ECONOMIC AND FINANCIAL REPORT OF ACS GROUP 2014 Photo: Forth Crossing Bridge (Edinburgh, Scotland). WorldReginfo - c845d181-133e-4814-a772-9199d9277604 WorldReginfo - c845d181-133e-4814-a772-9199d9277604 ECONOMIC AND FINANCIAL REPORT OF ACS GROUP 04 DIRECTORS’ REPORT OF THE Consolidated GROUP FOR 2014 36 Consolidated FINANCIAL Statements 212 AUDITORS’ REPORT ON Consolidated FINANCIAL Statements 214 Historical PERFORMANCE WorldReginfo - c845d181-133e-4814-a772-9199d9277604 WorldReginfo - c845d181-133e-4814-a772-9199d9277604 annual report 2014 acs group Directors’ Report of the Consolidated Group 1. Performance of the ACS Group in 2014 1.1. HIGHLIGHTS Key operating & financial figures Million Euro 2013 2014 Var. Turnover 35,178 34,881 (0.8%) Backlog 59,363 63,320 6.7% Months 19 20 EBITDA 2,833 2,466 (12.9%) Margin 8.1% 7.1% EBIT 1,640 1,598 (2.6%) Margin 4.7% 4.6% Attributable Net Profit 702 717 2.2% EPS 2.26 € 2.31 € 2.0% Cash Flow from Activities 1,086 824 (24.1%) Net Investments 494 (313) n.a. Investments 2,502 2,310 (7.7%) Disposals 2,008 2,623 30.6% Total Net Debt * 3,811 3,722 (2.3%) Businesses Net Debt 3,126 3,129 0.1% Project Financing 685 593 (13.4%) NOTE: Data presented in accordance with ACS Group management criterion. The balance sheet, the income statement and the statement of cash flows in 2013 have been restated as a result of the entry into force of IFRS 10, 11 and 12. The main effect is the application of IFRS 11 which has affected the affiliate Leighton. The IFRS establishes the need to conduct an analysis of whether the joint agreement is structured through a separate vehicle and whether it represents a distribution of net profits or a right or obligation to a proportionate part of its assets or liabilities, respectively. The income statement for the sale of the businesses of John Holland and Leighton Services has also been restated, considering them discontinued operations in both years. In addition, Clece was fully consolidated as of 1 July 2014. * Net debt includes amounts pending collection for the sale of John Holland and Leighton Services in December 2014, listed on the Balance Sheet as at 31/12/2014 under the heading Accounts Receivable. ACS Group sales for the year 2014 amounted to EUR 34,881 million, representing a slight drop of 0.8% compared to 2013 figures. Without taking into account the impact caused by exchange rate fluctuations or variations due to changes in the scope of consolidation other than those that gave rise to the restatement of income therefrom as discontinued operations, sales fell by 1.8%. Activity outside Spain represents 84.0% of sales. Meanwhile, the backlog at the end of 2014 totalled EUR 63,320 million, reflecting an increase of 6.7% in the last twelve months. The rise in the U.S. dollar and changes in the scope of consolidation in the last few quarters have permitted this positive performance. Without considering these effects the backlog would have decreased in value by 2.9%. 04 WorldReginfo - c845d181-133e-4814-a772-9199d9277604 ECONOMIC AND FINANCIAL REPORT FOREX & PERIMETER CHANGES impact Million Euro 2013 2014 Var. Var. Comp.* Backlog 59,363 63,320 6.7% (2.9%) Direct 53,689 56,472 5.2% (4.1%) Proportional** 5,674 6,849 20.7% 9.9% Work Done 37,205 37,088 (0.3%) (1.2%) Direct 35,178 34,881 (0.8%) (1.8%) Proportional** 2,027 2,207 8.9% 5.2% EBITDA 2,833 2,466 (12.9%) (3.9%) EBIT 1,640 1,598 (2.6%) 3.1% * Comparable change not including the effects of exchange rate, changes in the scope of consolidation and the FleetCo effect. ** Backlog and production equal to the proportional participation in the joint ventures which the Group has not fully consolidated. EBITDA for the Group totalled EUR 2,466 million in 2014, representing a decrease of 12.9% compared to the 2013 figure, while EBIT decreased by 2.6% to EUR 1,598 million. The fall in the EBITDA was affected by changes in the scope of consolidation, the effect of the exchange rate for different currencies and the impact of the start-up of FleetCo, the Leighton company that holds the operational assets associated with its mining services, for which the financial leasing arrangement has been replaced with an operating lease. Without the impact of all these effects, the EBITDA would have decreased by 3.9%. Meanwhile, the EBIT, adjusted for the aforementioned effects, increased by 3.1%. The main causes of this reduction in operating margins were: ­•­ ­The­organisational,­operational­and­backlog­restructuring­that­Hochtief­Europe,­Flatiron­and­Leighton­are­carrying­ out, which are expected to begin yielding results as of 2015. •­ ­The­impact­of­the­drop­in­mining­activity­in­Leighton,­whose­contribution­margin­is­substantially­greater­than­any­ other business. •­ ­The­reduction­in­Industrial­Services­activity­as­a­consequence­of­the­slow-down­in­investments­in­the­sector,­affected­ by the marked drop in oil prices over the last three quarters. Leighton has made a provision to reduce the on-balance sheet operational risk by EUR 458 million. It has also recorded the gains obtained from the sale of John Holland and Leighton Services (EUR 409 million after taxes) as a profit from discontinued operations. The net profit attributable to the Group totalled EUR 717 million, representing an increase of 2.2%, broken down by area of activity as follows: NET PROFIT PER AREA OF ACTIVITY Million Euro 2013 2014 Var. Net Profit Construction 189 223 18.1% Net Profit Industrial Services 418 420 0.5% Net Profit Environment 58 72 24.4% Net Profit Corporation 37 2 n.a. Net Profit 702 717 2.2% 05 WorldReginfo - c845d181-133e-4814-a772-9199d9277604 annual report 2014 acs group Directors’ Report of the Consolidated Group The net debt at the end of 2012 was EUR 3,722 million, 2.3% lower than in December 2013. This figure includes amounts pending collection for the sales of John Holland and Leighton Services, which amount to EUR 1,108 million and are entered on the balance sheet as Accounts Receivable. The following significant events occurred during 2014: •­ ­On­12­December­2013­the­ACS­Board­of­Directors­approved­the­distribution­of­an­interim­dividend­of­EUR­0.446­per­ share, which was distributed during the month of February 2014 using the flexible dividend system. •­ ­In­addition,­the­General­Shareholders’­Meeting­held­on­29­May­2014­approved­the­distribution­of­a­final­dividend­of­ EUR 0.71 per share. This dividend was paid during the month of July by means of the flexible dividend system, whereby 40.89% of ACS shareholders decided to sell their rights to ACS, which represented a total gross amount of EUR 91 million. On 30 July 3,875,019 shares were also issued to shareholders who chose remuneration in shares. The same number of shares was subsequently retired. •­On ­ ­31­January­2014­Hochtief,­A.G.­sold­50%­of­its­share­in­aurelis­Real­Estate­as­part­of­its­non-strategic­ asset­ divestment strategy. •­ ­On­ 10­ March­ 2014­ the­ Australian­ company­ Hochtief­ Australia­ Holding­ Ltd­ (wholly­ owned­ by­ ACS­ Group­ member­ Hochtief, A.G.) announced the launch of a proportional takeover bid of the Australian company Leighton Holdings Ltd. The­transaction­was­completed­on­12­May­2014,­with­the­result­of­an­increase­in­Hochtief­A.G.’s­share­in­Leighton­to­ 69.62%.­Hochtief,­A.G.’s­investment­in­this­transaction­entailed­a­disbursement­of­EUR­617­million.­ •­On ­ ­20­March­2014,­ACS,­Actividades­de­Construcción­y­Servicios,­S.A.­formalised­the­renewal­of­the­Euro­Commercial­ Paper (ECP) programme for a maximum amount of EUR 750 million, which has been registered with the Irish Stock Exchange. Through this programme, ACS can issue notes with maturities between 1 and 364 days, thereby facilitating the diversification of the lines of financing on the capital market. •­On ­ ­27­March­2014­ACS­Actividades­Finance­2,­B.V.­(a­Dutch­subsidiary­wholly­owned­by­ACS,­Actividades­de­Construcción­ y Servicios, S.A.) issued bonds that are exchangeable for Iberdrola shares for EUR 405.6 million, with a maturity date of 27 March 2019 and a fixed annual nominal interest rate of 1.625%, payable quarterly in arrears. On 9 December 2014, ACS announced an offer to pay a cash incentive to all holders of bonds exchangeable for Iberdrola shares maturing in 2018 and 2019, which resulted in the early redemption of EUR 593.8 million, which breaks down into: – EUR 170.3 million for the issue of bonds that mature in 2019, with an incentive of EUR 30.7 million; and – EUR 423.5 million for bonds issued in October 2013 that mature in 2018, with an incentive of EUR 55.5 million. At the end of 2014, ACS Group held a total of 89 million shares in Iberdrola on its balance sheet, maturing in 2018, pledged as security for bonds with a face value of EUR 532 million. •­On ­ ­8­May,­Urbaser­refinanced­a­syndicated­loan­for­EUR­506­million­with­19­national­and­international­banks.­ The syndicated loan was extended for three (3) more years to November 2017, and the amount was increased to EUR 600 million. •­During ­ ­2014­Dragados­acquired­two­companies­in­the­United­States,­Prince­Contracting­LLC­(Florida)­and­JF­White­ Contracting (Massachusetts), to boost its operations in North America. In total the two companies had a turnover of EUR 304 million in 2013 and contributed an initial backlog of EUR 525 million.