Empresas ICA Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.27.14 | About: Empresas ICA (ICA)

Empresas ICA S.A. DE C.V. (NYSE:ICA)

Q4 2013 Earnings Conference Call

February 27, 2014 10:00 AM ET

Executives

Victor Bravo – CFO

Analysts

Carlos Peyrelongue – Bank of America

Eugenio Amador – Credit Suisse

Anne Milne – Bank of America

Juan Lopez

Javier Gayol – GBM

Manuel Ramos – Credit Suisse

Operator

Good morning. My name is Charice [ph] and I will be your conference operator today. At this time I will like to welcome everyone to the Empresas ICA’s Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would now turn the conference over to Victor Bravo, ICA’s Chief Financial Officer.

Victor Bravo

Good morning and thank you for joining us for ICA’s fourth quarter 2013 conference call. Joining me are Gabriel de la Concha, our Chief Investment Officer and Head of our Investor Relations, and the IR team including Ana Paulina Rubio, Elena Garcia and Rebeca Avalos. I will discuss three main topics today; ICA’s fourth quarter and full year results, the strategic transactions with CGL comp for social infrastructure, and the continued reduction in debt. After this, we will open the call to your questions.

ICA’s sustained to trends, we have strong Q2 2013. We delivered fully operating performance even with a difficult environment for construction in Mexico. We meet our target for EBITDA generation through revenue was low expectations. Adjusted EBITDA reached 1.3 billion pesos for the fourth quarter and 4.7 billion pesos for the year. The EBITDA margin was 16.3% in fourth quarter, and 16% for the full year. Last year we witnessed an economic slowdown combined with the approval of new economic reforms by Congress that are expected to substantially increase investment in infrastructure. Therefore, we are positioning ourselves to take advantage of the increase in opportunities, and improving our execution capabilities in financial position, as well as bringing concession projects into operation that will improve our cash flow and revenues limit.

The positive performance of concessions in airports offset in our part [ph] the decrease in construction revenue in terms of cash flow generation. Profit volumes on operating construction highways grew 62%, principally because of the increasing traffic on the Rio de Los Remedios and the start of operations of the La Piedad Bypass, in the Rio Verde – Ciudad Valles highways in late 2012.

Airports had 6% increase in annual profit volumes, and continued rapid growth of non-aeronautical revenue source. The fourth quarter marked 25th – 23rd quarter in a row of growth in non-aeronautical revenues. At the same time, we have been able to sustain construction backlog in our target brands. Construction backlog in the long-term services contracts were through totaling 36 million pesos at the year-end 2013. In addition, ICA’s non-consolidated affiliates in joint ventures had another 11 million pesos in backlog.

Looking at the results of our business segments in fourth quarter, Construction revenue was 5.7 billion pesos. The operating margin grows to 4.8%, and the Adjusted EBITDA margin reached 10.5%, well above the prior year. MItla-Tehuantepec, La Yesca completion work, San Martin Construction, Peru; and Avenue Domingo Díaz in Panamá; were the largest sources of revenue.

The 20% decrease in construction revenues in fourth quarter despite a forceful accelerated execution of covering projects is explained d by delays in the delivery of rights of way, slow payments by some clients, the lenient working capital, and under execution by the Government of the 2013 public works projects.

On the upside, the Concessions business had another good quarter, as a result of the start-up of operations of the two concession highways in late 2012. We received a 15-year extension for La Piedad Bypass to recognize the additional costs that are going into in the construction phase. Operating income and Adjusted EBITDA soared largely because of the start-up operations of the new Concessions and the construction and financial revenue from the Rio de los Remedios and projects under construction. It should be noted that Concessions results excluding results from the social infrastructure projects which I will discuss separately.

Airports delivered 8% increase in total revenues, with increases in both, aeronautical revenues and non-aeronautical revenues. Adjusted EBITDA decreased 30% because of the attention the way the measurement in those provisions is estimated. Additional information about airports operations is included in OMA’s earnings report and I encourage you to consult it.

