OHL expects to achieve sales of 2,800 million euros with an average gross margin by project of 8% in 2020

OHL has presented its Capital Markets Day, with a 2020 time horizon, where it explained the start of its new stage as a construction and concessions development  company of a smaller size and focussed on maintaining a sound, profitable and cash-generating business model. To do so, it will work in three main geographical areas: the United States, Latin America and Europe, regions with high growth potential and attractive programmes for infrastructure development where the company is established locally and has been working for decades with a consolidated position and extensive experience in the performance of projects.

The company has profited from the lessons learned in the past and has incorporated them into its business model. In this way, it will centre on two business areas in which it has in-depth knowledge, that is, construction and infrastructure development, as compared to the previous five areas of activity; it will focus on three geographical areas, significantly reduce its overhead costs to between 4% of total sales and maintain a sound capital structure with the objective of keeping its net borrowings below zero (positive net cash-flow).

To confront this new stage, OHL counts on a balanced and healthy order book in Construction, which at the end of 2017 was worth 5.6 billion euros, with 93% originating from its principal geographical areas. It has placed its focus on profitability and cash generation, with an average gross margin in its projects expected to range about 8%, while at the same time it has intensified strict risk control which has translated into a curtailment of its legacy projects since 2014.

Likewise, OHL has outstanding experience in the development of infrastructure concessions. In this area, the company would examine the undertaking of projects in which it would be able to contribute its experience in greenfield management, working together with infrastructure funds, with minority contributions of equity and in the target geographical areas.

Global cost reduction plan 

OHL will embark on a significant global overhead cost reduction plan. As a result, the estimated cost savings would be placed at 100 million euros in 2020, with the objective of guaranteeing the company’s profitability targets. In this scenario, overhead costs will be reduced substantially, moving from 8% in percentage on sales in 2017 to approximately 4% in 2020.

In economic terms, the company foresees a cash outflow of approximately 270 million euros up to mid 2019, originating from: legacy projects, industrial activity and restructuring plan. These expected outflows of capital are well covered by assets considered as a value reserve and on-strategic assets which, in global terms, amount to 280 million euros. To all this, another 580 million euros in expected recoveries from legacy projects, judicial claims and Canalejas and Old War Office shares can be added to this figure.

Outlook

Centred on the forecasts for horizon 2020, sales in the regular construction business would be placed at between 2.8 billion, EBITDA would be placed at 5% and borrowings will be kept on levels that will ensure that the below-zero net debt target is maintained (positive net cash flow) with a ratio of conversion of EBITDA into cash of 80%.

1. Excluding extraordinary one –off impacts for Legacy Projects losses, cost of Redundancy Plan and others. 2. Continuity Business: Excluding legacy projects, non-core geographies and non-core businesses (industrial, services, developments).

For more information, Capital Markets Day 2018 Presentation can be downloaded here.