Unidentified

Company Representative: Good morning, and thank you for joining this first half results presentation. As always, we'll briefly analyze the key aspects of our results, which were released yesterday, followed by Q&A sessions. As we did in the first quarter, we are referring growth rates to the 2020 pro forma figures. That is, with Industrial Services reclassified as discontinued operation after selling to Vinci and accounting for a 50% stake in fees as an equity method in both years. At the operating level, in this first half of the year, sales decreased 3.5% to €13.3 billion, affected by the currency headwinds, especially the U.S.

dollar that had depreciated 9%, year-on-year. FX adjusted, sales remained stable.
Unidentified

Company Representative:
Unidentified

Company Representative: Okay. Sales grew by 4.1% in Q2 versus the same period in 2020. This positive performance is shown across core different markets, particularly in Europe and Australia, but also in the U.S., here we adjust FX impact.

Also, EBITDA increased by 36.4% in Q2, thanks to the positive €31 million contribution from versus negative €39 million in Q2 2020. Likewise, the operating activities experienced margin improvement, both in HOCHTIEF America and Services. In addition, cash flow levels improved significantly this Q2 of the year, supported by good working capital, positive €135 million versus nearly €363 million in Q2 2020. Consequently, net funds from operations generated almost €0.5 million more than a year, reaching up to €366 million. Therefore, in this last quarter, we have been able to reduce net debt by more than $700 million.

Last 12 months net debt evolution. At the end of June '21, the Group had a net debt of less than €3 billion. This figure is affected by non inclusion of the Industrial Services cash €859 million at year-end 2020. After the sale agreement reached with Vinci is therefore, excluded from the Group's net debt balance in 2021. Not considering this fact, consolidated net debt has decreased by more than €400 million over the last 12 months, supported by the Group's solid cash generation and a good performance of operating working capital in our activities, improving by €304 million in the first half of 2020.

The good performance has been especially remarkable in Q2, when we have been able to reduce the Group net debt in more than €700 million, confirming the positive trend shown by our activities. We look forward to continuing the second half, the positive evolution of working capital, aiming to recover part of the amount invested over the past years. Backlog evolution. As of June '21, total Group's backlog amounted to €64 billion, 3.3% higher FX adjusted. By core country it had come up of the backlog in the U.S., backlog grew by 4%, up to €27.4 billion, Austria stood at €19.8 billion, 4% like-for-like, and in Spain reached nearly €5 billion remaining mutually neutral.

This positive evolution is backed by a strong order intake during the first half of the year of over €17 million equivalent to a book-to-bill ratio of over 1.1x. Among the most relevant awards in the period, we can highlight the construction of three lane twin tunnels on North East link in Melbourne, construction of Stage 1 Sydney M6 motorway, CopperString 2.0 project high-voltage transmission network in Queensland and the lane widening from 1-10 to 1-16 from US 60 in Arizona, the revamp of Anderson Dam in California, as well as 2 Amazon logistics warehouses in Spain in Zaragoza and Asturias, among many others.

Operator: . The first question comes from Bosco Ojeda from UBS.

Unidentified Analyst: I have a question on your Industrial Services activities, those that you would keep after the Vinci disposal, the contribution to EBITDA was nearly €50 million in the first half.

That's quite high with a very high margin. If you could give us a bit of detail, what is that exactly, why the high-margin and whether that is sustainable. Also on Dragados, the margin was a bit weak this quarter. If you could give us a bit of color on the outlook? And finally, on reinvestment on the cash you will get from Vinci, if you have advance or make any progress on any potential new reinvestments?
Unidentified

Company Representative: Thank you, Bosco. Well, the Industrial Services activity, obviously, is in the transition because we are having accounted for held for sale, most of the assets that -- being transferred.

We report only the net profit of the activities we're going to sell, we incorporated as fully consolidated the one we're going to keep. This is where, as you rightly said, it's been an increase in EBITDA from -- in the first quarter of €10 million to €50 million in the second quarter. I guess, basically, a couple of things. First of all, there has been the acquisition of a smaller stake, which we are trying to get in a gas plant in Cajua . Now we consolidated that by full integration, and this is basically €20 million on itself, which we did not account in the first quarter, and this is due to the fact that we have a 5% stake, which was at the consolidate.

