean, what do
you call pipeline? I mean, how advanced are these projects? What's the time frame? I mean, is it just The potential pipeline you see in terms of development of the development? Or are there projects where
Yes, Norman, you started to develop. You got the last Okay, let me. Okay. First, difference between 25% and 15% is 10% And the offshore wind farms represent 8. The explanation is that 2 gigawatts out of the 25 Are related to projects they developed, but they already sold it to Gap.
Part of it still has to be built, but the assets themselves will be put With Galp, according to a transaction they made months ago, Galp is a Portuguese power company. 2nd, of course, as usual, in such a way of thinking, Some of the projects will be able to be at the ready to build stage in the short term, And some others will be at this stage a little bit later on. What we think is that rather quickly, We should be able to produce more or less 1 gigawatt a year. And in the long run, of course, we think that we could make more than that. 1st, because of the pipeline second, because this market is really very dynamic and third, because we think that given Our existing network within VINCI of distributed business units in some other part of the world, we could Try to develop this kind of expertise outside Spain, Portugal and Latin America.
So rather quickly, I think that we should be able to They developed something like 1 gigawatt per year.
Do
you agree? Yes, yes, I mean, the to perhaps give another 100 of your questions, you have Today, one specific market in which ICSIS has developed a lot of projects of that time, that is Spain, And we think there are still gigawatts to be developed in Spain. We think there are gigawatts to be developed in a natural manner in the countries where There is a deep footprint of HSIS. Obviously, I want to speak about the Latin American countries like Mexico, Brazil, Peru, Chile, Colombia. And then it's something where we think we could be able to do that development In synergy with the actual management team and of course, as Gary said, it could be afterwards a kind of synergy with As a geography where ourselves were more developed today than HPS is and we're putting in synergy our network, our dense network of Tracking companies that is able to identify opportunities and this capacity of developing the project You could create that synergy.
And to answer to your question about the terms, I mean, is it a short term, mid term, long term, we analyze The 3 kind of time of time frames with, of course, different probability and different
Okay. Maybe One last one for me. I mean, if I understand well, AC SES will naturally develop projects For either DTV and if not potentially VINCI, but will continue as well to work for 3rd parties. Am I correct assuming that? And if that's the case, How do you manage potential conflict of interest with what would be your potential customers and competitors at the same time?
I don't get it. I mean, as you understood, the biggest part in terms of number of employees, in terms of revenue, the biggest part of HES IS, Just like we mentioned, it's a contracting business. So of course, it doesn't mean that we could not continue To offer our expertise in terms of PPC of renewable projects for our clients, of course, of course. So I don't see the point. I mean, what period is that as soon as VINCI developed through ADS assets Gigawatts, all of the fixed fleet.
This asset will be proposed to the GV. But in the meantime, ATSI doesn't work only for the development of E and R. Yes, I biggest part of the business is made of, let's say, normal contracting business, flow business or EBT For outside clients? It will continue. It is just that if you were telling us Then all that all our VINCI Construction business only works for the development of concessions.
It would not mean anything. I mean, sometimes they work for our concession department, but most of the time, they work for outside clients. It's exactly the same for ACF
side. Understood. If you just allow me to squeeze one very short Last question.
Just sorry, what I could add is that the market of P and L, if you look at the statistical projection for the next year, as you know, is The right of growth is impressive. So there is room for, I mean, several developers, of course, who can work for ourselves and work for other people.
Just to add the last one. Outside of renewables, Are there new businesses which within ACS, Industrial Services, that VINCI was not involved in? You mentioned that it was like 1 third of revenues. Is there anything within that, which potentially has a lot of potential and you want to Replicate or expand within VINCI?
No, except the fact that it is Very complementary in terms of geographical footprint. If we had decided to develop our energy business In Latin America, it would have taken many, many years. So thanks to The fact that we welcome ATS ahead, we will have in 1 minute a big Footprint in this part of the world in which we are not that developed so far in our energy business. So no, don't dream about synergies. Don't dream about cost synergies, But we still have a lot to do in what is important is that to take advantage of that operation so that to Developed a new kind of concessions, which are renewable concessions.
Understood. Thanks a lot.
Thank you. Next question from Jonathan Amouya from CCI. Sir, please go ahead.
Thanks, Javier and Tim. Thank you very much for the presentation and thanks for taking my question. I have two quick questions. The first one is on the development of the renewable pipeline. Directionally, because we can't be Precise with those things, but 1 gigawatt approximately again is about €1,000,000,000 of CapEx, yes, give or take.
