HOCHTIEF Aktiengesellschaft (HOT) Earnings Call Transcript & Summary

Welcome to everyone, and thank you for joining us for the presentation of HOCHTIEF's results for the first 9 months of 2023. I'm Mike Pinkney, Head of Corporate Strategy. And I'm here with our CEO, Juan Santamaria; and our CFO, Peter Sassenfeld; as well as our Head of Capital Markets, Tobias Loskamp; and other colleagues from the senior management team of HOCHTIEF. We look forward to taking your questions later, but to start off, our CEO is going to run us through the key aspects of our performance during the first 9 months of the year. Juan, all yours.

Thank you, Mike, and thank you, everyone in the team. Good afternoon to everyone, and thanks for joining us. HOCHTIEF has delivered a strong performance during the first 9 months of 2023, with solid sales and profit growth as well as firm cash generation. Another highlight of the figures is the exceptional growth in new orders, which is driven by our strategic focus on the growth opportunities in the rapidly expanding areas of high-tech, energy transition and sustainable infrastructure markets. This strategy is driving strong order backlog growth, positive profit momentum and a steadily improving risk profile and is accompanied by a prioritization of ESG. Let's look at some of the key highlights. Sales increased by 6% year-on-year during the January-September period to EUR 20.4 billion, up 11% on an FX adjusted basis. Margins remained robust. EBITDA rose 5% to EUR 908 million or 10% adjusting for FX. Operational net profit for the period rising 6% to EUR 403 million were over 10% FX adjusted. As you can see, there has been an FX translation headwind of around 5%. The third quarter saw a strong performance in HOCHTIEF's underlying cash flow from operating activities, which increased by EUR 135 million year-on-year, with an LTM figure of EUR 1.3 billion, reflecting the group's strong cash conversion. And the group balance sheet remains robust. In the last 12 months, net debt has been reduced by EUR 158 million with an underlying improvement of EUR 478 million year-on-year, driven by the solid cash generation of the group's businesses. New orders during the period saw exceptional growth of almost 40% year-on-year FX adjusted to EUR 27.8 billion. If we jump to Slide 6, we can see the group's strong cash flow performance in more detail. During the third quarter, our businesses generated EUR 194 million in cash flow from operating activities, up by EUR 135 million compared with last year. And if we consider the 9-month period, the EUR 208 million cash flow figure highlighted is almost EUR 90 million higher year-on-year. Adjusting for seasonality, the EUR 1.3 billion last 12 months' figure reflects a sustained high level of cash conversion for the group. We can look at the positive net cash evolution. At the end of September, we have a slight net debt position of EUR 68 million following the payment in July of just over EUR 300 million in dividends to HOCHTIEF shareholders. If we adjust for this dividend and some other nonoperating effects, the underlying year-on-year variation is a solid EUR 478 million improvement. And I would note our September 2023 figure incorporates a significant FX translation impact, which allows what would have been a solid net cash figure by well over EUR 200 million. The next 2 slides give you more detail on the group's strong orders momentum. New orders saw exceptional growth of almost 40% year-on-year FX adjusted to EUR 27.8 billion. This is EUR 7 billion above the comparable 2022 period and is a consequence of the group's focus on high-growth areas, which accounted for over half of all the work secured in the period. And our benefit of the group's strategic focus is that these high-tech infra projects are a key ingredient in further driving the group's derisking progress. The vast majority of the group's new orders are now being secured under collaborative alliance style or construction management services-type contracts, all of which incorporate robust risk-sharing mechanisms. At the end of September 2023, the group's order book stands at EUR 56.1 billion, up by EUR 3.3 billion year-on-year or 14% on an FX-adjusted basis. Of this total, the proportion of lower-risk contracts is now around 85% of the total. And it is worth highlighting that the remaining 15% has a substantially improved risk profile compared with the past. Moving on, you can find more details of the solid performance of our divisions in the presentation, and I would just mention a couple of highlights. The Americas division has delivered an impressive set of numbers. Revenues are 7% up year-on-year. Terms, there's positive margin momentum and outstanding cash flow performance with a year-on-year increase of EUR 185 million in the 9-month period and EUR 150 million in the third quarter. And 9-month new orders growth of almost 50% in local currency. CIMIC 9-month results show a strong revenue growth of over 20% in Australian dollars to AUD 9.6 billion. Margin variations