Looking at ICA’s consolidated results, operating income was 4,812 million pesos, with a margin of 10.8% and Adjusted EBITDA grew 401% to 1.3 billion pesos, with a margin of 16.3%. For the full year, the operating margin was 10.6% and Adjusted EBITDA grew 27% to 4.7 billion pesos with a margin of 16%. The increases in operating income and EBITDA occurs even still variance [ph] decreased 16% in the quarter and 22% in the full year. This reflects the fact that costs and SG&A expenses decreased more than revenues. And it should be noted, the last year’s results were also affected by less provisions for the Mitla-Tehuantepec.

Other income or expense, net in fourth quarter included provisions for an additional payment for our San Martin in 2012. If you recall, our quoted price was based on the 4.5 times EBITDA multiple based on that for results and payable installments from 2012 to 2016. In fact, the San Martin EBITDA generations have been significantly above projections and that is good news.

For 12 months, other income was a net profited 61 million pesos which included the gain on sale of RCO earlier in the year. Comprehensive financial cost increased significantly in the full year. This was primarily because of the interest expense on newly operational concessions. During the construction phase, interest payments are capitalized in the value of the assets. When they earn for operations, they are fully reflected in financial costs. There was also an exchange loss in 2013 as compared to an exchange gain in 2012.

The growth of income from non-consolidated affiliates in joint ventures including the construction companies’ concessions and order affiliates is making a significant contribution to results. The appendix to the earnings report includes supplemental information on all our non-consolidated affiliates in joint ventures. That’s symbol of credit in the fourth quarter and the year, principally because of the changes in backlog approved by Congress in December and their effect on deferred tax.

The previous fiscal consolidation regime was eliminated. As a result, deferred income tax balances as of December 31, 2013 will continue to be paid on the terms that had been previously established. We are conservative in our policies; we had already positioned $4.9 billion for deferred income taxes as of the end of 2012. The estimated total liability as of December 31, 2013 was only 4.6 billion pesos, almost the same number and therefore we have no additional provisions to create. In addition, ICA also opted for the Optional Regime for Groups of Companies provided by the New Income Tax Law or not substitute for the consolidation regime, it provides some cash flow advantages.

Finally, as a result of the repeal of the single rate corporate tax, IETU, the deferred IETU tax liability as of December 31, 2013 was also cancelled as a result of the repeal of the IETU Tax Law. Then ICA had consolidated net income of 1,082 million pesos in the fourth quarter as compared to a loss in the prior year period. For the year, consolidated net income decreased 4% to 1.5 billion pesos. The decrease was principally the result of the Exchange Laws from the depreciation of the pesos and higher interest expense which offset operating income revenues.

My second topic is ICA’s agreement with CGL on 42 social infrastructure fronts. This is a major strategic construction for us. The ICA-CGL Hunt joint venture agreement position us to be a relevant player in the social infrastructure sector in Mexico and potentially other parts of Latin America as well. CGL is a global leader in this industry and has been our technical consultants since we began investigating the sector back in 2009. They have been a valuable resource for ICA in bringing this project into successful operations. We are selling CGL 70% of our participation in the subsidiaries that have the long-term services contracts for most activity services at two positions, and ICA will keep 30%. With more than one year of successful operations, after two years of construction, and another two years of planning, the two projects are on U.S. [ph]. We have invested more than $1 billion in them and this young venture as we been monitored is expected to gain on our own.

On closing, ICA will receive a payment of 1,511 million pesos. The sales multiples approximately 10.1 times EBITDA including ICA’s profit under construction. Our 30% interest keeps an additional return upside, should we make the operations even more efficient than the base case. Closing is subject to fit our agreement and bondholder approval. We will receive bids, we could finalize transactions in the next few months. From an accounting perspective, the assets are required to be treated as a discontinued operation. The configuration to result is taking off our 2013 income statements and the assets have been moved to current assets and the debt has been classified as short-term non-bank liability. 2012 results were also re-stated in accordance with IFRI. After closing, the two projects will be de-consolidated and ICA’s share of the results of the two positions [ph] will be reported in share of net income from affiliates in joint ventures.

