ACS Actividades de Construccion y Servicios SA

MAD:ACS

Earnings Call Transcript 2018-Q3

[Marcelino Fernandez Verdes, CEO & Director]

Good morning, everyone, and thank you for joining us for this ACS 9 months 2018 conference call. I'm here with Ángel García Altozano, Corporate General Manager and the rest of the team. We will briefly analyze the key aspects of our results and we, then, look forward to take any questions you may have.Nine months key figures. ACS has achieved a strong performance for the first 9 months of '18. Adjusted for the impact of foreign exchange movements, sales, EBITDA and EBIT all delivered double-digit increases. At operating level, sales rose by over 11% in FX adjusted terms or up 5% to EUR 27.1 million. EBITDA increased by almost 6% to EUR 1.8 billion and EBIT increased by 9% to EUR 1.35 billion.This solid growth in operating results, together with the contribution from Abertis, drives a net profit growth of 15% to EUR 691 million, adjusting for FX net profit growth stands at over 20%. Likewise, our operating cash flow improved in the 9 months of '18 by around EUR 382 million year-on-year before networking capital and CapEx. A solid cash generation reinforces our robust financial position with net cash of EUR 128 million at September's end, an improvement of EUR 1.5 billion year-on-year.Lastly, on this slide, I want to underline a very positive order backlog, which now stands at over EUR 70 billion and is up over 10% year-on-year, FX adjusted, or 8% in euros.Sales evolution across activities and core markets. Let's take a closer look at the revenues. Total sales of EUR 27.1 million rose by 11.4% year-on-year, adjusted for EUR 1.6 billion currency impact. This growth is backed by the strong performance in our key regional markets. The U.S. businesses grew by over 15% in local currency terms to EUR 10.4 billion. Australia achieved EUR 5.3 billion of sales, up 8% and it's worth noting the rebound of sales in our Spanish market activities, which grew overall by 17% to EUR 3.8 billion. By activity, Construction grew by 12% on a like-for-like basis. The strong performances in the U.S., Canadian, Australian and Spanish markets stand out. At Industrial Services, sales increased by nearly 9% like-for-like to EUR 5.1 billion with positive growth across the regions. The rebound in the Spanish market with renewable energy projects have more than offset the impact from FX. As for Clece, sales increased by 5% with a good performance both in the domestic and international markets.Moving to the next slide, we have EBITDA. As I mentioned, adjusted for FX, the group delivered a 12% increase in EBITDA to EUR 1.8 billion. As you can see, we increased EBITDA in all our activities aligned with sales growth. In Construction, EBITDA reached EUR 1.3 billion with the growth of over 14% like-for-like. In Industrial Services, EBITDA rose 9%, FX adjusted, to over EUR 510 million. Industrial registered an increase of 10% to EUR 59 million.Net profit by activities. With the solid performance of the group's operating activities together with the contribution from Abertis since June this year, has led to an increase of 15% in ACS net profit to EUR 691 million. By activity, Construction net profit was nearly 30% higher year-on-year at EUR 366 million, which includes the 20% stake in Abertis via HOCHTIEF. Excluding this contribution, Construction net profit grew by 15%. Industrial Services also increased its profit contribution to EUR 260 million, up by 3.3%. The ordinary net profit growth at Services is 8% as it excludes the capital gains from Sintax in '17. All in, operational net profit accounted for EUR 609 million, 9.3% more than last year in comparable terms, which shows the resilience of our activities.Third quarter overheads was lower than last year, thanks to lower financial expenses. However, while I'll state in '17, we accounted for different capital gains and other nonrecurrent results from provision reversals, this year, we incorporated contribution for our stake in Abertis since June. The Abertis total contribution for the group's net profit was 1-2-3, EUR 123 million. Out of that amount, EUR 81 million correspond to the 30% direct stake held by ACS accounted for, at the corporation level, and EUR 42 million from the 20% stake through HOCHTIEF.So let's look at net debt evolution during the last 9 months. At the end of '17, we had a net debt position of EUR 153 million. From January to September of '18, cash flow from operations before working capital and CapEx amounted to just over EUR 1.5 billion, a 20% increase year-on-year. The cash outflow from working capital is characteristic during the first 9 months of the year. Looking at the last 12 months, which excludes seasonality, the variation is virtually neutral and we expect a strong recovery during Q4.Net investments imply the cash outflow of EUR 110 million. EUR 373 million corresponds to net operating CapEx and the remaining EUR 263 million is a cash inflow from net financial divestments. As for shareholder remuneration, out of the EUR 538 million outflow, EUR 470 million corresponds to the ACS scrip dividend paid in February and July amounting to near -- to nearly EUR 1.4 per share as well as pension stock acquisitions. The remaining EUR 121 million correspond to HOCHTIEF and CIMIC's dividends paid to minorities.And finally, other adjustments moderately