U.S. Markets open in 6 hrs 44 mins

Edited Transcript of SAL.MI earnings conference call or presentation 18-Mar-19 8:00am GMT

Full Year 2018 Salini Impregilo SpA Earnings Call

SESTO S. GIOVANNI Mar 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Salini Impregilo SpA earnings conference call or presentation Monday, March 18, 2019 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Massimo Ferrari

Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate

* Pietro Salini

Salini Impregilo S.p.A. - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Alessandro Tortora

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Diego Affo

Citigroup Inc, Research Division - Analyst

* Giuseppe Marsella

Exane BNP Paribas, Research Division - Equity Analyst

* Hemant Dabke

Barclays Bank PLC, Research Division - Research Analyst

* Jana Arndt

UniCredit Research - Credit Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. This is the chorus conference operator. Welcome, and thank you for joining the Salini Impregilo 2018 Earnings Conference Call. Our call today is hosted by Pietro Salini, Chief Executive Officer; together with Massimo Ferrari, CFO and General manager. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Pietro Salini. Please go ahead, sir.

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [2]

--------------------------------------------------------------------------------

Good morning, everyone, and welcome to this conference call dedicated to Salini Impregilo Full Year 2018 Results. I am Pietro Salini, Chief Executive of Salini Impregilo, and I will give a few words about our performance last year as well as our plans for the future before letting Massimo Ferrari go into further detail.

The first thing I would like to do is speak briefly about the main achievement of our group. We strengthened our position as a global player by continuing to lower our risk profile with the diversification of our portfolio at a geographical level. This means a greater performance of our revenues are coming from stable, reliable countries.

We completed the general cleanup of our balance sheet, improving the quality of capital invested. We presented a group financial solidity and maintained a sound equity structure. We will return later to this point with more details.

This achievement will enable us to lay the foundation for a new project of growth. Relaunching the sector is a priority for our country, and Salini Impregilo is ready to create a player that, at both national and international level, will be able not only to support a further development of the country infrastructure, but also compete successfully in the international markets. We can achieve these, thanks to our experience, expertise and operational efficiency in this highly complex sector.

The main economic and financial result of 2019, which are expected to be prudentially substantially in line with those of 2018, are the basis for the drafting of a new industrial plan. This plan will include, among other things, the aggregation of key players and selected projects in Italy infrastructure sector. We will present the details of this plan to the market later this year.

In the same guidance, we do not factor in transformational projects like the high-speed train Houston-Dallas and other large-scale projects, like the ones we are currently following and bidding for in Australia and Middle East. Those projects may have a positive impact into 2019 results.

Let us now move on Slide 4 to review our business performance in 2018. There was a boost into the order intake in the second half of the year as we participated in several public tenders and made progress in private negotiations, several of which we are looking to complete soon.

The total new orders acquired in 2018 amounts to EUR 6 billion. Total orders acquired into the last 5 years amount to more than EUR 33 billion. As for the construction backlog, we have exceeded the very respectable threshold of [EUR 26 billion]. What is more, the quality of this backlog has significantly improved, thanks to a careful selection of the project that we bid for.

Although the United States remain our single-biggest market by revenue, you will have noted [how] we have been expanding in other markets, such as Europe, where we won 2 contracts in France and Australia, where billions of dollars has been invested into the infrastructure projects.

On Slide 5, let's take a look at the evolution of our market presence in term of revenues over time. Four years ago, we were mostly concentrated in Europe and Africa. Back in 2014, those 2 regions made up more than half of our total revenues. There were -- was also Latin America at 14%, while our presence in United States was limited to a mere 3%.

Today, the weight of Europe and Africa has (inaudible) to 24% while the United States has come to represent 26% and the Middle East, 29%. Thanks to this diversification, we have been able to reduce risk associated with revenue concentration in few big projects.

As we can see in next Slide 6, the bulk of the commercial pipeline in the short terms come from the United States, Middle East and Asia, Australia. We are focusing on these 3 regions because of their economical outlook, their very promising outlook and infrastructure spending and their lower risk environment.

On Slide 7, as previously mentioned during 2018, we completed the cleanup process of the balance sheet in order to improve the quality of the assets. In 2 years period, almost EUR 700 million on our asset writeoff, which represent the potential upside in the future. We're in most of the first tranche of the advance payment from Panama Canal Authority and the bank debt of the Yuma Concession in Colombia. Massimo Ferrari will elaborate on this point afterwards.

Notwithstanding the value as one-off repayment, a further write-down of our Venezuelan assets for some EUR 165.5 million and other minor write-down, we preserved our financial solidity, keeping gross debt in line in 2017 figures and improving the group equity structure. All of these measures have prepared Salini Impregilo for a future growth that we have in front of us.

On Slide 8 in Italy, the program faced by the infrastructure sector are too severe to ignore. A solution for this strategic sector must be found because it concern about EUR 34 billion of revenues, representing up to 8% of the country gross domestic products. In terms of employment, it is responsible for more than 170,000 jobs. As you well know, the sector is going through a severe crisis, mostly due to a decline in investments since 2008. The sector is highly fragmented with more than 7,000 companies competing for more -- for many of the same projects.