My first subject is that early in 2013 we started executing several initiatives to reduce our debt levels in order to strengthen our financial position. Net debt as of December 31, 2013 was 33 billion pesos, it’s about 7 billion pesos below the end of 2012 level, or 40 billion pesos, or a reduction of 18%. The debit note [ph] are the combined effect of debt payments from these transactions, new project borrowings and the effects of the CGL transactions. In both terms, the overall components of the 7 billion pesos net debt reduction in 2013 were approximately 6.9 billion pesos from the OMA and RCO constructions. We paid approximately 1.6 billion pesos of project debt after collecting an additional value from our client. The CGL Hunt transaction we had, ICA was removed to 9.3 billion pesos security debt. And finally in 2013, ICA subsidiaries or used cash of about 10.7 billion pesos for project under construction, mainly for final debt for Palmillas, [indiscernible] in our South American projects, as well as working capital, one quarter of our debt short-term.

We are working on agreements that we’ll lead to refinancing of 2.5 billion pesos in short-term liabilities before the end of third quarter of this year. Balance of short-term debt is normal working capital lines, mostly related to ongoing projects. Maintaining a sound financial position is one of ICA’s principal objectives. The strategic construction monetize long-term assets or reduce debt, and at the same time we funded our current projects and infrastructure investment. We expect to continue to getting this for our natural plan by applying form from future construction to debt payment, as well as the financing debt from operating colleagues in order to convert – incorporate debt into long-term project financing. In sighting [ph] of assets is a central element of ICA’s business strategy and we expect to continue to meet our capital requirements in these markets.

As is customary, ICA will provide a competitive outlook for 2014 at the time of our first quarter conference call in April. By then we expect to have more visibility and reactivation of public sector contract. Given the energy and other structural reforms enacted by the government, we expect the overall environment will be significantly more positive in the construction and infrastructure sector in next – particularly for large scale projects. We also have a positive outlook in our international markets in America. Concessions are continuing to grow and mature, and we expect airports to continue their profiting revenues and earnings. We plan to improve our financial position further and expect to push additional portfolio management transactions to monetize asset and to increase EBITDA generation from operations.

We have a strong profitable growth in concessions and airports, construction will be recovering, our international expansion creates additional opportunities and give us a more balanced business. Operating margins are clearly, labors [ph] is coming down and our existing backlog provides a solid foundation for growth.

This concludes our prepared remarks. We will now be pleased to address your questions. Operator please.

Question-and-Answer Session

Victor Bravo

Operator?

Operator

Can you hear me now?

Victor Bravo

Yes, we can hear you now.

Operator

Thank you. (Operator Instructions). Your first question comes from Carlos Peyrelongue with Bank of America.

Carlos Peyrelongue – Bank of America

Thank you. Thank you, gentlemen for the call. Two questions, if I may. First one, related to your strategy going forward, the government appears more keen to focus on public works and needless on concessions. How do you see your business evolving in terms of the mix between – for future growth that is between concessions and civil works? And the second question is related to your buyback programs, we saw that you were quite active. Can you let us know how much you bought in shares, are you planning on keeping those shares and cancelling them or an update on also on the total buyback that you still have. Thank you.

Victor Bravo

Alright, thank you very much Carlos. Well, first – you’re right, it seems that this government is going to have a certain tendency to package projects as working government contract projects, not necessarily concessions for one – the BSF [ph] is a trend they have that will be bidden in packages which include civil work packages that will have to be paid by the government themselves. So, in that case it’s – that is good news in terms of the capital requirement our company has been having for the past 12 years for which quite a lot of our investment or be partners in employees to be at verticals [ph]. So it would be changed mix then it would be good news for the need for equity.