And second, we also have a forward type PV plant, which started to be working in the previous quarter were negative €2 million, and now it's basically positive almost €5 million. So you got €7 million there. And there was another plant we had basically 0 negative €1 million in the first quarter, and now we were 12.45%, so €12.5 million. So altogether, you got there €21 million here and €20 million in the full consolidation that explains you basically the €40 million difference between the two. Obviously, the assets we're going to be keeping regardless of the fact that we might sell some.

But we are terminating their development. Some of them were -- and still are under construction, and we'll try to keep them in an operating level, whether we sell them or keep them. So this is basically the reason why it is changed.

Operator: The next question comes from Alejandro Vigil from Bestinver Securities.

Alejandro Vigil: Thank you for opportunity of making these questions.

I have 1 question about your joint venture with Vinci in renewables. If you can give us any color how is this joint venture working? If you have already some projects under discussion? Any color will be helpful? And the second question is about the dividend. Dividend has been very important for the ACS Group so far. Do you see your dividend sustainable at this -- at the current levels, taking into account the current 8% dividend yield?
Unidentified

Company Representative: Okay. The two questions is very easy to answer.

The first one, you asked about how the joint venture is working with Vinci, it is not working at all. It's an agreement that we have, which, obviously, when the transaction is complete, we have the agreement of creating the new Co where we will -- they will contribute the assets and the renewal assets that are going to be developed by the Vinci Group, which is the ones that our people has been developing, and we have the chance to invest 49% of the market value of those. But obviously, nothing has happened because the pipeline is working at the beginning of this process, and it will happen when the transaction is completed, and it will be a recurrent event, the assets when they will complete will be transferred to the new Co, and we'll have the chance to invest.

Alejandro Vigil: Okay. May I just follow-up on -- also on the treasury stock that is close to 10%, which is going to be your policy in terms of treasury stock going forward?
Unidentified

Company Representative: Well, basically, we have -- we -- as you know, we offer distributed alternative to the dividends, mostly because most of our investors look for it.

60% of our dividends has been requested in share. And what we do is we keep on buying because we have to deplete -- and the policy of the Group is and the shareholders do not get diluted by the scrip dividend. So we can't sell exactly the same amount of shares we have to issue . And in order to cancel those shares, we have to acquire them first. And we try to buy them throughout the year, but with a heavier emphasis in the period where this looks to be cheaper.

But -- so the policy is basically that.

Operator: Your next question comes from Luis Prieto from Kepler.

Luis Prieto: I had a couple of questions. The first one is the Chairman recognized Group complexity, if I recall correctly, in the full year presentation. And I would like to know if you can provide us with any granularity in terms of what solving Group complexity could imply, if any measures have already been analyzed than what we could expect over the next 12 to 24 months? And the second question is a follow-up on the --
Unidentified

Company Representative: Luis, repeat the last question because your voice was cat off.

The last question?

Luis Prieto: Yes. Yes. It's regarding the Dragados derisking that you commented just a moment ago, I'd like to know if you have already detected cost inflation pressures in your business? And regarding this derisking, what sort of actual mechanisms are you using to reduce the cost inflation pressures? HOCHTIEF the other day provided or yesterday provided some insights of the different mechanisms that they're using. If you could provide us with something similar for Dragados, that would be very useful. Unidentified

Company Representative: Okay.

To start with the Group complexity. I mean, you don't need to do a super MBA to see that we are -- we have 3 companies, which are listed, one on top of the other, we got different stakes in different ones. Obviously, this make a bit more difficult to follow the direction of the Group. And we agree that Group complexity is something that the shareholders do not like. And we have in mind to reduce Group complexity.

But as we've always said, not at the expense of reducing profitability. So this is something which will happen when we see opportunities for it to happen. And I couldn't tell you more because people say, are you going to, rather than you going to have cash are you going to buy back all the free floating HOCHTIEFs, well that is not our intention. And that was also manifested. So -- but to reduce Group complexity is something that we have to do creating value for the shareholders rather than destroying value.

