Vinci SA (ACS) Earnings Call Transcript & Summary

Welcome to the VINCI Conference Call. I will now hand over to Mr. Xavier Huillard, 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 Christophe Pélissié du Rausas, who is the guy who made the deal; Christian Labeyrie, who is the guy who will pay for that deal; and me; plus Gregoire; or Alexandra; et cetera. What I would 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: first, 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 [ accordo Paris ]. If I go back to the first item, to grow our energy business. As you know, we multiplied by 4 or a little bit more than 4 in shortages revenue over the last 15 years, while, which is important, improving the profit margin. We always explained 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, first, 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. Second point, after having developed motorways, car parks, high-speed train lines and airports, we believe we can now develop greenfields renewable energy assets. We think that one of our competitive edge is to combine, first, a large network of deeply rooted local BUs, enabling to understand the local regulations, the local electrical grid, the way to obtain all kinds of permits and particularly environmental permits. And to combine that network of deeply rooted local business units with a central platform for 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 VINCI Energies, but in very complementary geographical areas, mainly Spanish-speaking and Portuguese-speaking countries of Spain, Portugal and South America. Second, this company has a strong track record in what we call the EPC business. That is to say, 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 gigawatt 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 3 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 these negotiations over the last months.

Hi to all. I am Christophe Pélissié du Rausas, Business Vice President of VINCI SA. I can introduce you to the -- this transaction. For instance, if you go to Slide 4, you will see what is the parameter of the transaction. Without going to any -- to all the details, you'll see on the left part of the slide, the actual organization of ACS IS and 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 total material agreement with ACS management to take over only 8 out -- 8 concessions out of 67, basically because major concessions that have been developed by ACS firstly, value creation was already done. And second, we jointly thought that management of this concession could be better done by ACS actual management. 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 where in line with the actual organization chart inside ACS, you'll see the 2 parts. Support services with 3 divisions inside support services in ACS IS. On the right side, the EPC part. EPC means, of course, engineering, procurement, construction. And it's large project built in the countries of the geographical footprint of ACS IS, mainly Spain, Portugal and South America, large turnkey electrochemical 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 a concession side that you see on the second part of the slide. And you'll find, again, here the 8 concessions that we take over. To be very honest, this 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 that you know, of course, photovoltaic, onshore wind and offshore wind and that they gave you the main quantities on the main metrics of the portfolio we have contemplated in discussion in connection with the ACS management. If you go to the following slide, you have very synthetic figures about -- it's Slide 6. On Slide 6, you have very synthetic figures about how we could analyze the business of -- at ACS at the perimeter, that will be part of the transaction, if you compare to the VINCI Energy actual expertise. And you have -- so you see that for 66% in terms of expertise, but as you understood, in different geographical areas, for 66%, the expertise are similar to what is in energy. Out of this 66%, 42% is what we call flow business, let's call it, small and medium-sized contracts, small- and medium-sized projects, and the remaining 24% corresponds to synergy like activities, but with larger projects. We speak about, for instance, high-voltage transmission lines like in Brazil, where ACS has built a very strong position. Our PV plants, photovoltaic plants that are, let's say, delivered turnkey 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 expertise that were not present in VINCI Group, 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 were not present in our actual perimeter of expertise. You are at the right size -- right side of the slide, you see the geographical breakdown, where you see the importance of what we call in our internal language of key countries of ACS IS, 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 and not totally similar of the ones you were familiar with, with ACS IS 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 are the figures, let's say, pro rata and broad to the perimeter of the transaction. You'll see that there is an activity in the range to be very synthetic of EUR 6 billion per year with an EBIT earnings before interest and taxes in the range of EUR 350 million, EUR 400 million per year for this perimeter. This in average for year '18, '19, '20. And as you noted, year '20 is a bit special because it is a COVID year, and these figures take this into account. If you go now to Slide 8, we have there the focus about one of the key interests of this transaction with the development of energy renewable project. When we say development, we mean not only building, not only designing, but also developing the wood project from the greenfield part, from the greenfield status to the what you could call the ready-to-produce status where the object is totally built, connected to the grid as 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 ACS IS, as shown by its proven track record, that it was able to develop gigawatts, the figure that has been taken into account, and that has been -- that have been explained to the market by ACS in the last days, was 4.4 gigawatts over the 3 last years. And we identified a perimeter of 25 gigawatt, out of which 8 gigawatts of offshore wind and around 15 gigawatts of onshore wind and photovoltaic. We don't put all this gigawatt in the same category because the offshore wind is very often public for tenders. And let's say, the role of the development team is very different in this project than in the other type of projects because in the other type of projects, you have a very detailed, thorough kind of work in order to develop this project, to look for the line, 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 photovoltaic is much deeper than for the 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, #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 VINCI pro forma tomorrow, where you see a pro forma revenue of EUR 51 billion and a pro forma EBIT of EUR 4.9 billion. 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 #10, you can see in the same kind of analysis how having the actual breakdown for VINCI in -- with the actual breakdown per country and per continent how -- if you add up the target company perimeter, if -- and what becomes the VINCI pro forma tomorrow, adding up ACS IS to the actual parameter, how is a 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 [ mix ] and is above the 50% level. If we go to Slide 11, we'd want to give you a very synthetic flavor of the figures of the transaction. As usual, the transaction is the sum of 2 components. One component is the enterprise value of the parameter of ACS has been the object of the transaction. This enterprise value is EUR 4.2 billion. And then you have to add up what is usually called the bridge between this enterprise value and the equity value. The value of the bridge is around EUR 0.7 billion. It's mainly a cash element plus certain adjustments. And you have a sales component that has been discussed, I would say, in a very deep manner with our counterpart, which is what we call the contingent additional payment. We accepted to pay for each gigawatt that is really ready to produce for a period up to 8.5 years under certain parameters that it would be very -- I mean, without going to all the details, we accepted to pay EUR 40 million per gigawatt up to a cap of 15 gigawatts and up to a cap of 8.5 years. So it means an additional contingent payment maximum of EUR 0.6 billion, EUR 600 million, we would add up to the 2 previous components of enterprise value and bridge. If you go to the financing, 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 classical calculation 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 a certain calculation that we've obviously made in depth. And we think there is no significant impact on VINCI's balance sheet strengths with this financing as it's [ an -- in there today ]. If you go to Slide 13, some words on the method [indiscernible].