On the other hand, we will also face more competition as public works attract our bidders in margins good to suffer [ph] if is realistic. However we’re seeing that the number of frays that the government has set or has the indication that will become as public ones is a suspension, a bigger number and therefore we’re seeing in the short-term, no – not much pressure and we should be able to grab a number of those. And typically the concessions as part of backlog has been roughly between 40% to 50% total backlog at any point of time. So, probably it will be below 40% for next year if it’s strengthening is confirmed. As per the guidance [ph], yes we executed those in the market we have purchased roughly 400 million pesos in the past months and we do only that when we have some available cash to do that. We don’t plan to have a strong program regarding those purchases.

Carlos Peyrelongue – Bank of America

And Victor, the idea is to cancel those shares or not necessarily you will keep them in treasury [ph]?

Victor Bravo

Well, not entirely, some of those is going to be related to keeping treasury and we’ll see, we have – part of that is applied to give liquidity to the stock, so it’s not entirely studied to cancel shifts, some of those – is also having company but spending offshore.

Carlos Peyrelongue – Bank of America

Perfect. Thank you, Victor.

Victor Bravo

Thank you.

Operator

Thank you. Your next question comes from Pablo Baroso [ph] with GBM.

Unidentified Analyst

Hi, good morning. Two questions, I have two questions. How much of a Concession Adjusted EBITDA is cash related and how much is not? And my second question is, can you tell us the Concession EBITDA as margin?

Victor Bravo

Repeat the last question Pablo.

Unidentified Analyst

Pardon me?

Victor Bravo

Repeat the last question, the second question please.

Unidentified Analyst

Yes, could you tell us the concession EBITDA have margins?

Victor Bravo

It is – I think the first one is for the – it is 70%.

Unidentified Analyst

70%, okay. And about my first question – cost related and how much is not?

Victor Bravo

Sorry, let me see if I get you. You asked me is it concessions EBITDA or just EBITDA, how much of that is cash related?

Unidentified Analyst

Yes.

Victor Bravo

And the answer is zero [ph], okay. And the other question was?

Unidentified Analyst

Could you tell us the highways for EBITDA margins?

Victor Bravo

Basically say the 85%, yes.

Unidentified Analyst

Okay, perfect. Thank you.

Victor Bravo

Thank you.

Operator

Thank you. Your next question comes from Veramar Tour Blanca [ph].

Unidentified Analyst

Hi guys, thanks for the call. My question is on taxes. You mentioned in your expense, [indiscernible] tax regime for groups of companies, and now I think that’s a fiscal integration regime I think it’s called. Could you give us an estimate on how your effective tax rate will change and reduce regime and could you expand a bit on the comment that it will benefit you in terms of cash flows.

Victor Bravo

Yes, and thank you for the question. Well, the – we’re exactly, we’re talking about the fiscal integration method. The – it will not really change our effective tax rate, we expect that to remain between 32% and 33%. But it will – the effective it will have it will be on cash flow, because under that integration system you can defer up to previous repayment of taxes that have been already estimated for any particular due. There are some conditions of course, you have to be owning more than 80% of the subsidiary there knowing that. And there is an arithmetic calculation for us, you combine all the group in a single one and then after that calculation you decide how much of that tax defer is going to be paid in year one, two or three. So it’s not exactly ask what the tax consolidation system have because in that case you have five years to defer the taxes. For three years it’s not that bad and we think we remove the agent [ph] to benefit from that but the effective tax rate would not change from that.

Unidentified Analyst

That’s it, thank so much.

Victor Bravo

Thank you.

Operator

Thank you. Your next question comes from Eugenio Amador with Credit Suisse.

Eugenio Amador – Credit Suisse

Hello, good morning. Thank you for the call. I have three questions. The first one is, if you could give some update on the collection of the Line 12 Metro Line of Mexico City, on that account if there is any change? The second, with the Federal subsidies programs on housing revamping – practically doubling to 2000 – versus 2013 levels, will your housing division gain more relevance strategically? And last, but not least, could you provide any color on CapEx investment on 2014 going forward?