I wish I could be more precise, but we do not have yet a set plan for that. It will have to be plain by the moment as opportunities appear. And the de-risking issue with Dragados, I think it's something which we've manifested, but it's probably something which has happened in the industry worldwide. We look at different competitors. Basically, everybody is following the same approach.

Probably, we have the possibility of looking at it in a more wide-angle view because we are present in many of the different markets and really important in all of them. In America, in Australia and in Europe, operate one of the largest contractors. That is a trend which the industry is going through. And it's very little that anybody could do to change that. The margins are the result of competition pressures.

And as a consequence, with the margins which are dictated in the industry, you cannot absorb the risk that traditionally were passed on the contractual Groups. And how do we cope with that. Simply say, "Thank you very much. I'm not going to be for this job." And this has happened several times in many jobs and in many markets, but it's not an ACS practice. I mean you see most of our competitors doing the same.

When you see risks that cannot be absorbed in the ordinary industrial performance, something like, for instance, geological risk or legislative risk when change of legislation, you have to bear the results of it, things which are not certain, something that you simply say, "These are the rules of the game. I'm going to pass on this bid." Now in terms of cost inflation, this is something which is happening recently with quite some aggressivity in the short-term jobs, mostly construction of building, which takes 1 to 2 years. That is normally taken care of in the bidding process. You make an assumption. And obviously, not only make an assumption when you win -- but when you get the job awarded, you basically buy most of the staff and have an allowance for price variations, but it's not so much important.

In the -- more in the infrastructure work in the civil works is where the floor appears. I guess in most of the civil works contracts, you get close escalation clauses. Prices carry some clauses, simply because in a job, which is 5 years, you cannot absorb the evolution of the world market prices, mostly if it is a concession, which requires to have a set investment amount. So either you get a clause, which allows you for price escalation and also the developer makes a provision to take care of that possibility. But it is -- as we were saying with the risk, it's something which construction companies cannot live with the price variations we were seeing now.

And obviously, we are trying to build precautions in the contract. It's nothing new. And when I finished college, I recall, the price escalation clauses in the ministry of public works, you were assuming a yearly increase of about 20%, 25% per year and roads were build and dams were built. So basically -- and you develop a mechanism to tackle with that. The problem now is that it has become so inverted, which appears something which has never happened, but there's a lot of practice of handing this issue.

Operator: Your next question comes from Marcin Wojtal from Bank of America.

Marcin Wojtal: Thank you very much for taking my questions. I just wanted to ask for a clarification about your strategy of growing in concessions. So can you confirm that you are mostly interested in transportation, infrastructure concessions? Or you also see some opportunities for the company outside of transportation. And when it comes to transportation, are you focused primarily on motorways or you could also maybe look at airports or car parks or rail or some other types of assets?
Unidentified

Company Representative: Okay.

Well, basically, there is not a major departure from what our tradition has been, basically, we're focused on developing transportation concessions, and this is what we've been doing most of our recent history. It is true that we've done probably 25 years ago, developed harbor concessions. Don't see so much coming in the market. You can do other smaller concessions. Social infrastructure, hospitals, what have you.

But if the opportunities are attractive of doing, we'll pursue them. The only reason why we focus on the opportunity with this is in volume-wise, normally takes the lions share. So basically, if you want to simplify, we say we'll develop mostly transportation concession without saying that we would not do any of the other, but volume-wise, this still will be the case. Now you said roads or railroads, again, that depends very much on market conditions. The philosophy is the same.

It requires a physical infrastructure, which we are able to build with our construction capacity. As a financial performance and makes no difference whether it's a road or a railroad. So if it appears to be new and interesting opportunity in railroad that -- it always will be considered. But the bulk of it now, we can say, is in road and transportation concession.

Marcin Wojtal: And if I can have a follow-up.

I mean these investments, are they likely to be done via Abertis with your partners that you've got there? Or this is more likely to be done directly from the ACS level or perhaps both? If you could --
Unidentified

Company Representative: I guess, basically, our philosophy always has been -- our presence in Abertis now is not different than what we have when we created Abertis in 2003 or 2004. Basically, we are -- we develop infrastructure. And the first thing we did is, okay, when we are going to develop infrastructure, our partner there was La Caixa. Both of us have a controlling interest in the company. And we started -- we developed the greenfield ourselves.