year-on-year are in line with the trend we saw in the first half, affected by higher revenue from the zero-profit Westgate tunnel project and other project mix effects. The cash flow metrics reflect seasonality and continued to be impacted by a transition to more lower-risk collaborative projects with lower associated mobilization payments, which accompany them. Looking forward, we expect the strong cash flow performance in Q4. And CIMIC orders saw growth of 14% to just over AUD 14 billion. In terms of the numbers from our Europe division, 2 things stand out. The very high increase in new orders year-to-date to EUR 2.6 billion versus EUR 1.1 billion last year and a strong cash flow momentum with EUR 17 million improvement year-on-year. Finally, in this section, I will talk later in more detail regarding Abertis, but it's worth noting from the 9-month results that revenues were 11% higher at EUR 4.2 billion, with average selling traffic 3% higher and tariffs up 8%. An EBITDA of EUR 2.9 billion was up 12%, driving a EUR 15 million higher year-on-year contribution from Abertis to HOCHTIEF's net profit. I wanted to take a few minutes now to update you on how we're advancing and delivering our strategy. HOCHTIEF continues to advance in the delivery of its corporate strategy. We have consolidated our core market positions and are rapidly expanding our presence in the structural growth areas of high-tech, energy transition and sustainable infrastructure. Furthermore, we have achieved another milestone in the next phase of our strategy with investment of equity in these high-growth areas, which makes use of our extensive know-how and experience in BBBs. In essence, we are approaching our growth market opportunities in 3 key ways. Firstly, as an infrastructure services provider, both on engineering and construction management side. Secondly, as a supply chain and logistics partner. And thirdly, via equity investments. The Q3 highlights in our key growth areas are as follows: The digital infrastructure sector continues to expand in all our core markets. Data center market growth is being driven by the insatiable demand for higher computing capacity in artificial intelligence. During the third quarter, Turner was awarded orders for several new data centers in the U.S. worth EUR 1.1 billion or EUR 1.9 billion in the 9-month period, and our U.S. company is being presented with numerous opportunities. CIMIC has won several data center contracts in Hong Kong, Philippines and Malaysia this year worth approximately AUD 415 million. In Europe, HOCHTIEF was awarded a data center contract in Warsaw. Furthermore, we have identified a significant pipeline of data center equity investment opportunities in Europe and Asia Pacific. Germany, for example, HOCHTIEF and an infrastructure partner will invest in decentralized and sustainable edge data centers in metropolitan areas. The infrastructure associated with sustainable mobility in smart cities is a long-term structural growth market. In a significant milestone for the business, a HOCHTIEF JV has been awarded a contract to finance, plan, build and operate a fast-charging network for electric vehicles by the German Ministry of Transport. This is part of the federal government's Deutschlandnetz tender, which targets a Germany-wide near-term rollout of fast-charging points. Total investment amounts to around EUR 250 million, which will include the substantial double-digit equity investment. Similar models are expected to be replicated in several other European countries to meet the increasing demand of EV chargers, and we are well prepared for the opportunities which will emerge. This project illustrates this group's strategy to invest equity in high-tech growth sectors, where we can apply the financing, project management and operation maintenance capabilities built up over many years in PEPs. Energy transition is a key, mega trend for the foreseeable future and one HOCHTIEF can add a lot of value for clients, already a leading EV battery gigafactory builder in the U.S. by Turner. We have an order book of EUR 1.8 billion at the end of September, including Panasonic Energy's EV battery production facility in Kansas and an electric vehicle battery plant for Honda and LG Energy in Ohio. In Australia, Pacific Partnerships has acquired the development rights for the 300-megawatt Hopeland Solar Farm in Queensland, the second large-scale solar project to be owned and developed by the company. Pacific will develop, invest equity in and manage the delivery in operations of this solar energy project, which will have the potential to generate enough independent electricity to power approximately 100,000 average-sized homes in Queensland. CIMIC subsidiary, UGL, has won an order for an expansion of a battery storage energy system for Neoen, one of the world's leading producers of renewable energy. This team is key to support the global energy transition in relation to electric vehicles. UGL has been awarded several contracts with energy and minerals processing