ACS Actividades de Construccion y Servicios S A : Group Net Profit reached € 477 million during 2020 third quarter

Sales reached € 27,204 million, down by 5.5% mainly due to COVID-19 impact.

EBITDA reached € 1,994 million, down by 17.1% due to Abertis' negative contribution related to COVID-19; not considering this impact EBITDA was down by 7.4%

Net Profit was also affected by Abertis and decreased by 37.9% Not considering this impact, the Group's net profit shrank by 15.7%

Backlog stood at € 73,494 million, 5.3% less mainly due to U.S. dollar depreciation.

1. Consolidated Results

Attributable Net Profit in 3Q 2020 accounted for € 477 million, showing a decrease of 37.9% compared to 3Q 2019, majorly due to Abertis' evolution, as traffic was strongly affected by lockdown measures implemented in the majority of the countries where it operates.

Not considering Abertis' impact, Net Profit went down by 15.7% in an exceptional period affected by COVID-19 pandemic; this trend reassures the strength and diversification of the Group's operating businesses.

The main impacts on ACS Group results caused by the pandemic were:

• The lockdown measures and mobility restrictions implemented in the majority of the countries where Abertis operates caused drastic drops in the daily average traffic since March, with strong setbacks during 2020 second quarter. Therefore, Abertis contribution to the Group's EBITDA and Net Profit until September 2020 decreased by € 251 and € 201 million respectively in relation to the prior year.
• In Services (Clece), cleaning and maintenance services of those social infrastructures which had to cease their activity in Spain during the state of alert, such as schools or leisure centres, non-essential facilities or air transport, were significantly reduced. However, the activity increase in hospitals and public dependencies allowed compensating sales volume, although the temporary reinforcement in occupational safety and health implied a decrease in its operating results during this quarter. Concretely, the negative impact on EBITDA and on Net Profit accounted for € 33 and € 23 million respectively.
• The rest of activities had a lower impact, with drops in the quarter's production between 5% and 10%, both in Construction activity and Industrial and Mining Services, which were deemed essential.

2. Operating Results

EBITDA reached € 1,994 million, 17.1% lower than 3Q 2019. Not considering Abertis' contribution, EBITDA for the rest of activities was only down by 7.4%.

Likewise, EBIT stood at € 1,282 million and decreased by 22.4% in comparable terms. Not considering Abertis, it decreased by 8.4%.

3. International Diversification

ACS Group sales in 2020 first nine months accounted for € 27,204 million, representing a reduction of 5.5% as a consequence of health measures implemented since mid-March in most countries in relation to COVID-19. Specifically, production trend during the third quarter showed 11% decrease with higher incidence in Asia-Pacific and European regions.

Sales in North America accounted for 51% of total, Europe 20%, Australia 17%, Asia 5%, South America 6%, and Africa the remaining 1%. Sales in Spain accounted for 13% of total.

By countries, United States, Australia, Spain, Canada and Germany contributed with 80% of total sales.

Backlog as of September 2020 stood at € 73,494 million, 5.3% less in comparable terms due to the currency exchange rate impact, mainly the U.S. dollar which was depreciated by 8%. Adjusted by currency rate effects, the Group's total Backlog remained almost stable year on year.

4. Results per Areas of Activity

4.1. Infrastructures

Infrastructure's division was mainly affected by Abertis' traffic evolution:

• Construction Net Profit reached € 244 million, 7.2% less than 3Q 2019.
• Concessions accounted for € 16 million after a € 201 million drop in Abertis' contribution, partially offset by Iridium's € 24 million contribution.

4.1.1. Construction

Sales in construction reached € 21,258 million with 4.6% decrease compared to last year. Positive sales evolution in USA (+2%) partially offset the activity reduction in other markets, especially Australia (-15%) due to its currency depreciation and to the shutdown of the activity derived from COVID-19. Adjusted by currency effects, sales in CIMIC decreased by 12%.

International sales amounted to € 20,398 million, which represented 96% of total turnover in the Construction activity, being North America and Australia the most important markets. Sales in Spain represented 4.3% of total.

Construction EBITDA accounted for € 1,489 million, with a margin over sales of 7.0%.