And if we take the average spread, which most of the renewable companies are targeting, which is around 200 basis points, again, can be slightly less, can be slightly more. It means that for each €1,000,000,000 of CapEx that you plan to invest, you will be generating about €20,000,000 annual EBIT, yes? When you look at the impact multiples, again, give or take more or less, it's about 15 times. So EUR 300,000,000 of value creation for Each gigawatt that you plan to develop. Of that, if I get it right, you plan on paying €40,000,000 to ACS And so it means EUR 260,000,000 of value creation, give or take again.
It can be slightly more, slightly less. So two questions. One is, do you agree directionally with the math and how it works?
And second?
So and the second one was On the cash adjustment that you mentioned in your press release, but unrelated to that.
We didn't get the second question.
So second question was, you speak about the EUR 4,200,000,000 Enterprise value, yes. But you are also talking about EUR 700,000,000 of cash adjustment. So how much of that is working capital? And how much of that is actually your real cash that you will be keeping? Well, put it the other way, is the EUR 4,200,000,000 directly comparable to the EUR 5,200,000,000 that you Put an offer at in October when you initially looked at the business.
Yes, the answer is yes. But keeping in mind that we have accepted to pay this additional contingent payment of EUR 40,000,000 Every time, we will have been able to develop 1 gigawatt. So the number is yes, it is comparable. But on top of the 4.2, We'll have to pay some additional money if we are able to develop additional gigawatt,
Okay. Just on that one, Gladly. The addition of gigawatts wasn't part of the initial scope or was it part of the additional scope?
No, it's a question of negotiation, I should add on. But what is important is that it's a worst case scenario. Let's imagine that we have been totally wrong and that we will not develop any renewable energy assets Because the world will not need any more renewable energy. This is totally theoretical. But let's imagine this case.
In such a case, we will have paid on the basis of EUR 4,200,000,000 for this business. And if you make the calculation, it is, let's say, a fair price, an honest price, let's say it this way. Going back to your first point, it will be necessary to go more in details to bid you. But I mean, we can but it's not the right timing. We can explain what I just Told you half well, quarter or an hour ago that is to say the creation of value is made by the developer.
Let's say it this way. Do not give impact this number in 6 months' time, but just to give an idea. Yes. If you develop a project from scratch, it can take 2, 3, 4 years, okay? If you take into account the development cost, the cost of the team in charge, in fact to have to pay some permits and so on, You take in certain all that costs.
And then you sell this already developed I said to somebody who will be in charge of putting in space the CapEx, okay? In such a case, The creation of value is around, let's say, more than EUR 100,000,000.
Okay.
I want to add on what Pierre told you that, of course, your figure is at the same time right and wrong because when you cannot add up Offshore wind, onshore wind, on TV and make such a number I mean, the price of offshore wind, My memory is at least 4 times more than TV. The calculation of EBIT and EBITDA is totally different. You have a trend today. I think there is a very big, very bright future For offshore wind because for obvious reasons, because it will you will have less damaged environment. People if you go Far away from cost, it will you don't have this impact on the view also.
And you have, at the same time, a move For a decrease in prices, industry prices and increase because it's further from the cost. So you cannot and if you put an average now with PV, Yes. Then it's too theoretical, if you want.
Yes. Thank you
very much and congratulations, Guy.
Thank you, Giordano.
Thank you. Next question from William Wade from JPMorgan. Sir, please go ahead.
Yes. Hi, good afternoon. Thank you for taking my question. It's just one and hopefully it should be very quick. I just wanted to clarify Something was mentioned earlier in the call about that outstanding green bond that is issued by the ACS Industrial Services NTC, a $750,000,000 2026 bond.
I think you were saying you were talking about when this bond was either Going to
move to da Vinci or
he's going to stay with ACS. If you could just clarify that, that would be very helpful.
Yes, it stayed with ACS because it's financed mainly assets that stay with ACS very, very short.
Perfect. Thank you.
Thank you. Next question from Tobias Verner from Stifel. Sir, please go ahead.
Yes, good afternoon. Thanks for taking my questions. 2 actually, three questions, if I may. Just quickly, you gave Sorry, the EBIT margin or the EBIT guidance. Could you also give us a sense of the depreciation in the businesses you're You're keeping, I.