Victor Bravo

Thank you, Eugenio. Well, in the update on Line 12, nothing happening as much, although the – all these legal processes and conciliation processes are very lengthy, we do not expect any resorting to short-term. However, I guess it will mean that the numbers that we have proposed have to be included or considered as payment. We are getting close to numbers that all through the authorities are looking at, are the ones that should be paid. So – but – and these processes are lengthy and are very tortuous and mentally [ph] didn’t happen in the mid-term. So we’re positive that we will collect that, however we’ll have an exact timeframe.

For the Federal associated problems, yes, it is very important but we’re doing with via housing business unit as we have is to putting into operations. Last year when we were thinking about these merge, we have to literally stop working on it because it was not to be transferred in assets. And therefore the business unit experienced a very deep slowdown in many ways and so by the end of last year when we saw that it was not going to happen we decided to put it back in line and so this was launched with the best acceptable that will happen and we don’t expect that to become more than 5% of revenue for this year. But for next year it will be much more strong, there will be certainly more opportunities to develop the – so, the good news for that is that it doesn’t have much debt, basically all of its language [ph] falls into the categories available to qualify for these Federal subsidy programs, and we still have the ability to continue developing these and good spending with the banks. Even though we thought we have been able to grab the financing for the place that we’re developing. So we remain optimistic on – or rather that we see that this will go onto next year in other division. Also the CapEx for the full 2014 were estimated at 3.5 billion pesos investment.

Eugenio Amador – Credit Suisse

Thank you very much Victor.

Victor Bravo

Thank you.

Operator

Thank you. Your next question comes from Lillian Starkey [ph] with Morgan Stanley.

Unidentified Analyst

Hi, good morning gentlemen. My first question has been answered and the second question is regarding the financial income that you reflect on concessions. What projects are these results associated with? You mentioned Rio de Los Remedios and Río Verde. Is there any other project associated with this financial income?

Victor Bravo

No, basically those two, the derivation.

Unidentified Analyst

And what – could you give us a bit of color on what part are these expected to initiate operations during this year in the concession segment?

Victor Bravo

Certainly, on the total it will be the Mexico’s tolls control room [ph]. Also the additional – my gas toll road link to requirements. We have to treat in the El Realito water projects, those we’ll be answering operations in this year.

Unidentified Analyst

Okay, thank you very much.

Victor Bravo

Thank you, Lillian.

Operator

Thank you. Your next question comes from Anne Milne with Bank of America.

Anne Milne – Bank of America

Good morning. I wonder if I – on your comments and a question also on the tax regime as well. I know you said that you had adopted the method that would allow you to defer up to three years, some of the taxes. Do you have an estimate of what the schedule is, that you’re thinking of the payment let’s say cash taxes for this year on the deferred portion and next year’s if possible?

Victor Bravo

I think Annie, you normally get – the requirements from the authority was that by February we should let them know that we were going to use that. However it is a brand new regime and it has a lot of things to be worked with authorities – by authorities themselves and ourselves in order to estimate and happily formulate that correct. So, I guess we’ll have much more color in the next quarter about how it is going to impact us.

Anne Milne – Bank of America

Okay.

Victor Bravo

But that will be disclosed.

Anne Milne – Bank of America

Okay. Does that mean that – would it be that – the maximum would be one-third of the amount that you estimated for liability right now if you were to start the pay at this year?

Victor Bravo

Well, the estimates we have made or older advices have made run from being able to the fair up to anywhere between 30%, up to 90%, and in some cases up to three years. So being the range of – it is very hard to know how to work until you have more color from the authorities themselves.

Anne Milne – Bank of America

Okay. Thank you very much.

Victor Bravo

Thank you.

Operator

Thank you. Your next question comes from Eric Ohlom [ph] with Citi.

Unidentified Analyst

Yes, hi, good morning everybody. Could you just – if you can, just kind of give us a picture of how the energy reform may impact your operations in 2014, 2015 in terms of backlog and types of projects? My understanding is the reform in CFE is probably a more direct contributor to potential business for ICA than Pemex, but just given the large amounts of investment expected over the next several years, it’d be interesting to see what your perspective it is. Thank you.