Construction Backlog as of September 2020 increased up to € 61,350 million, with 96% international and remaining stable in spite of COVID-19 impact. Amongst the most important awards achieved during 2020, the most significant ones are:

• Construction of a new terminal at San Diego International Airport, California (United States)
• Contract extension to provide mining services at Mount Owen in the Hunter Valley (Australia)
• Renewal Program for all three existing concourses (A, B and C) at Denver Airport (Colorado, USA)
• Austin State Hospital (ASH) Building Renovation Project in Texas, (United States)
• Design and construction of 17 km of S-3 express road between Swinoulscie-Dargobadz (Poland)
• Design and construction of I-90, and 8 bridges in Southborough and Westborough (Massachussets, USA)
• Interchange reconstruction at US 27 and SR 60 in Polk County (Florida, USA)
• Maintenance and conservation of the infrastructure of the High Speed Line Madrid-East, in the bases of Villarubia de Santiago and Gabaldón (Toledo, Spain)
• Five-year contract extension to continue to provide mining services at its Lake Vermont Coal Mine in Queensland (Australia)
• Construction of a new building is 13 stories and 40,000 m2 for the Transport Department (Cambridge, Massachusetts, United States)
• Contract to widen and rehabilitate Highway 50 between Watt Avenue and Interstate 5 in Sacramento, California (United States)
• Contract to build the replacement of the A40 Rhine Bridge in Duisburg-Neuenkamp (Germany)
• Design and construction to retrofit into an Alternate Care Facilitiy to serve COVID patients (New York, United States)
• Building of the new Amazon warehouse in Murcia (Spain)
• Construction of a New Bed Tower and Clinical Services Podium adjacent to the existing Wexner Medical Center Hospital. The work will also include the construction of two new parking garages (Columbus, Ohio, United States)
• Contracts to provide maintenance for UGL´s clients in the oil and gas sector in Western Australia and Victoria (Australia)
• Design and construction of the project for a new section of the A15 motorway and additional lanes in sections of the A12 / A15 motorway in Arnhem (Netherlands)
• Design and construction of the S-61 highway between Prodborze and Sniadowo (Poland)
• Contract for the rehabilitation and lane replacements of Route 210 located in Los Angeles, California (United States)
• Contract for the reconstruction of Taxiway Cat Love Field Airport located in Dallas, Texas (United States)
• Improvement of two regional highways in Australia: South Gippsland Highway Upgrade between Koonwarra and Meeniyan in Victoria and Mackay Northern in Queensland (Australia)
• Building of two residential towers, in Madrid (Spain)
• Building of industrial plant and the administrative building of Imbisa (Madrid, Spain)
• Project for the duplication of the roadway of the N-220 (Valencia, Spain)

  4.1.2. Concessions

Abertis has been substantially affected by the lockdown and mobility restrictive measures issued in most of the countries where it operates, causing drastic drops in daily average traffic since mid-March and significantly affecting its results. Income was reduced by 26% and EBITDA by 32%; therefore, it had a negative contribution to ACS Group's 3Q 2020 net profit of € (8) million, that is, € 201 million less than 3Q 2019.

The rapid recovery of the average daily traffic since June and the operating efficiency improvements will allow to obtain positive results at the end of the year.

On its side, Iridium obtained a Net Profit of € 24 million, including results derived from the sale of different concessional assets in Spain.

4.2. Industrial Services

Industrial Services activity 3Q 2020 Net Profit reached € 243 million, confirming the strength of the industrial activity.

Turnover in Industrial Services in 2020 first nine months reached € 4,760 million, decreasing 9.9% as a consequence of the delay or stand-by of some projects due to preventive measures issued by some countries.

3Q 2020 EBITDA accounted for € 500 million, 9.6% less, which implied a margin of 10.5%, slightly higher than the prior year.

Industrial Services increased its Backlog up to € 9,582 million, with 64% rate of international contracts. Backlog remained practically stable during the last twelve months and it is equivalent to 19 months of activity. Amongst the most important awards achieved during 2020:

• Development of the Borwin 5 project consisting of an offshore platform for converting wind energy into electricity (HVDC) in the North Sea (Germany)
• Maintenance contract and auxiliary works of the electrification facilities of the conventional rail network in Spain for ADIF (Spain)
• Contract to expand the capacity of the transmission lines between Monterrico-Cocharcas and Charrúa-Chillán (Chile)
• Contract for mechanical installations, air conditioning and other works in two Amazon facilities in Huesca and Zaragoza (Spain)
• Contract for the design, supply, testing and commissioning of the ITS systems (intelligent transport systems) of the Rozelle Interchange project, which covers about 7 km of tunnels, within the WestConnex project in Sydney (Australia)
• Project for the modernization of intelligent mobility corridors in the metropolitan area of Guadalajara, Mexico
• Contract with Naturgy for the comprehensive service of construction and maintenance of distribution networks, meter reading and service orders (Spain)
• Contract for the development of installation work for the Puelche Wind Farm with 156 MW of installed capacity (Chile)
• Contract with Telxius Towers for the planning and building of telecommunication base transceiver station (BTS) in Germany
• Contract with Vodafone to deploy the 5G internet network in Spain
• Contract for the installation of lines and internet with Telefónica Colombia
• Operation and maintenance system for electric buses at King Saud Bin Abdulaziz University in Riyahd (Saudi Arabia)
• Installation of systems in the high performing educational centre for second grade students in Tacna (Peru)
• Contract with Telefónica for the installation of systems (central and southern zone) (Spain)
• Work for the execution of installations in the new power plant in Barajas (Madrid, Spain)

4.3. Services (CLECE)

Sales in Service to Citizens area reached € 1,143 million, decreasing by 3.2% due to COVID-19 impact. On the one hand, certain cleaning and disinfection activities were reinforced in hospitals, health centers or police facilities, and other departments. On the other hand, services were halted in educational centers, industrial facilities and other social infrastructures, as well as airport activity services.