E, the implied EBITDA margin in a way. The second question is a lot of your Sorry, a lot of your business you acquired is also in emerging markets. What risk free rate have you assumed in your valuations, Christian? And then just lastly, what sort of cost of debt for the wider group we should assume In 2021 compared to 2020. Thank you.
This is a question for Good news because he was starting to sleep a little bit. Can you hear us, Christian?
I mean, I don't have the full details of All the details, I mean, in our business, depreciation, D and A is usually in the range of 1% of the revenue. It's usual. And I don't have all the details of those 3 last year that we have looked in detail in mind, but It's the order of Magdi.
And as for the calculation of the cost of capital for emerging economies, we have obviously a methodology, but
Sorry, Eiran.
Okay. Let me ask maybe the question otherwise. You obviously acquire emerging market assets with this transaction. Is this something that you want to expand going forward as a percentage of your overall capital allocated?
Well, what did we do over the last 10 years? We made a large number of acquisitions in New Zealand, in Australia, in Brazil a little bit, In Canada, in the U. S, they are not emerging countries, of course, but all of them are emerging countries. And so we are accustomed. And it is not really a big Problem as far as the contracting business is concerned because this contracting business is not very capital intensive.
When you build something in the middle of an average country, you hire local people and a big part of your costs are In local currency, it can be something else when it's time to invest in the concession. And in such a case, we used our method of calculation about which Christian just spoke about. We know and it is what we did when we acquired an airport in Dominican Republic or when we acquired the Salvadoran Baya airport and so on. So it's not new for us. I mean more than 50% of our contracted business is made outside France.
And of course, a big part of it is made in, let's say, emerging countries. So it's not really a new issue for us.
Thank you very much. Happy Easter.
Thank you. Next question from Virginie Russo from ODDOHS. Madame Rousseau, your microphone is open. You can ask your question. Madam Russo?
Hello? Yes. Yes, we can hear you. Okay. Hi, thanks for taking my questions.
2, if I may. First one, regarding the 15 gigawatts opportunities that you mentioned, Could you give us some details on the steps already crossed for the different projects? Some lands already secured as you as they already obtained some building permits? And my second question is regarding the rationale of the creation of a joint venture with ACS. Was it a prerequisite from ACS to have this joint venture.
And in your view, what Could ACS bring or what would be the value added of ACS in this venture?
On the gear, what it's difficult to give you a full quantification, but of course, we did just analysis with Very advanced, advanced, early stage or very early stage. I would say you have Certain of our gueras that are more advanced in Spain and some of them in Latin America.
The best answer, Virginie, is to say that we are confident in The ability of this company to quickly be in a position to make 1 giga a year At ready to build stage. So it means that some of the assets are mature enough so that to feed the pipe in terms of Reality of renewable assets in the short term. And then it can give us some additional time So that to continue the development of not that mature assets. It's an ongoing business. You will not have to wait 5 years before having 1 giga.
No, of course. And I will not be surprised if they could not make maybe part of a giga even this year.
Thank you. Next Question from Eric Le Marnier from Bryan Garnier. Sir, please go ahead.
Yes. Thanks for taking my questions. I've got 4 actually, very small. So first one, how long do you plan to keep this sort of Dual management with Arnaud Rizzo on one side and Josemarie on the other. Could you confirm that This will be for all these 2 entities will be merged eventually with 1 guy in charge of the whole Energy division of VINCI, it was my first question.
Okay. So I'll
answer the first question first, so that not to forget about the others. Even if I knew it, I would not tell you. Okay. It will be as long as needed. What is the goal?
The goal is to create value. The goal is to develop renewable energy. The goal is to develop our energy footprint in as many countries as possible. So Of course. From time to time, we have to rethink about the best organization able to fulfill this goal To reach this goal, but to know as of today when we will make differently, it's impossible to answer.
Once again, if I had the answer, I would not tell you. If you remember, maybe I don't know if you were with us At that time, back in year 2000, when we made this SGE GTM merger, At that time, we had decided to keep our Construction division separate And it states that like that for a year, it was the best option at that time. After a while, I don't remember exactly when And while at a certain point of time, we collectively decided that the best option was to try to merge them. But you do not merge for the sake of merge of merging. I mean, you merge because you think that this is A way to be more effective.
What is clear is that the best way to be effective as of today is to keep these two companies separate.
Yes. Thanks, I see your point. Thank you. Second question, you initially plan to Potentially, pay these assets in shares, so it was an option. And finally, it's not the case.