clients in Western Australia, including a AUD 300 million project for the provision of construction services at a lithium hydroxide plant. The client, Albemarle, is the industry leader in lithium and its derivatives. Also, during the third quarter, CIMIC subsidiary, Sedgman, acquired a Canadian engineering and metallurgy company, Novopro. With a strong know-how in lithium processing technology, HOCHTIEF gains additional access to opportunities in this expanding sector as demand for batteries and electric vehicles increases while enhancing the group's North American presence and offering to clients. This bolt-on acquisition is consistent with this strategy of expanding our presence in the added value chain of high-tech infrastructure. Another element that is essential for the energy transition is nickel. Our company, Thiess, has been awarded a AUD 240 million nickel mining contract, marking this its second successful venture in Indonesian nickel market this year and reflecting its capability to deliver world-class mining solutions for the metals industry. The project is also consistent with the company's strategy of diversification by commodity. Another growth market related to energy transition is hydrogen. The developing energy market opportunities related to hydrogen and ammonia provide significant potential for the group. In Australia, for example, government has expected ambition to become a world leader in hydrogen by 2030 with potential related investments of up to AUD 300 billion. CIMIC has been involved in -- around major front-end engineering design studies based on its engineering expertise, and we're currently constructing a hydrogen-ready power generation plant in New South Wales. Social Infrastructure is another long-term structural growth market for HOCHTIEF. In August, NFL team, the Tennessee Titans, announced that a consortium including Turner and an AECOM subsidiary will serve as construction manager on its new stadium project with an expected total value of USD 2.1 billion. The joint venture will oversee the preconstruction and construction management services. Turner and AECOM have successfully worked on 17 of the 30 most recently completed NFL stadium projects, including the SoFi Stadium in Los Angeles, which will host the opening and closing ceremonies of the 2028 Olympic Games. In Australia, CPB Contractors has been selected by the Queensland government as managing contractor for stage 1 of the new Bundaberg Hospital. CPB will lead the design phase of the project with total value of AUD 1.2 billion, which is part of the regional government's AUD 9.8 billion health and hospitals capacity expansion program. Defence is another structural growth area in which the group is strongly positioned in its existing sector and security credentials and relationships, which spreads over decades. UGL has won a contract to provide strategic advice, planning, supply management, operations and maintenance for the Australian Defence Force's fuel network. The contract will generate approximately AUD 500 million in revenue for UGL over 6 years. UGL will provide all operation and maintenance services throughout the defense fuel network nationally as well as a strategic asset advice and management of the Australian Defence Force's fuel supply requirements across Australia. CPB joint venture has also been selected by the Australian Government's Department of Defence to undertake designed development activities for the Woomera Redevelopment Program. Pending government and parliamentary approvals, the delivery phase consisting of upgrades to buildings, services and infrastructure is expected to follow with an estimated value of between AUD 500 million and AUD 700 million. In the U.S., the Army Corps of Engineers awarded Turner Construction Company a USD 389 million contract to construct 2 buildings at a new air base outside Omaha, Nebraska and make operations more resilient to potential flooding. Supply chain and logistics are critical to success, especially for our clients in data centers, EV batteries and the other high-tech infrastructure market we're pursuing. To meet these challenges, we have developed SourceBlue, which is Turner's supply chain specialist in a rapidly rising procurement volume of over EUR 1 billion in the last 2 years. The business utilizes its strategic relationships, digital systems and logistics expertise to deliver transparent and collaborative solutions that improve project schedules, cost and procurement challenges. The company transforms the situation of procuring process by increasing visibility throughout complex supply chains. We can such provide clients with reliability on where equipment and products are sourced, experience with over 130 supply chain experts and procurement specialists. Furthermore, it offers early engagement with designers and engineers, facilitating collaboration on complex challenges from design to delivery. This rapidly expanding business has been -- has seen revenues doubled in the last 12 months. In order to expand