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. José María Castillo Lacabex, 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 the 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's -- 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, José María Castillo Lacabex, to continue managing that business with its 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 part of the world where we, as VINCI, have the feeling to have this network of deeply rooted BUs, giving us a 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 Grison, who is in charge of VINCI Energies, will continue to report directly to me. And José María 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 ACS will have 49%. We will fully consolidate this joint venture. And every time 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 deal 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 think that the closing itself, and so the payment itself, we'll be able to be put in place by year-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 EUR 4.2 billion, 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 years, we will create big value. Out of this value, we'll 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 with -- 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.

[Operator Instructions] We have a first question from Jean-Christophe Lefèvre-Moulenq from CIC.

On ACS Services Industrial's (sic) [ ACS Industrial Services' ] numbers, if we look at the presentation of ACS made in February, they show an EBIT margin of 9.5% and you assume a 6% margin in average. Where -- 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, but I didn't fully catch what Mr. Pélissié du Rausas told.

Okay. Maybe I will explain because if Christophe is explaining again, maybe you will not understand better. Sorry. Sorry. I was joke -- I was kidding. No. The idea of this Slide 9 -- no, 8.

8, sorry.

What to say? First, 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? So they really have a very good track record of development of greenfield assets, okay? And as an example, over the last 3 years, they 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 ACS IS because most of these assets were sold -- presold or sold after being built to outside investors, 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 their capacity to develop these renewable assets. 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 will not be developed because of problems, environmental permits, connection to the grid, et cetera. 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 sort of plant, onshore wind farms and offshore wind farm because in the case of offshore wind farms, you generate -- well, you systematically win through an open bid, just like what does happen in the United Kingdom, for example. So what is important is that the potential pipeline of identified gigawatt for the next years is something around 15 gigawatts of either PV or onshore wind farms. And this is why our contingent payment is, let's say, calculated on the basis of this 15 gigawatt. I go back to your first question and I ask Christophe to answer your first question.