correspond to mass model, accounted as a short-term financial investment at the beginning of the year. We just finished September with a net cash position of EUR 120 million. Strong, the last 12 months, cash flows -- cash flow generation. On our last 12 months basis, the strong cash flow generation has enabled us to significantly reduce net debt. As you can see at September '17, the net debt position was EUR 1.4 billion. Since then, cash flow from operations before working capital and CapEx amounted to EUR 1.9 billion, up 25% year-on-year. Operating working capital variation implied a slightly positive cash inflow. Net investments resulted in a cash outflow of EUR 160 million. Our shareholder remuneration was EUR 629 million, outflow corresponding to the interstate wages of both HOCHTIEF and CIMIC minorities as I said.Backlog breakdown by business area. Moving to the backlog breakdown by area. The Construction order book amounted to EUR 58 billion, adjusted for EUR 1.1 billion of FX effects mainly from Aussie dollar depreciation year-on-year, the backlog grew by 10%. The Industrial Services backlog at the end of September stood at EUR 9.7 billion. Adjusted for EUR 0.5 billion of FX effects, the backlog grew by over 12%. And Services grew by 22% to EUR 2.4 billion. This strong backlog level leaves us very well positioned for the rest of 2018 and beyond.Backlog's outperforming trend. Looking in more detail at the backlog, we can see a positive long-term trend, which underpins a solid outlook for ACS. Despite currency headwinds, backlog has reached a compound annual growth rate of over 7% in the 3 years. Furthermore, the book-to-bill ratio has been improving and even in a period of rising revenues has increased to currently stand at almost 1.2x.I would also highlight that our core strategic markets are very strong with a high-double-digit growth rate in North America and a positive outlook in Australia and surroundings. In particular, the backlog in the USA stood at USD 26.3 billion growing by over 25% in the last 2 years, while the Canadian backlog stood at CAD 7.75 billion, nearly doubling versus September '17. The backlog in Australia grew by 52% in the last 3 years, excluding commercial and residential working hand, which is an noncore business progressively in reduction. Looking further forward, we have identified a strong credit pipeline of about EUR 100 billion for the remainder of '18 and beyond, including a PPP pipeline of EUR 210 billion.Strong order intake in Q3 '18. Let me highlight some of our major project wins during the third quarter 2018. The EUR 1.05 billion PPP project for the construction of the cross-border bridge over the Detroit River. It is the largest bridge in North America with 1.6 miles linking the cities of Windsor on the Canadian side and Detroit in the U.S.; the PPP project for the Waikeria Corrections and Treatment Facility construction in New Zealand; the EUR 420 million contract extension for mining services in the El Encuentro open copper pit in Chile; improvement works in Georgia, USA, along the I-16 Highway; for the construction of a 300-megawatt combined cycle plant of natural gas integrated with a seawater reverse osmosis desalination plant located in Oman.Let's talk about the Abertis transaction. Now I have to say that the completion of the Abertis transaction consists of 98.7% of Abertis shares were transferred to the SPV Abertis Participaciones on the 29th, October '18. This Holdco has been capitalized by HOCHTIEF, EUR 1.38 billion, 20% stake; ACS, EUR 2.07 billion, 30%, and Atlantia EUR 3.46 billion, 50% stake, in total with equity of EUR 6.91 billion and bank debt of EUR 9.82 billion.ACS subscribed a EUR 6.35 million capital increase in HOCHTIEF at EUR 143.04 for a total amount of EUR 908 billion. Subsequently, ACS sold 16.85 million HOCHTIEF shares equivalent to 23.86% of the total shares outstanding at the same price to Atlantia. And ACS remains HOCHTIEF's controlling shareholder with a 50.4% stake keeping it [ net consolidation ].The conclusions -- sorry, before conclusions. Post the Abertis transaction, ACS has strengthened its solid financial position. As a result of the sales of HOCHTIEF sales to Atlantia and simultaneous capital increase of 10% in HOCHTIEF, net worth will increase approximately by EUR 2.4 billion to over EUR 6 billion. Pro forma net debt after the transaction would stand at EUR 900 million. And given our expectation of a strong fourth quarter operational cash inflow, we expect to significantly reuse our net debt position by year-end. And now, for the conclusions. We have had a very solid set of results with double-digit top line growth and margin stability across activities. A strong high-quality backlog standing at over EUR 70 billion and growing by 10% FX adjusted. Net profit growth of 15% to EUR 691 million. And we have also reached a net cash position at the end of September, driven by operating cash flow generation up by 24% with net working capital and CapEx. And we have just completed the Abertis acquisition, a strategic transaction that will broaden our growth opportunities in green and brownfield PPPs. We also expect to reach an EBITDA of over EUR 2.4 billion, year-end, and to achieve a net profit of over EUR 900 million, thus exceeding our initial target.We then thank you very much and we are now ready to answer any questions you may have.