And after the greenfield was developed, we offer it to La Caixa to Abertis. And if they wanted to buy and they bought it, they had kind of a right of first option. Most of the concessions that Abertis has, we built, I guess, probably only 15% of the ones we offer, we did not agree on the price. And we simply said, well, we think this is the market price and we sold it outside. So that was the philosophy in the past history.

Now in the partner that we have is an industrial operator. We don't have any problem to do both green and brownfield with them. Obviously, the philosophy will be the same. We will be scouting investment opportunities through our scouting arm, which is Iridium. And we will see in this concession, a greenfield concession, which appears to make sense.

From our standpoint, we will offer to our partners, it can be done by Abertis -- whether Abertis is interested. If they do not have the same view that we have, we'll continue doing this ourselves with the financial partners of any kind. But obviously, the first call will be for Abertis. So Iridium will continue doing things on its own. It might be that in some instances, Abertis might say, "Well, I'm interested in the asset." But when it's in a brownfield stage, that is also perfectly valid.

So we have a pretty open flexibility because we can live with both environments, in doing it through Abertis or doing it ourselves. And in the best interest of the Group we do it in a manner which creates value for the Group, which is if Abertis wanted through Abertis, which has a balance sheet prepared for that, or if not, we will sell it directly ourselves.

Operator: The next question comes from Joao Safara Silva from Banco Santander. Joao

Safara Silva: I have three questions. The first question was just to have, I mean, your view regarding the pressure in raw materials and how this could impact --
Unidentified

Company Representative: Say that again, I did not hear you at all.

Say that again in you, please. Joao

Safara Silva: So yes, going back to the raw materials. And I wanted to add your view on if you've seen or you're starting to see any clients, well, let's say, delaying some projects or having second thoughts about going through with some projects given the current raw material and expected forecast of raw material in the next -- at least in the next year, is this going to be -- do you think this is going to be an issue? Or is something that you're pretty, I mean, comfortable with at this point in time? So that would be my first question. And the second question would be just if you could give us a bit more color on the on the evolution of working capital, specifically in this quarter, what was the main driver there for the positive working capital in the quarter. And then the other question would be, I guess, a follow-up question.

On the Industrial Services, the businesses that you retain from Industrial Services, at some point, you gave us an estimated valuation, if you could update us on what's the valuation? And also, if you could give us a bit of an idea on how the sale of these assets will proceed in the next couple of years to understand if you're retaining most of it for the next couple of years? Or if you expect to be out of this business, let's say, in the next 2 to 3 years?
Unidentified

Company Representative: Okay. To answer you with the first one, raw material escalation or concerns over the escalation, it's never been an issue. As I said, we've been living with 20% inflation a year, and we've done a lot of things. And we believe with negative inflation as well. We will obviously have to incorporate cost escalation, but that depends very much on the different clients, and clients might like to do it in a manner or the other.

Just to put a very simple example, if the client for its own sake, cannot take any price variation you have to build yourself an allowance, which is probably going to be more expensive for them than if you were to take it because, obviously, you need to build yourself a precaution. We don't want to ramble here. So historically, for the government has been much more efficient to have a clause escalation than to have the builder, create his own precautionary cushion to tell this escalation. So I don't think it will be an issue. It is a concern, but it's a concern that will be dealt with at the business phase in the pricing and in the contract stage with the client.

Now the working capital, I think we basically improve in HOCHTIEF, but also in ACS. Dragados has been particularly good in working capital. I think we hope, as you know, we try to be neutral through the year, and the first quarter is obviously the worst, then we keep on going up and try to improve it. The idea is to get neutral, but that -- you never know how close to the objective you get until the end of the year. But we have good estimation that the working capital is going to keep on being reduced.

And in terms of the Industrial Services, the value of the I think we have not really reevaluated that. The assets have been completed. Some of them were not even operational. They were under construction. Some of those are operational, as you saw, there was an asset that we were consolidating by equity method with a small shareholder.