Is there any explanation beyond the usual negotiation with ACS Management? And the fact that you don't pay insurance at all, Does it explain the difference between the initial price of $5,200,000 and the price of $4,200,000 now? It's my second question. 3rd question, maybe I misunderstood something, but regarding the offshore wind business, could you explain why you don't seems to like Open bid. And your last question, a nice one actually.
Will it be possible for Finxi in the future to develop Renewable concession assets outside this scheme, outside VINCI, outside the ACS Yes.
Okay. First question is part of the negotiation. What is clear is that it's not that easy to pay insurance in the current time When you have a lot of volatility on the market. So it's part of the negotiation. 2nd, we don't mean that we don't like offshore wind farms.
What we say is that What is difficult in this market is to develop from scratch. And what is clear, and Christophe tried to explain it, When you speak about photovoltaic or onshore wind farm, You are in charge of the development really from scratch. That's why you think it can take a long time Before reaching the state of ready to build. In the case of offshore wind farms, because it is a plastic domain, It is impossible to develop from scratch because you will have to discuss with the other of the piece of sea Who is the owner of the PCC? The government.
That's why generally, well, It is always through bid, which means that part of the development is, let's say, already done By the grand tour, it doesn't mean that you have nothing else to do because you still have to make sure that the geotechnical Soil on which you will found your jacket is strong enough that you support your jacket, you have to make sure that the connection With the shore is possible at the right price. So you have plenty of things to do. You have to make Deals with the fishermen to make sure that they will not be disturbed, etcetera. So plenty of things still have to be done, but a big part of it Has already been done, thanks to what the grantor has been able to organize the open bid. So it's totally different.
And of course, it's a random phenomenon. I mean, since it is an open bid, you can win or not. So even if you identify 5 giga of offshore wind farms In the middle of, I don't know, the channel, for example, it does not mean that you will win the open bid. You see? So it's really different market.
So we are interested. We think that We have some competitive hedges and particularly the fact that since that company has been involved in the oil and gas business And particularly the offshore oil and gas business, they are, for example, able to engineer and to build and to put in place Jackets, which were utilized by the Oil and Gas business, they are comfortable with the fact to have to erect A jacket on which you will be put either the windmill or the big jacket, which will connect And transform the electricity before transporting the electricity onto the shore. So they have Good expertise, thanks to what they can play in that game, which is not our case as far as VINCI is concerned. I mean, if we decided to try to develop in the offshore wind market, we would have to Reinstall many expertise that we no longer have in house. Last time when we tried, it was 15 years ago or maybe 12 years ago, And we decided to team up with ENGIE, if I remember correctly, and we lost.
We are not competitive. They these guys can be competitive When it's time to bid on the offshore wind farms, but it's a random phenomenon, you can win or not.
I could just add, sir, that it's not that we don't like of showing. And for instance, Cora won Early this year, 4.80 Megawatts in an auction for the UK government In the Irish Sea, it was an open auction. There were several bidders, and they won this auction. And they won the right to develop Inside a certain piece of sea, as Xavier told you.
What was your last question? I don't remember.
Yes. It's a nice one actually. I was wondering if it would be possible for VINCI in the future to develop renewable concession assets, But outside the scheme, outside the
Yes. The answer is yes. The 15 Gigawatts, we are speaking about are the gigawatts developed by ACSIS. So if we are able to develop some gigawatts, let's say, through other parts of As a group, no problem. I give you an example.
On our airport platforms, we developed already Some photovoltaic assets. Why? For the sake of the consumption of electricity of the airport platforms. In such a case, just like what we did in Salvador, Bahia or in Dominican Republic, in such a case, of course, these assets will not be part of the deal. The same for development of renewable energy alongside our motorway.
It would not be part of that deal.
Understood. That's very clear. Thank you.
Thank you. Next question from Nicolas Mourae from Morgan Stanley. Sir, please go ahead.
Yes. Good afternoon, gentlemen. Just the first one coming back On the EBIT and the EBIT margin, I mean, to be honest, I found the 6% a little bit low. Alain, we've been looking at it for quite a while. These guys even cleaning up the data, these guys used to do 9%.
And whether we thought that these were Aggressive margins are not. They were usually found at the cash level, so it was close to cash margins. So I'm just even considering your change in parameter and so on, which we understand, the gap between 9 And let's say 8,900,000 to 6,000,000 is pretty massive. So I know you said they were maybe on the light side. Just to understand a little bit whether this could move back up to 7%, 8%, which looks a little bit more realistic.