[Operator]

[Operator Instructions] The first question comes from Bruno Da Silva from CaixaBank BPI.

[Bruno Almeida Da Silva, Head of Research]

I have 3 questions, if I may. The first one related with your statements today about the strong cash flow inflow for the first -- for the fourth quarter and strong working capital recovery expected as usual. I just wanted to try to put a figure on that. When we look at the previous 3 years, there has been an inflow of roughly EUR 1 billion at the consolidated level in the fourth quarter. Is that the kind of recovery you were expecting? And related with that, could you please comment to the high levels of factoring securitization that you have and remind us of what is your policy on that regards in terms of the size of the total outstanding securitizations that you have done versus total receivables. Is there a lot more to go? Or is that should trend in line with the evolution of revenue? The second question is related with probably what could be called the back book or front book of your backlog. Are you noticing any evolution in terms of the profit you are getting in works with similar nature, those that are older and the newest additions to the order book? Has there been a market evolution in terms of profitability or not? And finally, regarding the dividend, HOCHTIEF, the decrease in payout as well as the expected improvement of your net profit, particularly consolidating Abertis. Would you say that your shareholder remuneration could be significantly announced ahead of the expected increase in net profit including Abertis or should we expect a similar level of payout for the upcoming year or years?

[Marcelino Fernandez Verdes, CEO & Director]

Thank you, Bruno. Your first question is not just one question. There's a lot of questions in the first question. Cash flow, fourth quarter figure. We are not really giving any guidance on our figures but what is clear, that if you follow a little bit of trend in the previous years, our expectations are very clear, and that's why in my speech I was saying that we expect to get a very, very solid position and a solid fourth quarter regarding cash flow figures and cash flow collection. That our expectation in theory, we are in a very sustainable market, and if nothing serious is happening, that's why we are not saying exactly the number, we should go through the similar trend as the previous years. Factoring -- talking about factoring. It is true that the factoring policy in our case is -- we are using the factoring as a tool and it is true that in some markets, in the trends as in the easy market, we started with the factoring in the previous year and right now, we are just extending the factoring policy to the different companies. Not all the companies were included in the previous months and years. This is one of the reasons why factoring is increasing and this is why this, obviously, because there is a significant increase in our revenues and consequently, we are increasing also our level of factoring. Receivables. It is true, you were talking about if we can consider, which is -- the factoring policies is a factoring policy itself. And the receivable policies is based on our risk management approach. We continued with a very thick management approach and sometimes what maybe is influencing us is that in some markets there are external scenes, for instance, elections or something like that may be affecting temporarily our, let's say, receivables position, but we expect that after that election's effect to recover as much as possible of our previous position. We are not really very worried about it. Backlog margins evolution has stability. It is clear that if you are in a stable market and in a recovering working way, usually what you reach is stability in your margins and this is what we've been doing in the previous year. We consider that the markets are very stable and that you can see this in our order book backlog and the good news of that is that we can, let's say, deduct from that, that we can continue and is our target to continue keeping the current margin structure. Dividends and -- several questions regarding dividends, business policy, HOCHTIEF, et cetera. At HOCHTIEF, we were declaring at HOCHTIEF that we are increasing our payout ratio from 50% to 65%, including all the FX. The operational guidance that we stated in HOCHTIEF for '18, and obviously this is affecting also the net income coming from Abertis' contribution, and the dividends will be affected by that. Meaning that the 65% dividend policy at HOCHTIEF level will include the contribution -- the net contribution coming from Abertis also. And obviously the more we increase our profits in ACS obviously, the better for increasing dividends, back to this correlation on that.