I think the key answer to your question that the perimeter are not similar as you noted. There was in ACS IS 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 EBIT, are totally different. So basically, of course, due -- basically, the parameter are different, the kind of business and the proportion of each of them in the 2 perimeters, let's say, before and after is very different. Obviously, there are -- also in certain very limited cases, some accounting options where we make different choices, but the main parameter and the main answer to your question is the difference of perimeter.

Okay. You removed some concession assets. Okay. And a final question, could we have an order of magnitude of the CapEx and also the net profit in order to calculate our numbers?

Not today, Jean-Christophe. Sorry. Sorry.

Okay. No problem.

I mean there is a big difference between ongoing CapEx, pieces of equipment, computers and so on, not a big number. And CapEx related to the development of renewable energy assets. And in this case, it can be a -- big numbers. And you understood that when, previously, ACS IS 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 effects 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 ACS, is that correct?

No, no.

Relatively minor, honest.

Minor. Okay.

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-kilometer 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 you could transport the electricity.

Next question from Luis Prieto from Kepler Cheuvreux.

Luis Prieto from Kepler. I had a couple of questions. The first one is if you could provide us with an idea of what's in that EUR 700 million net cash and other viable 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 EUR 479 million. And I would like to know if that's fully comparable to the EUR 700 million or are aiming 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 or all the way around? Just to get a feel for how the JV will work.

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 renewable energy, we will have to make the proposal to this JV to buy it at market value, okay? So what we anticipate is that most of our developed assets will spend the -- 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 that our partner in the JV will not accept to the JV to buy the asset. In such a case, we will keep the asset 100% on our side. And maybe sometimes, we -- if it is clever, we will sell the asset. But once again, the main idea is that most of the assets will go in the joint venture.

Yes. I think the bridge is mainly made up with 2 components. Of course, there is calculation of the cash available 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 ACS. So there was an in-depth regulation and discussion of the year. And also certain arrangements linked to the -- we don't think it's likely this transaction could take place before end 2021, so there are certain arrangements for this period.

Next question is from Elodie Rall from JPMorgan.

So my first one would be on this 15-gigawatt pipeline indeed. If you could give us an idea of the economics of this potential pipeline, how do you think about the valuation of this potential pipeline? Should it be developed? So therefore, it'd be helpful to understand what kind of CapEx and EBIT you could generate for what you would need and then generate for each gigawatt or 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 be 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 division to continue to generate a 6% margin over time? Is this the goal as it was for VINCI Energy? And how do you forecast the top line growth as well?

Okay. Many questions of Elodie. First question, it's really too early. So I will not give any numbers, I will only give some principles. First, there is a big difference of CapEx between PV, onshore, wind farms and offshore wind farms, okay? Second, 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 one in charge of development of the asset. When it is developed, when it is 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 self-contracted outside. We have all the environmental permits. We know where to connect. We know the cost of the connection with electric grid. 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 one in charge 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 apply 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? Second, no, 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 VINCI Energies 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 ACS IS continued just like what they did over the last 10 years. The capture within ACS IS, 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.

Next question from Nabil Ahmed from Barclays.

Hello? Can you hear me?

Yes, Nabil.

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 VINCI Energies business. And therefore, 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 ACS. And if that's the case, that would mean that the other more for VINCI Energy lag, as you call them, businesses are below VINCI margin. So to make a long story short, my question is, is it well-managed in all businesses? And if not, are you seeing potential to improve margin?

My only answer is to -- yes, sorry. This was your first question. So waiting for your other questions.

No, no. Go ahead.