There is also a high level of indebtedness among many of these companies. This is why Salini Impregilo has decided to launch a project to work with the consolidation of the sector. With Project Italia or Project Italy, we want to create a larger industry player by bringing together the forces of the country, 2 biggest companies, the entire market would be -- benefit from economies of scale, ensure execution continuity and delivery of critical infrastructure for our country, cost and commercial synergies, greater investment capabilities and stronger resilience to potential market downturns. We have already begun to a process of consolidation in February of this year, which submitted an offer for 65% of Astaldi. We will do this by means of a reserve capital increase equal to EUR 225 billion. Our offer is obviously subject to an approval of Astaldi proposal to the court, regulatory approval, the support of the banks and the participation of long-term investors into the capital increase. The completion of the potential transaction is expected by 2022.

I now give the floor to Massimo Ferrari, who will go into the details of our 2018 results.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [3]

--------------------------------------------------------------------------------

Thank you, Pietro, and good morning, everybody. Let's review more in detail our 2018 financial performance, starting with some comments on the top line and margin performance.

Normalized figures presented in Slide 10 has been adjusted for the write-down of about EUR 165 million of our Venezuelan exposure and include the results of Lane JVs and Plant & Paving business line by line.

In addition, for a better comparison, revenues, EBITDA and EBIT for 2017 in currency other than the euro, have been restated by applying the average exchange rate for 2018. For the sake of clarity, we have also reported the adjusted figures that exclude the impact of Plants & Paving. Also disposal was completed in December '18.

Normalized figures in 2018 amounted to EUR 6 billion, in line with 2017. Revenues was affected by a slowdown in 2 key projects in Italy and Ethiopian. It is already known to the market in 2018, the fifth construction locked for the Milano train of a high-speed train has been activated, with a delay of about 6 months. This raised the amount of works and activity financed under construction to EUR 3.8 billion, an increase of EUR 1.1 billion compared to the loss already active, and we expect the project to pick up pace in 2019.

The second key project in Italy that was unexpectedly delayed, IRICAV, which concerns the start of high-speed train line in the Northeast of Italy, received a good news in July, but it is still -- it still need further approvals.

Normalized EBITDA stood at approximately EUR 436 million compared with EUR 534 million in 2017. Normalized EBITDA margin was 7.3% against 8.8% in 2017.

Normalized EBIT amounted to EUR 248 million versus EUR 279 million registered in 2017. Normalized EBIT margin was 4.1% against 4.6% in 2017.

Let me remind you that the results for the full year 2017 benefited from a one-off item related to the resolution of a litigation in Turkey for around EUR 30 million EBITDA level.

Moving on to Slide 11. Adjusted of one-off write-down of Venezuela asset, net income stood at EUR 180 million versus EUR 107 million in 2017, plus 68% versus the prior year. Net financial costs improved significantly compared to 2017 with net financial charges around EUR 73 million compared to EUR 193 million in 2017.

Financial charges for EUR 142 million compared to EUR 135 million of 2017 reflected the write-down of financial receivables for some EUR 30 million carried out during the year, of which EUR 11 million related to Yuma Concession in Columbia. These effects were mostly offset by the reduction in interest on bank debt and the related amortized cost of approximately EUR 21 million following the refinancing of debt completed in 2017, which led to the application of more advantageous interest rates.

ForEx gains were worth EUR 13 million compared to EUR 123 million loss of the previous year. The exchange -- the change is mainly due to the performance of the euro against the U.S. dollar and the Ethiopian birr. On this point, let me remind you that despite short-term swings, profit and loss resulting from exchange rate fluctuations end up being neutral through the long run.

Let me also remind you that gain on investment in 2017 reflects the revaluation of our stake in Autopistas del Sol, the concession in Buenos Aires in Argentina, by EUR 83 million.

Finally, the strong improvement in net income was driven by the capital gain earned from the plant impaling disposal of about EUR 95 million.

Moving to the slide -- to Slide 12. We represented the bridge of the adjusted net income, which grew from -- for more than 65%. As Pietro mentioned, following the developments during 2018, we further wrote down our exposure in Venezuela by EUR 165 million. This was in addition to the EUR 314 million already written down previously for a combined total of EUR 480 million, which represents 75% of our total exposure. Following these write-downs, the group's overall exposure is equal to EUR 160 million, 25% of the nominal value of the total exposure.

Turning to Slide 13. You can see the net financial position and the total gross debt. We kept the total gross debt at EUR 2.3 billion substantially at the same level as 2017. Going to further detail, as you can see in the gross debt bridge for 2018, we repaid EUR 196 million of contractual advances previously received from the Panama Canal Authority, following the arbitration ruling on December 12, 2018.

Transferred to Yuma, the entity, also the concession for the construction, the management of the Ruta del Sol Motorway in Colombia, EUR 47 million to repay its bank debt. Experienced a cash absorption from working capital, mainly due to delays in payments in Ethiopia, of which a part, around EUR 100 million, has already been paid in the first days of 2019 and the slowdown in some Italian projects as mentioned before. Furthermore, we were expecting extraordinary cash-ins for EUR 150 million to EUR 200 million in 2019 related to the disposal of Autopista del Sol and the cash-in from FIBE, which have been postponed last year.