[Bruno Almeida Da Silva, Head of Research]

Okay. Sorry, if I may, a quick follow-up. So in ACS level, we should count with a similar increase in payout when compared to HOCHTIEF because the increase in payout in HOCHTIEF is not something that goes through the net profit of ACS, so in order to reach like that, the payout at ACS should increase accordingly?

[Marcelino Fernandez Verdes, CEO & Director]

Thank you, Bruno. This is a good question and this is the thing that we are right now just considering at the board level. And as soon as we have this board level decision made, we will, all of you, and the market know exactly what is the ACS policy dividends for the future.

[Operator]

The next question comes from Olivia Peters from Macquarie.

[Olivia Rosalind Peters, Analyst]

Olivia Peters from Macquarie. Just 3 quick questions, please. Firstly, I'm sorry to dwell on it, just on factoring. Can you give us an idea where the...

[Marcelino Fernandez Verdes, CEO & Director]

Sorry, Olivia, speak up please.

[Olivia Rosalind Peters, Analyst]

Sorry, I've just got 3 quick questions, please. I'm sorry to dwell on it, but just on factoring. Can you give us an idea where most of the factoring is taking place? And has there been a deterioration in payment terms that is making you use -- increasingly use factoring as a tool to manage working capital? Secondly, I just want to clarify, are you expecting to receive a dividend from Abertis in 2019? There is some suggestion that because of the large transaction costs, et cetera, it may get stuck in the SPV so I just want to make sure that ACS and HOCHTIEF are expecting to actually receive a cash inflow from Abertis going forward. And then just on Mexico, obviously, Pemex is one of your large customers there and I was wondering if you had considered or could you give us some guidance in terms of the impact on IMO 2020 and what that will that mean for the Industrial Services business.

[Marcelino Fernandez Verdes, CEO & Director]

Thank you, Olivia. Regarding factoring, you know that we are not giving any guidance anywhere, even in the different, let's say, companies, subsidiaries of ACS, we are not disclosing this number and not giving guidance. But what is clear and I at times tried to explain in my previous answer, that what we are applying these policies to the overall scope of these activities and some of the activities coming in the company in the last year, or the last [ 1.5 years ], we needed, let's say, to restart with this and we are applying the policy to this new company also. And at the same time, it is clear that factoring is moving with the sales and the sales trend increase and -- particularly in the last quarter, in Q3, significant increase in the trend also. And obviously this is what is moving but we are not really giving any guidance on that. Dividends from Abertis, this is also a question of the Abertis board. And as all of you know, on the 10th of December, we will have -- and the board -- that the final board of the transaction with the new composition that I say -- and that's public, and then this is one of the things that we have, let's say, to decide and make a decision on that. And clearly, it will -- once the board is making a decision, we'll let all of you know. And talking about Pemex, you know that, right now, there is a new government on board with a new team and obviously we don't have right now -- we need just a little bit more time for having visibility for answering to your question regarding what is coming for the next years. But it looks like the idea is just to continue having a similar approach to the things that was previously and we are very positive on that and we believe that this kind of, let's say, stop period or stopping period coming from the elections will start moving very quickly and we can expect some results from year-end.

[Operator]

The next question comes from Bosco Ojeda from UBS.

[Bosco Ojeda]

I have a couple of questions. The first one, given your cash position at the moment, if you could give us a bit of color on use of cash in the long-term. Are you looking for potential M&A maybe from various regions or what kind of outlook we could see ACS in the medium to long run in terms of potential investments or if it would make sense to increase CapEx levels in some areas? And second question on the Construction area, you have good numbers, nice backlog, you're outperforming quite a lot of your competitors in -- what sort of qualities is your backlog? Why do you see some disparities between different competitors, so some doing very well like one of yours and some others doing not as well. How do you see the competitive environment? Could you see maybe some others trying to be a bit more aggressive or why this disparity?