SourceBlue's capabilities, HOCHTIEF is also developing supply chain in the Asia Pacific region with the creation of our logistics, have to accelerate the group's digital delivery capabilities. Capital allocation will play an increasingly important role in the strategic development of our company with both transformational M&A and bolt on acquisitions. As described earlier, we have begun to deploy equity capital in several high-tech infrastructure growth sectors. In addition, we continue to boost our engineering know-how via bolt-on acquisitions such as the Canadian Novopro transaction I mentioned earlier and most recently, via the agreement by UGL to buy their communications services arm of Skybridge. The company is an Australian installation maintenance constructing company, which specializes in the fiber, wireless and satellite telecoms markets. The acquisition includes the transfer of intellectual property and engineering capabilities and supports UGL's continued strong growth in the sector. Let me move on and talk to you about the recently important developments at Abertis. July 2023, we reached a new strategic collaboration agreement with Mundys with the objective of strengthening Abertis' global relationship in transport infrastructure concessions. Our partners are committed to promoting an investment plan to expand the portfolio of assets under management and promote Abertis' growth and value creation while maintaining an optimal capital structure in line with the requirements of credit rating agency. The agreement also includes a new governance scheme, whereby the partners will appoint 12 Board members in equal shares as well as the appointment of the chief executives. Thus, Mundys will continue to appoint the CEO and the Secretary of the Board, while HOCHTIEF/ACS will appoint a Chairman and the CFO. In addition, the ACS Group about to transfer 56.76% interest in the 288 managed lanes highway in Houston to Abertis for USD 1.53 billion. The total transaction has a remaining lifetime of 45 years until March 2068, as a high-quality transportation asset comprising 17 kilometers of managed lanes with dynamic tolling, where tolls can be adjusted to maintain traffic above the target speed. The acquisition leverages Abertis' existing presence in the U.S. and will achieve synergies with a solid regulatory framework. In mid-October, Abertis announced that it had won a tender in Puerto Rico for 4 toll roads with its USD 2.85 billion bid. The company has been awarded the concession right to operate 4 highways in Puerto Rico for a period of 40 years, expiry 2063, after a competitive prioritization process. Toll roads comprised 192 kilometers, representing over 60% of the island's toll traffic, including highly strategic connections to the capital San Juan metropolitan area with alternative routes being very limited. [ The attractive ] tariff mechanisms with increases exceeding inflation and a solid legal system in which U.S. federal laws apply. And also worth flagging that there are significant operating efficiencies with Abertis' existing Metropistas concessions. These 2 transactions are aligned with Abertis' long-term state of owning, operating, acquiring high quality, strategic toll roads that continue to extend the group's concession-based cash flows. Furthermore, these transactions reinforce Abertis' core exposure to hard currencies while leveraging its existing presence in the U.S. Both concessions contribute to cash flow generation from inception, given existing high trust levels and EBITDA margins. The shareholders will contribute EUR 1.3 billion to support the financing of these transactions. Abertis will thereby maintain an optimal capital structure in accordance with the commitments to maintain its investment grade credit rating, which S&P has just confirmed. So in conclusion, let me briefly summarize where we are and how we see the business developing. HOCHTIEF achieved a strong set of results. Sales and profits are growing at double-digit rates in local currency terms, margins remain robust, and we reported a strong Q3 cash flow performance. And new orders saw exceptional growth of almost 40% year-on-year FX adjusted. This strategic focus on rapidly expanding high-tech, energy transition and sustainable infrastructure market is driving a strong order book growth, a positive profit momentum and further improving risk profile. We have started deploying capital in high-tech infrastructure sectors, including renewable energy, data centers and electric vehicle fast-charging networks. We continue to consolidate and expand our engineering and technical know-how by our bolt-on acquisitions, and we're rapidly developing our logistics and supply chain services, and our delivery and ESG targets remains on track. Looking forward, we expect a seasonally strong cash flow performance in Q4, and we confirm our guidance for 2023 to an operational net profit in the range of EUR 510 million to EUR 550 million. Thank you very much to everyone for listening, and now I welcome your questions.