No, no. The answer is very simple. This 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 part 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. Second on, let's say, other projects, EPC projects, you're right. I mean they historically made more money than that and more EBIT 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 EPC business, you have to be very careful about the -- what you could call the variance of these EBIT numbers. As Xavier said, you could have very profitable project, but other that you have to really to be very careful about the margin at the end of the project. So the variance could be important that you have to be very careful. And that's why, as we have said, you have to be very selective in the acquisition of these projects.

The cultural fit is that we are, generally speaking, quite conservative at VINCI, and they are generally conservative.

Got you. The second question I had was on the 15-gigawatt pipeline. I mean I'm referring to the 25 less, what you define as offshore wind farm. I mean what do you call that pipeline? I mean how [ adorned ] are these projects? What's the time frame? I mean is it just the potential pipeline you see in terms of development over the next 10 years? Or are there other projects where you already started to develop, you got the land and...

Okay, Nabil. Okay. First, difference between the 25 and 15, it's 10. And the offshore wind farms represents 8. The explanation is that 2 gigawatts out of this 25 are related to projects they developed, but they already sold it to Galp. Part of it still has to be built. But the assets themselves will be put with Galp according to a transaction they made a month ago. Galp is a Portuguese power company. Second, of course, as usual in such and -- a way of thinking, some of these 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 red ], of course, we think that we could make more than that, first, because of the pipeline; second, because this market is really very dynamic; and third, because we think that given our existing network within VINCI, our deeply rooted 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 develop something like 1 gigawatt a year. Do you agree, Christophe?

Yes, I agree. I mean the -- to perhaps give another angle to your questions you have today, one specific market in which ACS IS has developed a lot of projects over that time, that is Spain and we think there are still more 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 ACS IS. And obviously, I want to think about the Latin American countries like Mexico, Brazil, Peru, Chile, Colombia. And then it's something where we think we could give a boost to that development in synergy with the [ actual ] management team. And of course, as Xavier said, it will be, afterwards, a kind of synergy with other geography where our sales were more developed today than ACS IS, is. And we're putting in synergy our network, our dense network of contracting companies that is able to identify opportunities and this capacity of developing the project, we could create that synergy. And to answer to your question about the terms -- I mean is it short term? Midterm? Long term? We analyze the 3 kind of time frames with, of course, different probability and different contract.

Okay, okay. Maybe one last one for me. I mean if I understand well, ACS IS will naturally develop projects for either the JV and if not potentially VINCI, but will continue as well to work for third parties. Am I correct in assuming that? And if that's the case, how do you manage potential conflict of interest with what would be your -- potentially your 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 ACS IS, just like with VINCI is contracting business. So of course, it doesn't mean that we could not continue to offer our expertise in terms of EPC of renewable projects for outside clients, of course. Of course. So I don't see the point. I mean one -- as soon as we will have developed through ACS IS gigawatts, all of the 15, this asset will be proposed to the JV. But in the meantime, ACS IS doesn't work only for the development of ENR. ACS IS' biggest part of the business is made of, let's say, normal contracted business, flow business or EPC, for outside clients. It will continue like that. Is it just like if you were selling us, then all -- that all our VINCI construction business only works for the development of the 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 ACS IS.

Understood. If you just allow me to squeeze one very short last question...

Just -- sorry. What I could add is that the market of ENR, if you look at the statistical projection for the next year, as you know, is the rate of growth is impressive, so there is room for, I mean, several developers, of course. So we can work for ourselves and work for other people.

Just a -- 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 1/3 of revenues. Is there anything within that which potentially has a lot of potential, and we 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 ACS IS, 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 the 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 develop a new kind of concessions, which are renewable concessions.

Next question is from [ Jonathan Amia from CCI ].

I have 2 quick questions. The first one is on the development of the renewable pipeline. Directionally, because we can't be too precise with those things, but 1 gigawatt approximately again is about EUR 1 billion 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, it can be slightly less, can be slightly more, it means that for each EUR 1 billion of CapEx that you plan to invest, you will be generating about EUR 20 million annual EBIT, yes? When you look at the inside multiples, again, give or take, more or less, it's about 15x. So EUR 300 million of value creation for each gigawatt that you plan to develop. Of that, if I get it right, you plan on paying EUR 40 million to ACS. And so which means EUR 260 million of value creation, give or take, again, can be slightly more, slightly less. So 2 questions. One is, do you agree directionally with the map and how it works?