[Ángel Manuel García Altozano, Corporate General Manager]

Thank you, Bosco. And I'd say that's some cash long-term look, potential investment, CapEx. So what exactly -- you know that we are always focused on capital allocation. But we have just finished the big investment in Abertis and obviously, once this is over, then we will start with -- and continue thinking about what is the best way for allocating capital. Because as you realize, our financial position is very healthy and there are several ways. One of the ways is just obviously, market opportunities. We continue always -- we are always looking at market opportunities. This is clear to us but at the same time, we're looking at how to better reward our shareholders. And this is one of the potential areas that we used in the past when we considered that there is nothing that can add value to us. For instance, you remember that we were invested in buybacks several times and obviously, we are aiming, let's say, to be more focused in PPPs because of this new structure, in order to take advantage of the different synergies created by the new group structure. PPP is a very, very strategic focus to us as we are aiming to increase our stake in PPPs in order to take a more advantage of this kind of good area that we've been working in for many years. This is regarding your third question. CapEx. Obviously, CapEx is a little bit -- the CapEx policy is a little bit -- maybe it's affecting a little bit the lines. One of the lines is mining and the other one is just civil works, considering civil works like -- the most significant one, the tunneling machines, the bore machines -- tunneling and bore machines, you know that this CapEx is short and CapEx, because we amortized this investment, these tunnel machines through the job life, through the project life. And mining obviously, we are always just having a policy, mining that what we want is just to have an approach that can afford us to have the right idle machinery approach. And in this regard, you know that we explained this in CIMIC, the idle machinery number is a good number, it is below 2 digits and this is a historic number. And this shows you a little bit what is the approach to this CapEx policy. Your second question, let me just drink some water first. Backlog quality, market competitors, you know because we've been explaining for many years, but since we started, let's say, this kind of broad journey with HOCHTIEF, CIMIC, America, Ricardo, et cetera, we started this several years ago, let's say, 6 years ago and it was always the same, to apply this risk management approach very close to every project and this is what we've been doing and spreading in the different companies and this is one of our core points in regard of culture. So then the risk management approach, taking care of the overall process starting for clients and continuing for our suppliers, subcontractors, cost control, et cetera in the day to day and then you can realize that, for instance, since we started this journey 6 years ago, massively, in the markets that we are, we didn't have up to now -- we haven't had up to now, any significant disruptions coming from these kind of surprises. And I think there is no special -- second is -- the second thing is that the ACS risk management culture, the teams, are very focused on that and we are not focused on growing by the sake of growing. Because you know that if you are only focusing on growing, then sometimes you are losing this kind of risk approach and for us, it's much more important cash back coming from profits than growth itself. And you can see this through this last 6 years and if you approach the different companies and different activities, you realize that some of them were down significantly for 2 to 3 years in order, let's say, towards this policy, to risk management policy, and then we started growth, but very, very focused short term. The tender and risk management process applied to the tendering process also. And I think that this only -- with the team's quality, we have very experienced and qualified people around the world in our companies, all together, can give you more or less an idea about the way that we are doing. I don't know how to compare with other companies because I'm not -- know exactly what they are doing but this is the way that we do.

[Operator]

The next question comes from Alejandra Pereda from Morgan Stanley.

[Alejandra Pereda, Equity Analyst]

I have 2 questions. The first one is a bit of follow up on Bosco's question, but just focusing on the North America market. We are hearing now many players flagging the lack of labor, the high cost inflation in labor, how that is generating some delays and given your very strong growth in North America in backlog in the past 18 months, I was wondering if this is something you know about, you are addressing, you're well protected, because of the risks that, right now, the execution of these contracts is entailing in the market? And the second question would be on the 3 large contracts you've been awarded, the bridge, the train and the LA mover. You have a minority stake in the construction part of those 3 between 25% and 40% and I was wondering how those contracts would be accounted. Would that be part of the PPP? Would be JV result in construction, so just the EBITDA just wondering how to reflect it in the model?

[Marcelino Fernandez Verdes, CEO & Director]

That's North America market, yes. It is a very important market, and then you know that the most significant contribution from our company in North America is coming from Turner. And you know that Turner is basically [ a cost plus 3 company ], that this is not all this potential, let's say, cost inflation, et cetera, is not affecting us in a very significant part of our business in North America because of the kind of the business. You know that it's a business itself that it's been very profitable for many years, but profitability also is linked with the risk approach, I mean when you have a construction company, obviously, you are having a little bit small profitability but the risk is practically inexistent. And this is helping us to continue taking advantage of the market opportunities. If you take a look at this company, for instance, the profit has been sustainably positive for the last more than 30 years, meaning that the way of doing is the right one and there are -- teams are very experienced and that's why we are taking advantage of these growth opportunities. When there is not these kind of projects and then we go on to different kind of projects, I was trying to explain that our risk management approach in tendering is affording us, let's say, to go to the places that we consider that we can manage risk approach. That's the case. For instance, in some civil projects, what we do is exactly this, we have practically the costs previously and how do I say -- fixed to a certain extent. I said we reached an agreement previously and then we can be in the safe side of the risk control. And then...