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

[Operator Instructions] The first question is from the line of Graham Hunt with Jefferies.

Maybe just 2 for me. I'm trying to understand where you're expecting the balance sheet to end up at the end of this year and then how much capital you have to go out and do deals just based around some of the transactions that are going on. So first, can you confirm that HOCHTIEF will contribute to the EUR 1.3 billion for Abertis? How will this all be financed? And then if we account for that and the option that you have on fees outstanding, are you comfortable with where your balance sheet is today? And how much headroom would you have to go out and do deals beyond this? And I'll follow up with a question on construction, of that's okay.

Thank you so much, Graham. So let me start with the balance sheet. We expect a very strong Q4 in cash, in line with last year, and we are going to be comfortable in the net cash zone at the end of the year from a passive perspective. The EUR 1.3 billion of -- I mean, capital increase in Abertis, yes, I confirm that HOCHTIEF will be contributing its 20% share. When it comes to this, I mean, as I have mentioned in the past, we are just waiting to see -- they're 3 years ahead of us, we are waiting to see if Elliott wants to execute the put or part of the put. From our perspective, we welcome this because our adjusted debt includes the indication of paying the put plus the obligation of the dividend, but it's not plus the share of this instead, but it's not recognizing the EBITDA. So that would be something very positive for us, so we would welcome them. And in terms of firepower, we -- I believe we do have significant firepower in terms of investments for different reasons. The first one is the fact that we're going to be in a comfortable net cash zone. So obviously, that has levered. But of course, I mean, when you look at the cash flows that we are consistently generating every year, there's significant room for it. In addition, as I said before, if we were able to integrate these basically, we will be increasing the EBITDA for the same amount of debt that even [ account is ] not being consolidated, it is from a rating agency perspective. So I mean I hope I did answer the questions.

No, that's very helpful. And then just very quick follow-up on U.S. construction. Obviously, very strong order intake this quarter. And I think you say in the statement that this is -- most of this is low risk. Can you give any sense on the profitability of these projects?

Yes. I mean the -- we're expecting margins to grow in the U.S., and we're expecting margins to grow in the U.S. for 2 reasons. The first one, when it comes to Turner, as they get into more sophisticated projects, we expect margins to grow. The more value we provide, the more the margins are with the same construction management low-risk model. When it comes to Flatiron, margins on paper are exactly the segment they used to do, right? So typically, way above, the traditional ones building. However, these contracts have low risk, so we believe that this should be achievable. While in the old traditional EPC design build, on paper, there were 2-digit margins, but to be honest, between escalation and on our challenges, where it used to be very difficult to achieve. So I expect margins in North America to grow.

The next question is from Luis Prieto with Kepler Cheuvreux.