And second?

So -- and the second one was on the cash adjustment that you mentioned in your press release, this is unrelated to that.

We didn't get the second question.

So second question was, you speak about the EUR 4.2 billion enterprise value, yes? But you're also talking about EUR 700 million of cash adjustment. So how much of that is working capital and how much of that is actually real cash that you will be keeping? Or put it the other way, is EUR 4.2 billion directly comparable to the EUR 5.2 billion that you put an offer at in October when you initially looked at that business?

Yes. The answer is yes. But keeping in mind that we accepted to pay this additional provision payment of EUR 40 million every time we will have been able to develop 1 gigawatt. So the answer is yes, it is comparable. But on top of the EUR 4.2 billion, we'll have to pay some additional money if we are able to develop additional gigawatt.

Just on that one, Xavier, the additional gigawatt wasn't part of the initial scope? Or was it part of the additional scope?

No, it's a question of negotiation, Jonathan. But what is for -- important is that in the 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 in 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 4.2 billion for this business. And if you make the calculation, it is, let's say, a fair price and a balanced, let's say it this way. Going back to your first point, it will be necessary to go more in details with you. But -- I mean we can -- but it's not the right timing. We can explain what I just told you a quarter of an hour ago, that is to say the creation of value is made by the developer. Let's say it this way, do not keep impact this number in 6 months' time. But just to give an idea, if you develop a project from scratch, it can take 2, 3, 4 years, okay? If you take into account the development costs, the cost of the team in charge, the fact that you have to pay some permits and so on, you take into them all that cost and then you sell this already developed asset to somebody, who will be in charge of putting in place of CapEx, okay, in such a case, the creation of value is around, let's say, more than EUR 100 million.

I want to add on what Xavier told you that, first, your figure is that, at the same time, right and wrong because when -- you cannot add up offshore wind, onshore wind and PV and mix [ such differences ]. I mean the price of offshore wind, by memory, is at least 4x more than PV. The calculation of EBIT on EBITDA is totally different. The 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 [ an extra ] environment, people -- if you go far away from costs, it will -- you don't have a -- it is impacted on the view. And you have, at the same time, the move for a decrease in prices in these fair prices and perhaps an increase because it's further from the cost. So you cannot -- and if you put an average with PV, then it does -- it's too theoretical, if you want.

Yes. And congratulations, guys.

Next question from William Wade from JPMorgan.

It's just one, and hopefully, it should be very quick. I just wanted to clarify something that was mentioned earlier in the call about that outstanding green bond that is issued by the ACS Industrial Services entity, EUR 750 million 2026 bond. I think you were saying -- you were talking about whether this bond was either going to move to VINCI or it was 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 asset that stayed with ACS [ reversion ].

Next question from Tobias Woerner from Stifel.

2 -- actually, 3 questions, if I may. Just quickly, you gave the EBITDA -- oh, sorry, the EBIT margin or the EBIT guidance. Could you also give us a sense of the depreciation in the businesses 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?

This is a question for Christian. It's good news because he was starting to sleep a little bit. Christian, it's for you.

So we start with the depreciation?

Can you hear, Christian? Oh, it's Christophe.

I mean I don't have the full details of -- all the details. I mean in our business, depreciation, D&A is usually in the range of 1% of the revenue. It's usual. And I don't have all the details over the 3 last year that we have looked in detail in mind, but it's the order of magnitude.

And as for the calculation of the cost of capital for emerging economies, we have, obviously, a methodology but we don't disclose it in detail. And we, for sure, don't give the outcome of it. Sorry. It's a private secret.

Sorry.

Okay. Let me ask maybe the question otherwise. You obviously acquire emerging market assets with this transaction. Is this something 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 acquisition in New Zealand, in Australia, in Brazil, a little bit in Canada, in the U.S. They are not emerging countries, of course, but part of them are emerging countries. And so we are accustomed. And this 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 emerging 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 a concession. And in such a case, we use our method of calculation about which, Christophe just spoke about. We know -- and it is what we did when we acquired airports in Dominican Republic or when we acquired the Salvador de Bahia 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.