[Ángel Manuel García Altozano, Corporate General Manager]

The recent projects, about the recent projects in...

[Marcelino Fernandez Verdes, CEO & Director]

Yes, recent projects. You know that the construction part of these PPP projects, we account this by a -- we consider this like a joint venture and this is the way that we've been working for many years in the different PPP projects at the construction site. And that's -- because of that, if the stake is 30%, then it's 30%. And obviously, we are really doing this also and these stakes have -- these amounts, these percentages of both those because the projects have big ones and there's a risk approach also to take into consideration that we are not willing, let's say, to be first in the class but we want to share everything, including risk. Alejandra, just to clarify, the backlog that we include is just the construction part of the transaction. Not any backlog coming from revenues of concessions or anything. The backlog that we had discussed here is just the construction part.

[Alejandra Pereda, Equity Analyst]

Yes, I know it assumes your proportion of the construction part there, yes.

[Marcelino Fernandez Verdes, CEO & Director]

Yes, just our proportion. You know that in PPPs our investment is a separate segment of the investment.

[Operator]

The next question comes from Marcin Wojtal from Bank of America Merrill Lynch.

[Marcin Karol Wojtal, Analyst]

So firstly, do you expect a significant capital gain from the sale of part of your HOCHTIEF stake to Atlantia to be booked in the fourth quarter? And then related to that, you mentioned net profits should exceed EUR 900 million for ACS if I understood correctly. Would there be any impact from that HOCHTIEF transaction in the guidance, presumably not, but I just wanted to check? And lastly, regarding Abertis, can we expect at some point some sort of more formal strategic update for Abertis, the strategy, the funding, the synergies, et cetera, so that you could have perhaps provide more visibility to the market for that important transaction.

[Ángel Manuel García Altozano, Corporate General Manager]

So the capital gain that you addressed, because of our sale of our stake from HOCHTIEF to Atlantia, obviously we're not recognizing any capital gain because we keep on consolidating the company. So in the consolidated statement, we do not have any capital gains coming from that transaction. Obviously, what's increasing significantly is the network, the EUR 2.4 billion increasing network. It is due to that transaction.

[Marcelino Fernandez Verdes, CEO & Director]

And we continue keeping the consolidation like previously and then because of that, there's no revenues coming in but obviously, it's benefiting our partnership regarding our capital situation, increasing it by EUR 2.4 billion, as I said in my speech. And your second question in regard of Abertis' performance, strategic update, obviously, I think that after the new board on charge, which is coming next month, we will review everything, including the strategy. And yes, once the strategy has been reviewed and revised, we'll let you know -- all of you, let you know exactly how can we say take advantage of the market opportunities and synergies and everything but obviously, we need to present to discuss this and we need to reach a conclusion and then the final strategy will be known by all of you.

[Operator]

The next question comes from Olivia Peters from Macquarie.

[Olivia Rosalind Peters, Analyst]

I just wanted to have an update please, on the MTR rail contract, the CIMIC level and find out what is going on there in terms of the dispute and why the Hong Kong government, as a consequence, said that you cannot bid for anymore contracts in that jurisdiction for the next 12 months.

[Marcelino Fernandez Verdes, CEO & Director]

Olivia, let me just -- I'm going to say to repeat what CIMIC has stated. And as of today, we don't have any new inputs but Leighton Asia has been temporarily excluded from tendering from some new work in Hong Kong by a government department, the Public Works Bureau, for a limited period, 12 plus 3 months. Mean that this exclusion is exactly what -- not for the whole -- the overall Hong Kong businesses or clients or whatever, just the -- it is just for this particular Public Works Bureau and for the government department. Leighton Asia has provided also a detailed response to the relevant authority and has executed several large and successful projects in Hong Kong for the government as well as private clients. And then this is not affecting the overall government departments and this is not affecting the private clients. Just that the ones that we are involved in the discussion. Hong Kong represents part of Leighton Asia and -- but also Leighton Asia is present in other locations, for instance, Singapore and other places, and the Hong Kong accounts -- the overall -- the overall Hong Kong accounts for just over 5% of the CIMIC group's work in hand. This is not giving any material impact as of today. We are waiting for the analysis and then we will know exactly what is next, but it looks like we will have the next news about this issue in January '19 and then we'll know if this is over or the kind of decision is made by the Hong Kong government Public Works Bureau. Also, for completing the answer, I have here a small footnote that is telling me that CIMIC has stated that the decision has no impact on CIMIC guidance, okay?