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

Thank you, Luis. So let me start with margins in North America. So in terms of the potential increased margins of Turner, Turner is getting the more sophisticated projects. Now to get into those more sophisticated projects, 3 things, and this is applied to the entire group, okay? Because what we're doing in Turner, we're doing in Europe, and we're doing in Asia Pacific. There are 3 keys to start being -- delivering more complex projects for big clients. The first one is increasing the engineering capability. The second one is to increase supply chain and logistics capability. And the third one is, obviously, systems and digital systems with what comes with it. So that transition is the one that we have started or we started some time ago, and it's being paid off. The more complex is the project, the more the client wants to make sure that your value proposition is strong. So I believe that margins are going to continue increasing without taking additional risk in the extreme. If we were able in the long term to jump into semiconductor fabs, and we were able to do the balance of plant in nuclear buildings, if we were able to jump into other high-digital and high-tech projects, we would see that all what we're doing to build that capability will be paid off with higher margins, without changing the risk profile. On the contrary, the more commoditized and easy the project is, and then more competition and probably eventually, the more risk. That's why we are working on our plan to move into more engineering-driven areas. In Asia Pacific, well, there's a couple of things driving margin. The first one is the Westgate tunnel project, as you said, which settlement was achieved in December 2021, but also the higher financing cost. We are probably compensating with lower tax rate. And I see that it was 20.1% in the first 9 months of '23 versus 22.4%, and this is mainly due to the higher share of equity accounted and JV profits. So I mean, basically, those are the reasons.

The next question is from Augustin Cendre with Stifel.

I've got 2, if I may. The first one is kind of following up on my usual questions on the risk profile of the company. I was wondering if anything has changed regarding the risky projects that were previously mentioned in previous conference calls. And if you're currently comfortable with your level of provisions to risky projects. And I'll ask the second one immediately also, so it was on Asia Pacific. I was wondering if you could please elaborate on the environments you're currently seeing in Australia and how you see it evolve in the next few quarters? It seems to me like the growth environment has been quite strong for more than a year, but it seems like your backlog has been growing faster than sales. So I'm wondering how that could evolve going forward.

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

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

And I mean the -- when you work with -- well, first of all, I think that we do have -- before even getting into the leverage and debt, we do have a strong cash flow that allows for, I mean, annual investments. How much potentially? I mean close to EUR 500 million every year and that's organic. That's without the need of bringing debt in. On top of that, we do have our -- obviously, our ability to finance. In the case of HOCHTIEF, I mean, which is very straightforward, except for the Thiess component, because the Thiess component, as I said before, the adjusted debt, it's in our books, and it's reflected of the put plus the EUR 180 million. Now we need to pay debt every year, but not EBITDA, right? So if you were to adjust by that, probably, I mean, you would be talking about, in the case of HOCHTIEF, 2x, 3x EBITDA when it comes to the possibility to get that. And we are in a -- we believe that we're going to be finishing the year in a comfortable net cash area. So that gives you a sense between the organic cash flows plus the potential leverage gives us a lot of firepower potentially.

The next question is from Acitores Victor with Societe General.

I have one question on the Slide #12 on CIMIC. I just in case you can confirm that in the last conference call, that the working capital deterioration that we have seen in the quarter, seasonally no issues and it's mainly explained by sales growth and the risking of the backlog.

Yes, I mean, a couple of things that is important to -- when we talk about the net working capital, okay? Because the net working capital, especially when we talk, and I'm not really referring to statutory or the underlying. But in the case of the [indiscernible] working capital this year, we are including this was a one-off that we had last year and this year, which is if you take that out of the equation, the year-on-year variation in the net working capital outflow figures would be pretty much in line with the business right? And not very different from last year, right? So we can follow up on this more detail off-line, but that's something to mention. The other thing to mention is first that the first 9 months 2023 reflect typical seasonality on one, and we are going to see that being changed in Q4, right? Strongly and we're very comfortable about that, right? Typically, a lot of the reconciliations that come towards the end of the year, and we are in November, and we already know that those are coming. So we are very comfortable in that sense. There's always a component of lower client standard modulization payments as we move forward to a low-risk strategy. So that affects always. I mean you don't have the -- some of the big advance payments that we use today because of alliances, et cetera. But as I said before, we expect a seasonal very strong cash flow in the fourth quarter. And we expect also because of a lot of -- as I said before, a lot of our legacies and risk, soon as we continue settling them, those will bring cash over time. So that's another positive of our balance sheet. So we expect it to improve cash flow going forward.