2nd point is on your renewables pipeline. So if I understand correctly and do a bit of a dummy math, 1 gigawatt per annum, Mix of solar PV and onshore wind that would cost you EUR 600,000,000 EUR 700,000,000 of CapEx, 30% equity, 70% debt. I mean, we're not going to go very far with that. It's going to cost you at a 50% share of JV, dollars 1 €100,000,000 to €125,000,000 per annum. So I mean, I don't want to understand the scope of the development In Concessions and Renewables, this seems quite modest, if I may, on the equity side.
I might be wrong, But a bit of color would be helpful. And then just on last point, the earnings enhancements on the deal, Do you include some goodwill in this? There's the equity, the book value of the ACS Industrial Services is around EUR 1,000,000,000. You're paying anywhere between EUR 4,000,000,000. Are you going to amortize this in some way?
Just yes, I was wondering whether this could Take your enhancement from 10% to 5% or 5% to 8% or whatever it is, this could be a big impact and a big play A big factor in the earnings enhancement you've been talking about.
Nicolas, the deal was signed Yesterday. So we will have the next 25 years to go into details. We cannot give all the details just like through a conference call of this guy. Going back to your calculation, we never meant that this New kind of concession assets could represent as much money as what We did in the aircraft business, of course. But first, it's a very long journey.
I mean, we are speaking about 1 giga a year today, but how much will it be in 5 years' time? My own conviction is that the development of green energy will be huge. Probably in some geography, you will not have enough grid energy such that To feed the need of the industrial sectors, the mobility, etcetera, etcetera. So it's a Several years project. In terms of time, we will continue to develop renewable assets.
And at that point, I'm sorry, maybe we will not be speaking about 1 giga, but probably much more than that. So it's only the beginning of the story. And the interest of ATS I had, just like what we explained 2 months ago is that we would we could have decided to develop this new line of product Ourselves, but it would have taken years. So the good news is that thanks to this acquisition, We accelerate a lot our ability to play a role, not to become a world leader. Of course, it would not make any sense, But to accelerate the way we will play a role in this emerging market, which once again, In my opinion, we'll be absolutely huge.
So to begin with, yes, of course, at the very beginning, I don't know if it is €700,000,000 Maybe it's a little bit more than that. It depends on the kind of techniques put in place. And the amount of equity Depends on the way you structured the revenue of this renewable asset. I mean, if you are totally paid By a local utility company at a fixed price over 20 years contract, of course, it's Just like the availability scheme, you can have a very low level of equity. But more and more, you have to take some risk, Partially, there is a risk for a cost of the electricity you produce that will be sold after construction Either on the spot market or through PPA to industrial companies.
So it depends on the risk and it depends On the Technics, the order of magnitude is yes, you're probably right, a little bit less than EUR 1,000,000,000 and maybe EUR 250,000,000 As equity, as of today so it's not big numbers as of today. We agree, but we have to start by something.
Great. And if I may, just in the very short term, have you discovered Anything you didn't know? Because I know you've been looking at this company for more than 10 years, but have you discovered anything out of the due diligence? No, but obviously, you're not going to talk about the negatives. But at least on the positive side, that reassures you.
Well, of course, I will not answer that question in detail. But let's say that we have been surprised by the Very, very big entrepreneurial spirit of the team. Sometimes This entrepreneurial spirit pushed them to take risk that we would not be ready to take, But the outcome is generally that since they are really very good, they are able to transform this level of risk into profit. 2nd, we have been positively surprised by the pipeline of renewable energy. At the first time when we made our non binding offer, we were speaking about the 6 giga.
I don't mean that we will make in the short term much more than 1 giga per year. But the good news is that the potential Renewable assets, which are, let's take in the pipe, not all of them being probably It's sure to be transformed in ready to build and ready to produce, but we have been positively impressed by The quality and the amount of this pipeline of renewable energy, plus many other things, including The way they are organized and so on, but it is our problem to deal with that now.
Okay. Thank you, Xavier.
Okay, Nicolas.
Thank you. Next question from Charles Menardier from Kempen. Sir, please go ahead.
Good afternoon. I just have one follow-up on sort of the risk profile. So when you start operating the renewable assets, You already have a view on the percentage of revenue that you want to contract either through long term PPAs or government subsidies. Just interested to get your view there on how you want to manage the power price risk and better understand the risk profile of the assets that you want to have in the portfolio. I know it's a bit early, but just give us some thoughts.