[Operator]

The next question comes from Guillermo Fernández-Gao for Kepler Cheuvreux.

[Guillermo Fernández-Gao Sánchez de Nieva]

It's actually only a clarification. I understood, at the end of your presentation, you mentioned a couple of specific figures for guidance for this year, in particular for EBITDA income. If you could go over them again because I didn't really take them. And last one is just a matter of timing. When should we expect for you to communicate this kind of new strategic plan for Abertis?

[Marcelino Fernandez Verdes, CEO & Director]

Thank you, Guillermo. The second question is easy. Once the board is just analyzing and reaching a conclusion and that should be as soon as possible, and the sooner the better because it's good for the company to clarify exactly what is next. I mean, it's good for the market to understand exactly what is next, also. And this is very clear. And regarding your interest, what I said is that we -- let me just read it literally and then it's a repetition. We expect to reach an EBITDA of over EUR 2.4 billion and achieve a net profit of over EUR 100 million, which is clear that is exceeding our initial target for net profit. And maybe let me just -- for the sake of clarifying this. What we are doing this year is because of you know that we are -- we're consolidating Abertis by the equity method, that is not included, and that's why I emphasized the EBITDA number is not including any number -- any EBITDA number coming from Abertis in our numbers and that's why I've been saying these 2 figures, okay?

[Operator]

The next question comes from Sonia Baldeira from Bloomberg Intelligence.

[Sonia Baldeira, Senior Analyst]

My first one is regarding the U.S. market and the capitalization seen for this market. So what in your assets could be the equity value of PPP projects bar or limit for this market coming soon? And after the midyear elections, what is your perception on what we can see next year regarding more PPPs in the country? That's my first question. My second one is a more general one is regarding the trade war and if your companies internally they see any disruptions of the value chain of materials or if in your case, do you think this is more noise or we should expect some effects next year in terms of impacts on your budget and projects in general terms?

[Marcelino Fernandez Verdes, CEO & Director]

Sonia, the U.S. capital allocation, you're right equity value for PPP, and I think that in my speech it was explained that we are ahead of us more than EUR 200 billion PPP coming. Some of them, let's say, around 40% to 50% of them are coming from the North American market or a little bit higher, even including Canada, I said that it could be 60%, something like that. And obviously, our focus is on that. And we will continue, as I said, one of our targets is to focus a little bit more on these kind of PPP targets because we believe that it's a good strategy approach and then you know that we have the overall integral -- vertical integration of the business. Someone was previously asking me about construction in regard to PPPs, the method and then the idea is just that you are involved from scratch at the PPP level and then you leave from the previous ones that the PPP is finished, which is very, very long in the time and obviously what you are doing as a group is guaranteeing the overall process, and giving guarantees to the clients and this is a good approach to us and it's been very successful in the last years. But more or less, with the numbers I have here, the team has just provided me the right numbers, it looks like around 40%, the U.S. market; 25%, Canadian market; and overall, 65%. That's the number.

[Ángel Manuel García Altozano, Corporate General Manager]

And the value chain disruption, actually the same as in the -- especially in the U.S. market.

[Marcelino Fernandez Verdes, CEO & Director]

Yes, especially the Russian and the U.S. market. We don't have any specific clear direction on that and maybe it's because what I explained to you because we have a model that most of it is based on this kind of cost-plus fee model that is not giving to us a lot of worries and there is not a lack of -- or significant lack of provisions or we are not suffering this tremendously. And then in our, let's say, civil business, they're very stable because as we were commented, most of the big projects have long time projects, 6 years, 5 years, this type of, let's say, projects, meaning that you have provisions and you have everything very well finished and then contracted well in advance. Because of that, we don't -- we're not suffering specifically any significant consequences from that.

[Operator]

[Operator Instructions] We have no more questions in today's conference call. I now give the floor to the speaker.

[Marcelino Fernandez Verdes, CEO & Director]

Then, thank you very much all of you for attending today's conference call. And then we expect all of you again in our next conference call, that will be next year. And then thank you, and enjoy the following Christmas time.