Moving on to Slide 14. Let's take a look at corporate debt. The refinancing allowed us to push back 85% of our debt maturities, which will now start from 2021. Our cost of debt stood at an outstanding level of 2.5%.

Moving on to Slide 15. Our expansion in the U.S. market through linked construction continues, as Pietro told you earlier. Indeed, in 2018, Lane closed the record year both for orders and backlog with a growth of 14% and 35%, respectively, compared to 2017. With this sale, we focus Lane on our group's core business, becoming our North American hub for large complex infrastructure projects. Lane, as a new business model, it is focusing on road, train, water and tunnel projects. Furthermore, the process of rationalizing overhead cost is ongoing. In 2018, savings of EUR 50 million were accomplished with full effect on 2019. 3% of target EBIT margin is expected on the long run during the business plan period.

Lane is also focusing on special megaproject, such as Texas bullet train, a EUR 15 billion investment for a 240-mile high-speed train between Dallas and Houston, and the outcome is expected in 2019.

Despite the repayments made in the cases of Colombia and Panama, our financial structure remained solid. In the case of the arbitration ruling issued on December 12, 2018, the International Chamber of Commerce of Miami rejected a request made by the Grupo Unidos por el Canal consortium to postpone the return of contractual advances and advances for variation orders that it had received from the Panama Canal Authority for a total of $836 million.

Salini Impregilo per quarter contractual advances were equal to EUR 217 million, and they were paid with cash at the end of 2018. The remaining per quarter amount for variation orders equal to EUR 117 million was paid in February 2019.

So we have already repaid such amounts, nothing is left without affecting financial solidity. However, we shouldn't forget that we still have under arbitration USD 5.2 billion. And I'm talking always about 100% of the consortium and the consortium taken as a whole. So we believe that the court decisions should be expected in 2020 and 2023, approximately. So all positive resolutions will have a positive impact, both on our cash flow and on our economics.

Yuma Concesionaria owns the concession for the construction and management of the Sector 3 of the Ruta del Sol Motorway in Colombia and the bridge loan for the total amount of EUR 152 million, originally granted as its target January 15, 2018. As a result, Salini Impregilo paid the entire amount of EUR 81.4 million to the banks. As at February 2019, the amount paid in 2018 was EUR 47 million. We have ongoing negotiation to start -- restart the work in Colombia.

I'll leave the floor to the Q&A session. Thank you very much.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from Giuseppe Marsella with Exane BNP Paribas.

--------------------------------------------------------------------------------

Giuseppe Marsella, Exane BNP Paribas, Research Division - Equity Analyst [2]

--------------------------------------------------------------------------------

I have three. First one is on your guidance. You mentioned flat numbers during 2019. Can you please clarify which is the starting point with or without Plants & Paving.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [3]

--------------------------------------------------------------------------------

We cannot hear you well. You are too close to the microphone.

--------------------------------------------------------------------------------

Giuseppe Marsella, Exane BNP Paribas, Research Division - Equity Analyst [4]

--------------------------------------------------------------------------------

Okay, I try to. Is it now better?

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [5]

--------------------------------------------------------------------------------

No, no. Unfortunately, no.

--------------------------------------------------------------------------------

Giuseppe Marsella, Exane BNP Paribas, Research Division - Equity Analyst [6]

--------------------------------------------------------------------------------

Okay, let's try this way.

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [7]

--------------------------------------------------------------------------------

That's perfect. That is perfect.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [8]

--------------------------------------------------------------------------------

This is okay. This is perfect.

--------------------------------------------------------------------------------

Giuseppe Marsella, Exane BNP Paribas, Research Division - Equity Analyst [9]

--------------------------------------------------------------------------------

Okay, okay. My first question is on guidance. You mentioned flat numbers during 2019. Can you please clarify which is the starting point? Just to be clear. Is EUR 5.4 billion sales, EUR 400 million EBITDA, 2:1 adjusted EBIT or what? Second is on your net financial position. End of the year, it was relatively high, and you have a seasonal negative cash generation during H1. Do you feel comfortable you can afford the cash absorption during H1 without your available resources? And third question in terms of strategy. Of course, the focus on Italy is a big strategic shift compared to the past. I've never read statements on value creation in your comments. So my question is, do you think that you can manage the new strategic course with the current governance and the controlled structure of the group? Or do you plan any change?

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [10]

--------------------------------------------------------------------------------

So regarding the guidance, of course, we're talking about the starting point, which is after the Plants & Paving disposal. So it's 5.4, the adjusted figures that were under examination, and this means that these are the figures here to refer to. So this, I think, is all for the first questions. For the first half, for liquidity, I will leave the floor to Massimo. If you can expand, Massimo.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [11]

--------------------------------------------------------------------------------

(foreign language) if you can answer...