I mean, it's fully tailor made because it depends on the If I can just state of development in each country, as Larry told you, it's you have to really tailor make The right proportion between usually a contract with a utility or a state owned company will guarantee you A certain level of sale but with a low price, then you couldn't get PPA with typically 10, 12 years of duration With another kind of price and then you can take your risk on spot market. It's not that I don't want to answer your question. It Totally depends. It will be very different on the Brazilian market, on the Spanish market. And I don't think there is today in the market an average rule for that.
I mean, you have to Really make your case in each country and you had the auctions in Spain regarding Kilowatt hours could be granted by the Spanish government, and so results were sometimes surprising. So the market is not fully stabilized in this respect, I would say.
You will excuse me. I have to go, so I let you with my colleagues. I just wanted to add something. When you develop this kind of assets, you should not think that it is mainly a legal or financial issue. No, it's Mainly something which does happen locally.
What I mean is that So that to develop, for example, a photovoltaic asset, you have to be sure that the cost of connection to the electrical grid Will not be too big because if it is too big, you will never make any creation of value on this asset. And so that To really understand where you could put your photovoltaic asset, you have to know deeply The electrical grid. You have to understand where are the lines, where are the substations, where are the transformers and so on. So that to cleverly try to develop something at a place where, first, you think that you will get the authorization of connection And second, the cost of connection will not be too expensive so that to have a chance to create value. Then you have to obtain the authorization of the landowner.
Then you have to obtain the building permit. Then you have to obtain the environmental permit. You cannot do that from Paris or from Madrid. So this is What I wanted to explain when I explained that our competitive edge is that, yes, there is a central platform, But there is also many people on the field who are really understanding the way it works locally. It's a question of detail much more than a question of legal and financial.
So sorry, I have to go. If you have other questions, Christophe and Christian will be more than happy to answer.
Next question from Alexia Balon from Frontec from Tok. Madam, please go ahead.
Sorry, I was muted. Hi, it's Alex from Chompot. Just a quick question on the offshore business, 8 gigawatts. Why is it treated this way? You speak about 15 gigawatts as deliverable and that 8 gigawatts and 2 for Galp is more like an option value, as I understand.
So will you participate in the auctions on that 8 gigawatt potential when these come in for PPA and CFD? And then also the question on this Which countries the pipeline on offshore is located in? Thanks.
As far as I understood your question, yes, it's auctions. Usually Linked to this auction, I understand that there could be a price of Sale of the energy that is quarantined. And thirdly, the main Geography upon which we see today potential auctions UK and Scotland. I mean, UK, you have specific auctions delivered by Scottish Government And your other one, they got by the crown, as you said, of U. K, so U.
K. Itself. And I think these are today's where the main opportunities are located. And as I told you earlier, Alfa Giga was won 2 months ago for a UK bid for this company by Covara.
And do we intend to compete? The answer is yes. Yes, yes, yes.
So 8 gigawatts is not land secured. 8 gigawatts is the opportunity identified. You have 0.5 gigawatt of seabed secured and then the remaining 7.5. You intend to compete in auctions To secure that seat belt so that you can develop and participate in PPA or CO3 auctions, right? Okay.
Yes, yes. But I would say our valuation has taken into account only I mean, a lower probability, of course, for these options. I mean, I think We told earlier that there was a combination of probability on discount rates, and we took, of course, lower probability for these options in offshoring.
And then the last question
And there is no contingent payment based on those offshore. There is no contingent payment on offshoring.
And then the last question would be, what would be your IRR hurdle rate When you develop these projects because we have a bit of a compression of IRRs and I would Some people could argue that you might have a bit higher cost of capital than incumbent utility players. So just Stand over to estimate the IRR
to cost of capital spread. If you can give us any color on It will
be time to answer this question when we win new Energy projects, we will not answer this question now, obviously.
Understood. Thank you and have a nice Easter.
Thank you.
Thank you. No more questions. No more question by phone. Gentlemen, back to you for the conclusion.
Thank you very much for all these questions. We hope we have been clear about The new opportunities that were in front of us and as we said with these 2 complementary fields That the FEED in China, if I can say, within concessions and contracting. Obviously, concessions developing opportunities for contracting under the network, The dance network represented in the geographic areas that we have presented to you being able to generate opportunities for foundation as Mr. Villar developed earlier. So thank you very much on my side.
Thank you.
Thank you. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.