Next question from Virginie Rousseau from ODDO BHF.

Virginie?

Hello? Yes?

Yes, we can hear you.

Okay. Two, if I may. First one, regarding the 15-gigawatt 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 -- or have they already obtained some building permits? And my second question is regarding the rational allocation 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 joint venture?

So on the gigawatt, it's difficult to give you a full quantification. But of course, we did just analyze this with what -- with advanced -- a very advanced -- advance early -- or very early stage. You -- I would say you have a certain number of gigawatt, but more advanced in Spain and some of them in Latin America.

But 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 per 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 we 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.

Next question from Eric Lemarié from Bryan Garnier.

Yes. I've got 4 actually, very small. So first one, how long do you plan to keep this sort of dual management with Arnaud Grison on one side and José María on the other? Could you confirm that this will be -- or these 2 entities will be merged eventually with 1 guy in charge of the whole energy division of VINCI? That was my first question. My second question...

Okay. Let me 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 and to reach this goal. But to know as of today when we will make differently, it's impossible to answer. And once again, if I had the answer, I would not tell you. You remember maybe, I don't know if you were with us at that time, but back in year 2000s when we make this SGE-GTM merger, at that time, we had decided to keep our construction division separate and it stayed like that for years. It was the best option at that time. After a while, I don't remember exactly when and why, but 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 it 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 2 companies separate.

And I see your point. Second question, you initially planned 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 in shares at all, does it explain the difference between the initial price of EUR 5.2 billion and the price of EUR 4.2 billion? It's my second question. Third question, maybe I misunderstood something, but regarding the offshore wind business, could you explain why you don't seem to like open bid? And the last question, a naive one, actually, will it be possible for VINCI in the future to develop renewable concession assets outside this scheme, outside VINCI, outside ACS IS?

Okay. First question, it's part of the negotiation. What is clear is that it's not that easy to pay insurers in the current time when you have a lot of volatility on the market. So it's part of the negotiation. Second, 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, is that when you speak about photovoltaic or onshore wind farms, you are in charge of the development really from scratch. That's why it take -- 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 public domain, it is impossible to develop from scratch because you would have to discuss with the owner of the piece of sea. Who is the owner of the piece of sea? The government. That's why, generally -- well, it is always through bids, which means that part of the development is, let's say, already done by the grantor. It doesn't mean that you have nothing else to do because you still have to make sure that the pure technical soil on which you will found your jackets is strong enough to that -- to 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 fisherman. So you have to make sure that they will not be disturbed, et cetera. 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 in 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 identified 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 a different market. So we are interested. We think that we have some competitive edges, 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 wind mills or the big jacket which will collect 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 had decided to team up with [ LG ], 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 offshore wind. And for instance, Cobra won early this year, 480 megawatts in an auction for the U.K. 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 naive 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 ACS, outside the...

The answer is yes. The 15 gigawatts we are speaking about are the gigawatts developed by ACS IS. So if we are able to develop some gigawatts, let's say, through other parts of the group, no problem. I give you an example. On our onboard 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 de 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, they would not be part of the deal.

Next question is from Nicolas Mora from Morgan Stanley.

Yes. Just the first one, coming back on the EBIT and the EBIT margin. Maybe it's only that I found the 6% a little bit low. I mean we've been looking at ACS 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 or not, that we usually fund at the cash level, so it was close to cash margins. So I'm just -- even considering your change in perimeter and so on, which we understand, the gap between 9% and -- let's say 8%, 9% to 6% is pretty massive. So I know you said they were maybe on the light side. But just to understand a little bit, whether this could move back up to 7%, 8%, which looks a little bit more realistic. Second point just 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 million, EUR 700 million of CapEx, 30% equity, 70% debt. I mean we're not going to go very far with that is going to cost you at a 50% share of JV, EUR 100 million to EUR 125 million per annum. So -- I mean I don't want to understate the scope of the developments in concessions in renewables, so 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 from the deal, do you include some goodwill in this? Because there's the equity, the book value of the ACS Industrial Service is around EUR 1 billion, you're paying anywhere between EUR 4 billion and EUR 5 billion, 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 enhancements you've been talking about.