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [12]

--------------------------------------------------------------------------------

I can answer before to the strategic shift you're talking to regarding Italy. So I don't say that this is a strategic change. I mean, that consolidation of the sector for us means opportunities and the need of consolidation of Italy means opportunity of growth in markets, which are not only Italy, of course. Saudi is not an Italian player only, but it's also an international player. So we will have -- with the Astaldi company, we will also have the opportunity with people, which as you know, is the more scarce resource that you can find around for competence and for doing things. So I think that the Astaldi acquisition and emerging would be very beneficial for the company for the expansion into other areas. We need organization and organized people, and this is what Astaldi has to offer. Of course, there are certain number of contracts in Italy, which Astaldi is [pursuing or purchasing] actually, but these contracts are mostly contracts that we have both of us together. So it means that most of these contracts -- more than half of the contracts in Italy are done together, let's say, in this innovation. And taking Astaldi would mean also to have a better control over the activity in Italy. The attention of the government that we are now facing in Italy on this infrastructure sector is also would be beneficial to these works. They finally -- all the people at the government level understand the impact into employment and into the economy of the boosting of these works. So we expect some beneficial activity in this sense, even if prudentially, we did not factor in this new possible booster to sector into the figures of the guidance. We kept the same prudence and the same assumption on slowdown and delays that we have faced during 2018 in order not to be surprised and to make our calculation for the capture generation and revenues accordingly.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [13]

--------------------------------------------------------------------------------

Okay. Regarding the net financial position, the main gap between 2018 and the net financial position on 2017 come from some delay of payment coming from some countries, mainly Ethiopia. We got a huge payment on January 3 that was expected, of course, in 2018. So we expected to cash-in the remain receivable in the first half of 2019. Other question?

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

The next question is from Alessandro Tortora with Mediobanca.

--------------------------------------------------------------------------------

Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [16]

--------------------------------------------------------------------------------

Can you switch to English, Alessandro?

--------------------------------------------------------------------------------

Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [17]

--------------------------------------------------------------------------------

Sorry, sorry, sorry, yes. I have 3 questions, sorry. The first -- if I may, the first one is on the safe guidance. I understood, let's say, your cautious approach on Italy. What I would like to understand is, for instance, you are already considering the small, let's say, acquisition you made of some Italian or part of some businesses, like Cossi or GLF in Italy. And if you can also share with us any impact of this company acquired, plus, if I understood well, you should also have some positive, let's say, impact this year from FX. So just to better understand, which assumption you made for this flattish, okay, top line in 2019? The second question is on the net debt side, on the gross debt side, if you still believe in a gross debt reduction in 2019. I remember that in the past you were guiding for, let's say, '18, '19, combined reduction of around EUR 200 million. And if you can also give us an indication of the CapEx level in 2019. The last question is on the U.S. I understood that long term, this business for you with the profitability, the 10% -- 3% EBIT margin region. What about, let's say, today? Is the business close to breakeven? And what is also a level of revenues that you expect after the good, let's say, order collection you made last year?

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [18]

--------------------------------------------------------------------------------

Okay. Let's start about the financial position and what has affected. The nonreduction, as you call it, of the gross debt. In this situation, apart from, of course, facing this cash out due to the Panama Canal and the Colombian activity, and the -- you have to remember that into the business plan, most of the cash generation that were foreseen into the business plan was related to cash-in from the past. Most of this thing -- nothing of that thing has happened in 2018. Remember, it was the FIBE case and other things that were coming from the past. So these things have not happened so far, and we are positive that they should happen as soon as possible. We think that in 2018, we can, of course, cash-in some of these things, even if in Italy, it's very slow, the process of collecting this money from the past, which is where we have it. The same thing applies to the arbitration in Panama. We were thinking that the arbitration would give -- would have given us results earlier. And for that reason, the cash-in of that money was to compensate the possible request from the client. In this case, it's not happened. It has happened on the contrary. The other thing that has happened is, for instance, in Italy, we were facing the fifth lot that was expected to be approved in 2018, and this also have meant -- would have meant another EUR 90 million of cash coming out from the advances and -- that were related to that. So we think that that can be positive. Even if it shifted in 2019, this would affect our accounts in 2019. Those are the figures that we expect for the -- and why the debt reduction has not happened in 2018 as foreseen.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [19]

--------------------------------------------------------------------------------

Regarding the guidance, we do not include the effect of the ongoing acquisition also, because they are not much relevant in term of consolidated account, because, for instance, GLF and Seli Overseas is a subcontractors of Cossi. So it's already fully consolidated. There are some small upside on GLF U.S.A. and all the potential new business for Cossi that could be, not only captive, but of course, also real, new market sharing tunneling. But we do not include that in the guidance nor in the business plan. This is why we are so shy in the guidance, because we need to perform the new industrial plan, including the other Italian companies and the potential also upside in terms of synergies, in terms of economy of scale and so on. We are working on that. We are committed to disclose it in the coming months. Regarding the CapEx for 2019, it's in the range between EUR 40 million and EUR 50 million. We dramatically shifted the business model, thanks to the higher-quality countries where we are working on, because we can rely more and more on subcontractors. So the CapEx is going to reducing with this kind of business mix. Then regarding Lane, in the 2018 figures, it is slightly negative for the restructuring cost that we already started to accounting -- to accounted for, and we expected to be close to zero in 2019. And then to improve the marginality in '20 and '21 to achieve the target of 3% of EBIT.

--------------------------------------------------------------------------------

Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [20]

--------------------------------------------------------------------------------

Okay, okay. So just if I understood well, CapEx is EUR 40 million to EUR 50 million, is it right?