The next question is from Marcin Wojtal, Bank of America.

Yes. I wanted to ask you about profitability outlook for your Asia Pacific division. Do you expect your EBIT margins to improve over the next 12 months? My understanding is that in 2023 used to have some dilution from legacy projects once that dilution over time goes away? Is it topical to assume that your margins will improve?

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

The next question is from Dario Maglione with BNP Paribas.

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

Okay. Thank you, Dario. So starting, we turn -- pretty much everything we do is internal is construction, right, from that risk perspective. So there is no change, right? We have more sophisticated projects with higher margins and less sophisticated projects. There was a time in which most of turnover buildings in residential and commercial. Right now, that's around 15%. But when we talk about the high-growth areas with more margin than usual, that could be getting close to, of all the new intakes, it's around 50% and increasing, so which is changing the backlog of turn. That's why I'm confident that we will be able to increase margins over time. Regarding Abertis, I mean, right now from our objective is -- and we're going to keep the dividend policy for now, and we believe that we can meet the investment grade conditions. So I mean, I believe in that case, no change. And then regarding the order intake, I'm very positive about the order intake not just now going for. As I said before, there's a lot of backlog, not reflect -- I mean, a lot of intakes not reflected in our backlog. I mentioned before, a significant amount from Turner around USD 7 billion, USD 5 billion from Flatiron, AUD 5 billion from CIMIC, one -- not even included in our backlog. And when we look at the pipeline and what's coming, we believe that it can -- will continue to grow. Right? So in that sense, we believe that there's a very positive momentum. And if you look at, I mean, the strategic segments in terms of data centers, batteries, lithium, hydrogen, sustainable mobility and of course, more long term. But there's a lot of talks in terms of engineering in nuclear, The demand is unbelievable. And that's what I believe that has really changed in our organization, within factor of 2 years. We are transitioning not only to keep our core business, not only to do what we've been doing up to now. But to be able to access some of those areas. To some extent, are new to us, that's why we are at the beginning of being able to capture the different areas that before we were not able to capture for all the reasons I mentioned.

Okay. And actually, if I can add one more question on Austria. So you mentioned that you expect the traditional civil engineering market to be flat to small down depending on geography. But also, it seems like the government is planning a lot of books over there. there is a big backlog, which should peak next year. So I just try to understand how to reconcile your view and the backlog from the government side?

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

The next question is from the line of Nicolas Mora with Morgan Stanley.

Just a quick one for me. On the margins in Northeast Americas, especially at Turner, we see a moderate uptick quarter after quarter. I think you're on 2% PBT margin at the 9-month level. When and how fast do you think you can take this to levels we'll see elsewhere at some competitors, for of looking at the excite financials. These guys do 5%, 6% EBIT margin. When is the time lag for marked margin uptake, especially at Turner because you've got some fast churning orders in their data centers, especially the manufacturing plants biopharma. All these have been in the backlog now for more than 12 months for some projects so should we expect from now on a big uptick in margin? That will be the question.

Thank you. It's a good question. How fast we're going to see margins increasing. I mean certainly, it's going to be as to increase. How fast? Let me try to work that I'll and provide more visibility in the next months, right? Because we also need to understand the engineering period, the design period for a lot of these projects, which is not a fixed period of time. I mean the client and when the client believe it is ready, then you go from construction, but there's no fixed time for design. So I believe that it will be steady. How fast could be a difficult question, but I will try to provide more visibility in the next months. I'll take that, and we'll get back to you in probably next time or if we have before we can take it off-line.