Nicolas, the deal was signed yesterday. 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 kind. 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 offshore 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 green energy such that -- to feed the need of the industrial sector, the mobility, et cetera, et cetera. So it's a several years project. In 10 years' time, we will continue to develop renewable assets. And at that point of time, 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 ACS IS, just like what we explained 2 months ago, is that we would -- we could have decided to develop this new line of products 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, will be absolutely huge. So to begin with, yes, of course, at the very beginning, I don't know if it is EUR 700 million, 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 a 20-year contract, of course, it's just like an availability scheme, you can have a very low level of equity. But more and more, you have to take some risk, particularly the risk for a cost of the electricity you produced 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 techniques. The order of magnitude is, yes, you're probably right, a little bit less than EUR 1 billion and maybe EUR 250 million as equity as of today. So it's not big numbers as of today. We agree that 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 push 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. Second, we have been positively surprised by the pipeline of renewable energy. At the first time when we made our nonbinding offer, we were speaking about 6 giga. I don't mean that we will make in the short term, much more than 1 giga a year. But the good news is that the potential renewable assets, which are, let's say, in the pipe, not all of them being -- probably is sure to be transforming there, 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're organized and so on, but it is our problem to deal with that now.

Next question from Charles Maynadier from Kempen.

I just have 1 follow-up on sort of the risk profile. So when you start operating the renewable assets, do you already have a view on the percentage of revenues 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 to get some thoughts.

I mean it's fully tailor-made because it depends on the stage, if I can -- the status of development in each country. As Xavier 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. We grant to you a certain level of sale, but with a low price, then you can get PPA with typically 10, 12 years of duration with now the kind of price and then you can take your risk on this -- on spot market. It's not that I don't want to answer your question, it's that 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 on each -- in each country, and you have the auctions in Spain regarding kilowatt hours that would be granted by the Spanish government and the 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 left you with my colleagues. I just wanted to add something. When you develop these 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 land owner. 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.

We have no more questions. [Operator Instructions] Next question is from [ Alexia Baron from Frontec ].

It's [ Alex from Frontec ]. 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 the -- to where -- which countries the pipeline on offshore is located in?

As far as I understood your question, yes, it's auctions. Usually linked to this auction, as I understand, there could be price of sale of the energy that is guaranteed. And thirdly, the main geography on -- upon which we see today potential auctions are U.K. and Scotland. I mean U.K. -- you have specific auctions developed by Scottish government, and you have other one developed by the Crown, as they say, of U.K., so U.K. in itself. And I think these are -- today is where the main opportunities are located. And as I told you earlier, 0.5 giga was won 2 months ago for a U.K. bid by this company, by Cobra.

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 seabed so that you can develop and participate in PPA or CfD auctions, right?

Yes, yes. But I would say our valuation has taken into account a -- I mean, a lower probability, of course, for these auctions. I mean we -- I think we told earlier that there was a combination of probability on these contracts and we took, of course, a lower probability for these auctions in offshore wind.

And then the last question...

And just -- sorry...

And no, there is no contingent payment based on those onshore -- or offshore wind.

There is no contingent payment on offshore wind.

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 was -- some people could argue that you might have a bit higher cost of capital than incumbent utility players. So just to understand or to estimate the IRR to cost of capital spread that you can show us any color on.

It will be time to answer this question when we win a -- new energy projects. So it's -- we will not answer this question now, obviously.

No more question. [Operator Instructions] 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 we have in front of us. And as we said, with these 2 complementary fields that feed each other, if I can say, between concessions and contracting, obviously, concessions developing opportunities for contracting and the network, the dense network represented in the geographic area that we have presented to you, being able to generate opportunities for concession, as Mr. Huillard 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.