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [21]

--------------------------------------------------------------------------------

Right, right.

--------------------------------------------------------------------------------

Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [22]

--------------------------------------------------------------------------------

Okay, okay. And in -- just a very small question, technicalities, let's say. The negative EBITDA or the EBIT for the joint venture in -- with Lane -- of Lane, are there any specific reason for that?

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [23]

--------------------------------------------------------------------------------

Let me check and then I give you the answer after.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

The next question is from [Michael Sonnenfeldt] with [Antigua Asset Management].

--------------------------------------------------------------------------------

Unidentified Analyst, [25]

--------------------------------------------------------------------------------

I have a few questions on your short-term debt, please, and in particular, I am referring to Pages 13 and 16 of your press release. And what I see there is that the short-term debt of Salini Impregilo S.p. A. of around EUR 960 million is significantly higher than the short-term debt -- consolidated group level of EUR 555 million. Can you please briefly explain why this is the case and then also why the bank overdraft at S.p. A. level increased from EUR 311 million to EUR 930 million? I mean, this is predominantly short-term debt? Will this also be refinanced at some stage? If you could give us some more color on that, that would be great.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [26]

--------------------------------------------------------------------------------

So let me start with the firsthand question. The difference between the separate account and the consolidated account come from intercompany debt between Salini Impregilo S.p. A. and Lane, because we got the cash-in coming from the disposal of Plant & Paving as a credit in order to pay back Panama and Colombia and what we already mentioned before. And so Salini S.p. A. as a debt -- an intercompany debt with the fully owned company, Lane.

--------------------------------------------------------------------------------

Unidentified Analyst, [27]

--------------------------------------------------------------------------------

And what's the amount of this intercompany debt?

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [28]

--------------------------------------------------------------------------------

It's around EUR 400 million.

--------------------------------------------------------------------------------

Unidentified Analyst, [29]

--------------------------------------------------------------------------------

Okay. And this EUR 930 million at S.p. A. level, I would assume that this is predominantly divided then by the Italian banks and this intercompany debt?

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [30]

--------------------------------------------------------------------------------

Yes, it is.

--------------------------------------------------------------------------------

Unidentified Analyst, [31]

--------------------------------------------------------------------------------

Financed at some stage or...

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [32]

--------------------------------------------------------------------------------

It's intercompany, because it comes merely from the consortium in Italy. So from the rebate of the short-term debt that have the consortium, we can provide you more detail later on.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

The next question is from [Liam Se] with Goldman Sachs.

--------------------------------------------------------------------------------

Unidentified Analyst, [34]

--------------------------------------------------------------------------------

I had a couple, actually. One is what's the total amount of overdue receivables that you're expecting from Ethiopia? And what caused the collection delays? And then the second question was, if you could provide us a bit more clarity on the cash flow generation 2018? Because I understand gross debt is slightly higher and cash is down about a couple of hundred million. Despite collecting more than EUR [500] million from the sale of the Lane unit, so that would imply a pretty meaningful cash burn rate.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [35]

--------------------------------------------------------------------------------

Okay. The first question, regarding the Ethiopian receivable that we still expect is around EUR 200 million -- EUR 300 million, sorry. So we got the EUR 100 million on January 3, and we still expect around EUR 300 million. It's pre-seasonal. This kind of delay also coming from the government calendar in Ethiopia, and so we -- in the past, we have been always paid by the Ethiopian government. And so -- and we have so huge and strategic projects running in Ethiopia that we still have a strong commitment to cash in early. The cash generation, regarding the cash generation in '18, we -- in practical, we employed all the cash-in coming from Plant & Paving for Panama and Colombia, and the delay in payment coming from Ethiopia and those of the Italian projects generates this negative -- this absorption of cash in 2018.

--------------------------------------------------------------------------------

Unidentified Analyst, [36]

--------------------------------------------------------------------------------

And...

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [37]

--------------------------------------------------------------------------------

Please go ahead. Go ahead.

--------------------------------------------------------------------------------

Unidentified Analyst, [38]

--------------------------------------------------------------------------------

Sorry. And what's the amount of overdue receivables from Italy?

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [39]

--------------------------------------------------------------------------------

Let me check. I can't give the answer to Alessandro Tortora regarding the JVs. There are some adjustment and some budget of big project where Lane has a minority stake. So the total effect in 2018 was minus EUR 12 million.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is a follow-up from Alessandro Tortora with Mediobanca.

--------------------------------------------------------------------------------

Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [41]

--------------------------------------------------------------------------------

Okay. A very brief follow-up. If you can also, let's say, give us an idea of what we need to expect on the minorities side close to the bottom line? I saw this number technically giving you some benefit. If you can explain to us the trend on the minorities side.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [42]

--------------------------------------------------------------------------------

We confirm what we told some years ago that there is a trend declining. The effect -- the net effect in 2018 is positive EUR 10 million, because we have shared some losses and some projects in Middle East with some other partners, but the total effect is going to decline in the coming future.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

The next question is from Diego Affo with Citigroup.