Okay. And if I may just on Abertis, you've announced 2 deals, I mean, you, ACS [ on this ]. Over the past few months, what do you think -- I mean, how do you see these deals from an Abertis perspective, not on 288 from an AC perspective, from not because it seems the values continue to go up. The equity IRRs are pretty tight on the budget. Is this -- was this really a must do deals for Abertis at that very high level of price, especially on 288. I think in Puerto Rico, you can maybe just give us a view on a field for the multiple and where you see the growth there.

Yes. So 1 question which is -- I mean, 1 point that I believe is relevant when we talk about the 288. These projects are very easy to evaluate, okay? Because at the end of the day, once transaction is finished, you have about traffic. It's about the firm is about the forecast, which typically don't change, right? I mean you can increase the tariff. You can increase the tariffs you can obviously, look at real traffic compared to all traffic. But we are not changing the projections, right? So at the of the day, it comes to discounting cash flows. So when you look at the 288 and the amount, I mean, the increases in the tariffs the increase in the real traffic and the real trade continues to grow. So when we bought the 288, with the traffic at that point, and you can to traffic and current fruits with the ones when we bought, these manage planes are increasing very, very, very fast. I mean it's -- I mean we'll provide visibility on that eventually, as everyone knows, we are planning for our Capital Markets Day eventually sometime in 2024, and our intention is to provide visibility. But what I can anticipate is that it's very objective. I mean it's not because it was good for ECS for Abertis and we win for everyone. And since we bought right now, the value of that job is about what Abertis committed to pay. And we will show you at a due time. So I think that is a good transaction, obviously, for HOCHTIEF ACS because they keep 50% of our asset with Abertis, right? And number one, it's a group transaction for optics we keep 44%. But right now, if we were going to the market in 2024, I can assure you that it will be way above the 2.7%, way about, I will show you and it's good for abilities because I think they've got a good price. And in terms of delays expectations of all the concessions, it increases because it's a very long term, both Puerto Rico and 288. So I believe that it's a very good mix. It's a U.S. asset. It's U.S. dollars currency. It's a long-term project with very good traffic and improvs the -- obviously, the EBITDA and the margins in the long term. So very good from that sense. Now in the case of Puerto Rico, 3 months it's 60% of the island's toll traffic and that together, we our existing projects, we almost have almost the entire network in the or a significant part of the thing. It's 40 years, it's for highways. I mean, same thing as the 288, it's very long term. I believe that we were reflecting. I mean there's -- there was not a lot of CapEx on the project. So from that perspective, I don't think there's a lot of risk. But there's a lot of synergies and we haven't -- we only took into account power to the synergies, but not all the synergies when evaluating the 288. We have taken all the synergies with Metropistas concessions in Puerto Rico we would have been able to offer a higher price. So those 2 assets are very good for Abertis. Now what's next? -- okay? And we will -- by any case, we're going to offer our visibility. So I mean, don't take my words for now, but we will offer the visibility at this time in all these assets. And what's next? What's I mean for Abertis. We're analyzing Australia base linked. We are analyzing assets in Chile. We're looking at brownfield assets in the U.S. We're looking at other brownfield. And then you have all the greenfield assets that potentially ACS can over time past to Abertis. So that's where we believe the future is. Regarding the French one, we need to wait to see what happens. In the future, they are going to be tender or what's the plan. And we don't have visibility yet at this stage.

We have the next question from the line of Graham Hunt with Jefferies.

Just one quick follow-up. Just to confirm that with all these capital allocation plans, you're sort of penciling in or your base case assumes maintaining or increasing your optic dividend as it is EUR 4 last year and sort of where that could land in '23 sorry, '24.

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

The next question is from the line of Marcin Wojtal with Bank of America.

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

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

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

Okay. Thanks. Thank you for joining us. From my side, I mean, I always appreciate your time and your questions, which show that you're really looking at the company and working with us to understand it better. We will continue to -- pretty much continue to be transparent to offer all the information. And as I said before, we are looking forward to a Capital Markets Day sometime in 2024 to make sure that we provide a lot of the questions that you're asking further details. So thank you so much, everyone.

Thank you. Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.