We bought them out because it was much more flexibility to have 100% owned. And ideally, we will sell these assets. We're not going to have outside of Vinci joint venture. We don't plan to have a very large platform of energy assets. It depends very much how things go.

If we believe that we are able to achieve the market price that we perceive. We will sell them. And if not, we'll wait because they are all income-producing adding results to the Group. So we don't depend on how the market evolves, and we're able to meet our expectations. But it's not something that we're now paying much attention to it because we're basically trying to complete the transaction with Vinci where we put all the emphasis.

Operator: . The next question comes from Beltran Palazuelo from Santalucia.

Unidentified Analyst: Angela Luiz . Thank you for the detailed presentation. I know you said it, but what is the time line, what day, what month do you think the Vinci proceeds will enter the bank account.

I know it's not all in your hand, but just to see. And then regarding the pipeline of infrastructure in ACS. If you could give us a little bit more detail on geography, size and time line to reinvest the proceeds and also to Abertis, more pipeline of when do you think another operation can happen to keep adding value. And regarding -- it was a very interesting thing. You said that you expect your dividend to go down, not because you're going to grow your dividend because you expect your share price to, let's say, be closer to the some of your .

ACS always has been very, very good in capital allocation. Is it in the cards of, let's say, reinvesting part of those proceeds in your own company, buying more shares? Because at the end of the day, you would be buying more Abertis, which is more infrastructure, let's say, maybe minus 40% of your internal evaluation?
Unidentified

Company Representative: Okay. Thank you very much. First of all, the timing for Vinci, what we have in the script is towards the end of the year. We are shooting to get it done in December.

And when we talk to a now we are in a purely bureaucratic stage is basically trying to get all the noncompetition approvals, competition approvals from 40 different markets. And obviously, the European community has already been expedited it is a month and half period and is very easy. But you've got 40 other markets, where you have to go through. So we've got both the lawyers hired by Vinci plus our geographical delegations, pushing in those administrations to expedite matters. It looks like we're going to be able to achieve it.

So I would be very happy we were able to get the cash by year-end on our bank account, but it's something which only time will tell. It's obviously, if there is something which is still pending a small percentage we can do it, but if it is still 30% we will postpone the closing. But we think that it is very likely that within the year, the transaction will happen. Now you said that --

Unidentified Analyst: The pipeline of the --
Unidentified

Company Representative: The pipeline, yes. Here, we've got basically, you've got a strong pipeline of projects to be tendered and awarded in key markets, approximately €600 billion in 2021 and thereafter.

Asia Pacific has about 50% of it; Americas, 39% of it and Europe, 11% of it. This is basically what you get when you look at the different regions, what do they have in the drawings, in their blueprints. Obviously, in -- some markets are more active and more expeditious in implementing them, in others less. I must say that, for instance, the Australian government is particularly strong in getting mobilizing the stimulus package, getting out 4-year plan to take into the market, which is they want to stimulate the economy very strongly. So we think it's going to be significant coming there.

The U.S. also and Spain, we need to see. I mean, it's basically the one which is less clear. I think the European funds are going to facilitate the inclusion of some projects which were -- are approved, but are waiting to get funding. And with this funds, probably, I think they will move on.

But that depends very much in the marketplace. As I said, €600 billion pipeline in Europe, expecting to be done. So even if we're able to get a small percentage of it that will take care of us. Unidentified

Company Representative: Abertis the brownfield, the pipeline of Abertis potential investment on --
Unidentified

Company Representative: No, but this €600 billion is also including the pipeline of Abertis. No, you also asked what about if we would invest some of the capital we're going to get into ACS shares.

I guess, this is something which we've done in the past. So it does not -- only in the future. I think we need first to wait to see how the whole investment portfolio appears, and we'll take decisions later on. At this stage, we keep all the options open.

Operator: Thank you very much.

There are no further questions in today's conference call. Dear speaker, back to you for the conclusion. Unidentified

Company Representative: Well, thank you very much, again. I apologize for 2 things first because some slides did not show up properly and second because my lousy voice is the consequence of a cold, which created by the air conditioning, and I've not been able to speak so clearly as I would have liked. So I wish you a good holidays, and you know that you can call us if you have any questions you want to clarify.

Thank you very much.