--------------------------------------------------------------------------------

Diego Affo, Citigroup Inc, Research Division - Analyst [44]

--------------------------------------------------------------------------------

Would it be possible to give us some guidance on what could be the impact on your cash position of the acquisition of Salini -- sorry of Astaldi, if you could -- if it went to go ahead?

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [45]

--------------------------------------------------------------------------------

Well, this is a very good question. Thank you. The impact on the net debt would be none in the sense that we are in our proposal. We are requesting that all debts are being paid by the activity in assets of Astaldi and in particular, with the franchise in concessions and some assets coming from Venezuela and real estate in Italy. So we know debt remaining after the conversion in shares of the part of the debt of the bank that have lended money to Astaldi. This is what is foreseen in our proposal. So our proposal, let me remind you, it represented by a capital increase of EUR 225 million that we are now negotiating in order to find the necessary partners for us to do that, and there will be no debt left on the company level. So in the contrary, we would have large increase into the equity due to the assets remaining without debt after the write-off.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [46]

--------------------------------------------------------------------------------

So let me add on that because we are working on this project since second half 2018. That we are working on a project that has to be and will be accretive in terms of marginality, and it will not add debt -- net of debt to the combined company and have to be accretive also in terms of equity. And all the ratio between, let me say, EBITDA and equity of the combined company will be improved in comparison with the one that we already got.

--------------------------------------------------------------------------------

Diego Affo, Citigroup Inc, Research Division - Analyst [47]

--------------------------------------------------------------------------------

So the cash outflow should be limited to the EUR 225 million of the equity in case you don't find any other partner.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [48]

--------------------------------------------------------------------------------

Yes, that is -- our precedent condition to our offer is that the capital increase will happen with the contribution of some financial and long-term investors, other than Salini Impregilo.

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [49]

--------------------------------------------------------------------------------

I think we can expand a little bit on that, because this is a curiosity that I find that is, of course, interesting to many, many investors. The idea that is underlying our plan is that, first of all, we have to strengthen Salini. It means that to be a larger partner, as you remind most of the debt that we have inside our company, is largely depending on the acquisition in the past. So it is not there for financing the activity, but it's mostly coming from the past in terms of the acquisition that we have done in the time first for Impregilo and secondly for the Lane franchise. So what we need is -- in order to continue to grow and to be able to integrate other company is that we need strength in our equity, and this means the possibility for other financial investors to come in. As you know, the controlling company now owns more than 75% of the shares of the Salini Impregilo, which allows us to have projects of dilution with other financial partners coming in and [selling] the company and make all this new acquisition that we think they are very beneficial to the company. Of course, this acceleration in growth due to Astaldi will allow us to reduce the footprint of the general expenses of the turnover, which means an increase into the EBIT that is going to offset the lesser EBIT that we find in less risky countries. The project of derisking, which is what we are [pursuing] since the business plan that we announced 3 years ago, 2.5 years ago, it is exactly this, is to change our activities in countries, which are more reliable, that are more cash-producing, and we have a cycle of cash shorter than the one we were used to, but this means also to accept a lower level of marginality in terms of EBIT at the project -- at sites level. So it means that we have to increase our efficiency, reducing the general expenses and the costs that are additional to the project level, the cost of the corporation. And this means, first of all, size. So size, we think that we have done quite a growth in terms of size since the start of this project, 2014, and let's say the internal growth has a limit. As you see, people and organization and processes and whatever it is in site, it is a lengthy process. So merger and acquisition is one of the possible reply to this need of lowering the general expenses and bettering the organization and the quality of the organization, which is costly, and this means size. So size means also the possibility of Astaldi and other companies to come inside. We call it Project Italy, but in reality, this is not regarding on Italy, regards our ability to compete around the world in a more efficient way and to be on the market being competitive. But at the same time, we will return in marginality, which is interesting for us and for the investors. So I think this drives our plan now for -- and our attention is focused in making this. We have done quite a number of merging and acquisition in the past. So I think that we've demonstrated the ability to do it in a quick and efficient way, and we are confident that in the next coming -- I don't say days, because it's too bold, but I say in the next coming weeks, we can have, let's say, a concrete result to announce to the market for this capital increase and for the operation as a whole in the Astaldi Group. So we are looking forward to that, because I think the Astaldi group, their people, their projects are especially suitable to this project, and this will be very beneficial for us.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

The next question is from Jana Schuler (sic) [Jana Arndt] with UniCredit.

--------------------------------------------------------------------------------

Jana Arndt, UniCredit Research - Credit Analyst [51]

--------------------------------------------------------------------------------

I was wondering if you could remind us of your financial targets with all your M&A ambitions you have, where do you see your net debt to EBITDA or gross debt to EBITDA in your plans going forward, or rating targets, if you have?

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [52]

--------------------------------------------------------------------------------

Yes, of course. This is the main part of the new business plan, the updated business plan. We want to keep or to improve our rating. As you know, in the sector, there is only one player that has an investment-grade rating, and it is not a poor player in the construction. So we are very happy with the rating that we have. We want to improve it in the long run, because, of course, we want to have better access to the capital market in the future. So we are working on that and the new business plan, also considering the M&A activity and the plan that we announced in the sector in Italy that has the target to improve all the ratios, not only gross debt to EBITDA, but also equity EBITDA, equity revenues, equity -- we told the measures at risk that you can consider also in the financial sector.