Services EBITDA accounted for € 37 million, with a € 33 million fall, as a consequence of the substantial increase in costs derived from action plans in occupational safety and health related to COVID-19.

Likewise, Clece put part of its workforce at the service of the society developing cleaning activities altruistically.

Current Backlog reached € 2,562 million, equivalent to 20 months of activity.

Amongst the most important awards achieved during 2020 these are the most significant:

• Cleaning services contract of military bases, barracks and facilities at national level for the Ministry of Defense (Spain)
• Renewal of the home help services and its modalities for the Valladolid City Council (Spain)
• Renewal of the home help services contract for the Madrid City Council (Spain)
• Extension of the cleaning service contract for facilities of the Generalitat Valenciana (Spain)
• Renewal of cleaning contract in health centers and the corporate center of Institu Català de la Salut (Spain)
• Cleaning service in two hospitals in Granada (Spain)
• Cleaning service in facilities of the Ministry of Defense (Spain)
• Cleaning service for hospitals in the Community of Madrid (Spain)

5. Financial Situation

At 2020 third-quarter-end ACS Group reported a net debt balance of € 3,448 million, equivalent to 1.3x annualized EBITDA. This figure is € 2,212 million higher than last year's after facing payments derived from CIMIC's exit from BICC (€ 1,080 million), increasing the volume of operational (€ 1311 million) and financial investments, and increasing the treasury stock in ACS and HOCHTIEF by taking advantage of the capital market's volatility.

Concretely, in the last twelve months, ACS allocated € 626 million to the distribution of dividends and, additionally, € 429 million to the purchase of treasury shares for the payment of the 2021 scrip dividend.

On its side, HOCHTIEF also paid € 564 million in the last twelve months in dividends and purchase of treasury shares.

6. Investments

ACS Group total net investments in 3Q 2020 reached € 867 million as follows:

• Net operational investments amounted to € 365 million and mainly corresponded to the acquisition of machinery and equipment for the Group's different projects, mainly for mining activities, civil work and industrial facilities.
• Financial and project's investments accounted for over € 894 million, amongst them:

- € 525 million in infrastructures including the increase in CIMIC stake, worth € 190 million;

- Investment in energy projects on Industrial Services side, worth € 370 million;

• Divestments stood at € 392 million, and mainly corresponded to Iridium's sale of different highways and the sale of renewable energy assets.
• In the last twelve months the Group allocated a total of € 1,384 million to total net investments.

7. Relevant facts after clousure

• On October 2nd 2020, it was reported that VINCI had submitted a non-binding offer to ACS Group for the acquisition of its Industrial Services Division. The scope of the transaction would include, apart from the engineering and works activities, interests held in eight concessions, mainly energy projects, along with the platform for the development of new projects in the renewable energy sector. The closing of the transaction depends on a revision process (due diligence) to be conducted in coming months. VINCI's proposal represents an EV worth € 5,200 million, of which at least € 2,800 million would be paid in cash and the difference could be paid either in VINCI's shares or in cash. Once the due diligence processes have been concluded and the terms of the final contract have been specified, the transaction will be subjected to the relevant administrative authorizations.

On its side, ACS Group will retain cash as of December 31st 2020 and the rest of the energy concessions, most of which are grouped in Zero-E.

• On October 19th 2020, CIMIC Group reached an agreement with Elliot UK regarding a sale contract under which Elliot will acquire 50% equity in Thiess, with CIMIC retaining the remaining 50% equity interest with a joint control over the company. The entry of a financial partner in Thiess will allow to take advantage of growth opportunities in the mining sector and maintain CIMIC's solid balance sheet.

The offer implies Thiess 100% EV worth A$ 4,300 million (€ 2,600 million) and will generate gains before taxes for CIMIC of around A$ 2,200 million (€ 1,325 million). The transaction closure is subjected to the common conditions, including financing and the relevant administrative authorizations.

• On October 20th 2020, CIMIC made public the arbitration decision regarding Gorgon LNG Jetty project dispute which seek the retrieve of costs overrun incurred during the project through an arbitration process in Australia against Chevron. Finally, the Arbitration Court released an award worth A$ 78 million for the consortium (CIMIC and Saipem) and counterclaims worth A$ 35 million for Chevron.

This isolated impact on CIMIC's income statement and balance sheet is expected to be offset by part of a pre-existing generic provision amounting to $675 million, together with the gains generated by the sale of Thiess. This event has no impact on CIMIC's operational business or the company's cash position.