--------------------------------------------------------------------------------

Jana Arndt, UniCredit Research - Credit Analyst [53]

--------------------------------------------------------------------------------

So it's not going to be worse from the levels we have now, because so far, it has only gone up and not down. Also, you have to target all of it for some time to improve your ratios and rating.

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [54]

--------------------------------------------------------------------------------

Yes, but the ratio, the ratio that we -- it's Pietro Salini speaking. The ratio are going to change into the future. I told you about the size and about the equity, which will be added to the company and also the equity that will come out from the acquisition of Astaldi. So I think that the net -- the debt-to-equity ratio will be far better by this operation. The cash that is coming in and the cash generation from the combined entity and also the reviews absorption from the general expenses towards the EBITDA before general expenses will be better. You have to consider that the cycle in this particular business is particularly long and that we have, if you see in the balance sheet, we have more than EUR 4 billion between credit to clients to work in progress. So these things are needing to be financed, and they have been financed by the activity that we have so far. It means that these things have to be releasing cash into the future. The actual velocity is not -- we're not happy about that, but we are doing our best in order to shorten the cycle and collect this money, which is ours. So all this money that is there, it's there from the past. We have, unfortunately, a judiciary system in Italy, which is particularly long and around the world also, arbitration cycle is pretty long. You see the arbitration in Panama, it is foreseen now the first result for 2020, '21. This means that the cash-collecting cycle is particularly hard and long. All these things are inside the balance sheet and are being financed by the actual cash generation for the activities. We didn't do any capital increase so far, and this is something which is significant. I mean the change that is into the business plan to, let's say, to support this huge demand that is coming from the past, it is important. We are addressing this issue and to change this ratio, because we deem them important, as you do. And this is what we are doing. We have all the possible action that are on the table. There are no other option for us, but to face the arbitration of Panama. We have to do it. This is something coming from the past, and we are doing it. And the other projects that are -- that they have created from -- in the past, like FIBE or the others that were in the balance sheet of Impregilo, when we purchased it, when we took over, these are still there. The judiciary system is still deciding. It's decided positively, but now, for instance, to make an example for FIBE, there is a commissario ad acta, which means a person which has been nominated by the tribunal to cash in physically the decision of the tribunal, and it's taking additional time. So we cannot, unfortunately, do much more than stress this up to the limit, but we wait for positive results even in 2019. So of course, we cannot be bold and figure out whatever is possible inside the guidance -- sorry, inside our budget, because we do not want to make statement with our -- out of our possible direct control, I mean -- and so we keep our figures very prudential in order to stick to the possibility of what we control. And this is one issue that we have. I think that these results coming from the past -- of course, every day our agents are ready -- more ready than to be cashing in the day before. But it is a matter of prediction, and now we can predict it into our balance sheet depending from a judiciary system or from other people that we cannot, of course, control.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from Hemant Dabke with Barclays Capital.

--------------------------------------------------------------------------------

Hemant Dabke, Barclays Bank PLC, Research Division - Research Analyst [56]

--------------------------------------------------------------------------------

Just a couple of questions. Regarding the Astaldi acquisition, you've mentioned about the potential support from banks that you're looking forward to complete the acquisition. Can you provide some details of the quantum and kind of nature of that support that you're looking for? And on the EUR 225 million capital increase that is being planned, are you expecting that to come from third-party investors entirely? Or will the main shareholder in Salini participate in a quantum? And on the Salini business itself, your focus in this presentation seems to have switched more to the Italian market and the consolidation of that market. You just previously mentioned about U.S. and Australia being your kind of main focus markets. Can you please explain the switch in strategy and like what the strategy for the U.S. and Australian markets will be going forward? And one final question. There have been several press reports of Salini potentially being interested in the Spanish EPC business, OHL. From this presentation, it doesn't feel like you're looking beyond your domestic Italian market. Are you able to comment on those press reports at all?

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [57]

--------------------------------------------------------------------------------

First of all, let me say something. We do not focus into the Italian market. Italian market represent less than 10% of our total turnover. And with the acquisition of Astaldi, this will be slightly modified, but still represents -- will represent one of the market and not, of course, the key market or the focus market. As of today, our focus in our main markets are U.S. and Australia and Middle East, and these are the areas in which we want to grow. There has nothing changed about that. The Italian position, I want to remind to all of you, is that it is coming from the past and we found it inside the book orders that were inside Impregilo coming from the very past. I have to say that, for instance, the [high velocity] train is coming from 2001, and the slow pace of progress of this [were] maintained the position of the Italian market inside our portfolio and inside our revenues, but at the same time, it's not something we are looking for in particular. Let's say, of course, the Astaldi group, having most of the contracts in Italy being the same that we have, it is important for us to consolidate that in order to have less problem that are streamlined operation in order to get a better profit from that, and -- but this doesn't mean that we want to focus on Italy because -- not because we are not interested in Italy, but because diversification geographically has made the difference of the risk profile of the company, and we think this is something that we have to [choose] and continue to pursue. So Australia, we think that there is a booming market. We are inside it. We want to build a very large company in Australia. We think that Australia needs us, and our confidence and our skills that are unique in the world are needed for a country, which wants to expand its infrastructure, properties and network so quickly as the government -- the different government in Australia wants to do. So I think that this is something that you will see in the next futures. We are pushing with very lot of attention and focusing our ideas and our attention into the Australian market, because it's exactly what we want. There are very large projects with highly sophisticated and complex, and they are very suitable to what we have, very confident people doing very large projects. So this is exactly what we would like to do everywhere in the world, and we are doing this and this diversification to reduce the risk in doing that. So I think that this is very important. So U.S. franchise, of course, now it is not exactly where we would like to have it. I want to underline that managing a company with a large backlog is like managing a super oil tanker. It takes a lot of time in order to turn it. But when you turn it, then it's steady. So it's something that take some times to do that, and it's important that everybody understand that there are not quick cuts that we can do in order to do that. So we had under process of managing the change, which are needed to face the future. We, in the same time, have to face the eventuality that comes and the emergencies that comes into this situation, but what we prove is that the model is reacting very positively. I think that even with the things that we had on the table and to manage, which are very complex, I can assure you the company reacted very well. We had a very good and sound balance sheet, even facing all these things coming from the past and the cleanup of the balance sheet means that there are -- will be -- next coming years, it will be easier to face. And maybe some of these write-down that we made will be positively contributing for the future, because I don't say that the credit that we made such a haircut, 75% Venezuela are lost. We do not consider that. We do not think that they are lost. We think that is sound and more safe to make this haircut to the credit to give different perception of the solidity of our balance sheet. But at the same time, I will ask the Venezuelan government up to the last dollars that they owe us with all the interest that they accruing it, even if they are not accruing into the balance sheet. So the credit and all the credit that we are cutting or that we are writing down are not canceled. They are there, and for us, we are actively trying to cash them in as soon as possible. So I think this is important. So i don't see us as an Italian company or I don't see us as an Italian player. Of course, being in Italy and then being with roots into this country, with a history to this country, this is important, but our hearts and also our activity, our brain, our competence is all over the world. So we're not concentrating or focusing anything.

--------------------------------------------------------------------------------

Hemant Dabke, Barclays Bank PLC, Research Division - Research Analyst [58]

--------------------------------------------------------------------------------

Can you give us some clarity on the...

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [59]

--------------------------------------------------------------------------------

Sorry, for the last question, OHL. OHL, I've seen on the papers, this news. We, of course, look at all the opportunity coming around into the -- as a routine. So whoever proposes us, we, of course, look at them interested, but this doesn't means that there are -- there is any concrete interest on our share now. I think that we don't want to make confusion. We are very focused on what we have under the table -- over the table, and it's sufficiently large to keep our attention pretty aware. So let's say that now, we have been faced in front of us this strengthening of our equity, which means finding the suitable partners, i.e., I can say that this will not be an increase of capital open to the market, not at the moment. And so we have to find, first, somebody, which wants to be a long-term partner with us. And after we have done that, we may be also more open to other contributions from other investors. But we have to have with us somebody, which is willing to do the main part of it. And Astaldi will take all our focus, whichever is now -- not in our priorities and it's not in our, let's say, aiming -- we're not aiming at that. We are aiming very directly to Astaldi and to what is the possibility that this offer opens us.

--------------------------------------------------------------------------------

Hemant Dabke, Barclays Bank PLC, Research Division - Research Analyst [60]

--------------------------------------------------------------------------------

Okay. Can you talk a little bit about the kind of support that you are looking from the banks to complete the acquisition of Astaldi? When will that completed, in 2020?

--------------------------------------------------------------------------------

Pietro Salini, Salini Impregilo S.p.A. - CEO & Director [61]

--------------------------------------------------------------------------------

Well, yes. The suitable support for the bank is to support the business plan that is becoming -- that is -- will become the business plan of the combined entities. So of course, we are looking to fund the support of the banking system, to support what are the requirements for the working capital and for the capital that is needed for the investment for the combined entity for their growth into the future. There are some projects that -- of Astaldi that are underway. So we need the full support of the banking system to continue to finance the activities and this is one. The second thing is the support of financial institutions, long term-oriented that are needed to strengthen our position in order to afford this growth, which means that we have proposed into the offer for Astaldi at EUR 225 million, capital increase into the entity. And this means at the end, the resulting shares will be 65% on our behalf, and this means also having EUR 225 million to spend, to invest into this activity. I think that this is part of the necessity, that the needs that we are looking for is to strengthen our position and our equity in order to do that move and to do it, maintaining the same profile or bettering the profile, which is now the financial profile of Salini. Massimo was telling before about the rating. I think this is an important thing to look at, the ratios that are needed to maintain and to better our rating continuously on our table, which means growth, size and also cash generation, cash flow from the operation. So these things are continuously under our monitoring and are addressing the entire business plan in order to better that.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

No further questions. (Operator Instructions) There are no more questions registered at this time.

--------------------------------------------------------------------------------

Massimo Ferrari, Salini Impregilo S.p.A. - General Manager of Group Finance & Corporate [63]

--------------------------------------------------------------------------------

Okay. So thank you very much to everybody. I think we can close the conference call. Bye-bye.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.