Victor Bravo

Thank you very much. I think, we expect – we see our way we’re efficient to take advantage of the NAV from – we have approval – this joint venture between ICA and Fuel Corporation, and for the last year decade it has been working tremendously with CFE and Pemex for any entering from pipelines, refineries, petrochemical plants, not only for government or also for private developers like Braskin [ph], and we’re building a plant for Hamburg DuPont or any you find, I would say that ICA was the preferred contractor in Mexico to do this kind of project. So we take a lot of projects, both public and private, coming to land in the following month and following year on the secondary rules that begin to take shape. You could see a lot of people calling and knocking on the door for looking either a quote for doing works, also joining forces to develop some projects, not only from ICA’s floor perspective but also from the ICA constituency bill because a lot of the works are also related to ground works or civil works that are not necessarily planned or particular to our development.

We are also looking to enter in some particular projects probably, which have been looking at maybe power, maybe some oil industrial projects that we could be investors who would feed capital in order to be able to develop this. And finally we’re seeing that the effects are going to be fully reflected starting this year, not necessarily until next year because – but it’s a lot of work that has to be done for sample taking gas to the Pacific coals or to the center of the [indiscernible] at the cost it is really high. So we’re looking that this will be a trend and ask contractors, our steel contractors there will be a lot of work for us, and for the marketing channel.

Unidentified Analyst

Okay. When you gave us some insights into your backlog in the first quarter, were you be able to reflect a bit more on – just quantifying what this potential business could be?

Victor Bravo

Probably when – it’s hard to say because it depends on the government process to get this place into bearings [ph]. Probably in the first half there will be few projects, but probably the second half of the year you will see much more of this.

Unidentified Analyst

Okay. Great, thank you very much.

Victor Bravo

Thank you, Eric.

Operator

Thank you. Your next question comes from Juan Lopez.

Juan Lopez

Hi, good morning. And congratulations on your results, especially in concessions part and reducing debt. I had some questions. The first one is about the new concessions entering the year, how much do you expect to configure to EBITDA and also in gauging non-consolidated affiliates.

Victor Bravo

This – of the three projects we only consolidate the Mexico [ph] but there were two where we were going to see those affiliates because we have a minority stake. So I would say that probably the EBITDA would be roughly 300 million pesos for this year. But it’s also consolidated via other –

Juan Lopez

Okay. So that’s 300 million pesos consolidated, right?

Operator

Does that conclude your question?

Juan Lopez

No. That’s 300 million pesos consolidated, right?

Victor Bravo

Yes, correct.

Juan Lopez

Okay, that’s very helpful. And just one question, in the affiliate, the results from affiliates in this quarter, do you ever registering the 30% stake in Empresas or you are going to include in as you’re sold in?

Victor Bravo

No, it will be happening until we sold it, correct. Right now…

Juan Lopez

Okay, so that’s kind of…

Victor Bravo

Sure.

Juan Lopez

Okay. And you will be adjusting the base of it, right?

Victor Bravo

What do you mean by that? I was making the comparable figures, well, now we have made that, the thing that will disappear from our books it would be those portions related or named in discontinued operations.

Juan Lopez

Okay, I see. And then in the airport divisions, could you explain a little bit more what kind of provision it was, these kind of the onetime related as well as translate into higher revenues maybe answered in?

Victor Bravo

It is on rates [ph] – it requires some maintenance provisions to be estimated on a normal basis. And sometimes the rules are changed or interpretation or guidelines are provided. So OMA did was to take one of those guidance and adjust the major maintenance provision. It’s a non-cash registration but in any case it has to be provided in the financial pace.

Juan Lopez

Okay, so this won’t be likely repeated in 2014, right?

Victor Bravo

No, not in that size, correct.

Juan Lopez

Okay. And moving to possible asset diversity, right then you had comment about the 2014, when should we expect and maybe a number – amount of cash you plan to raise on that?

Victor Bravo

We’re looking at the portfolio and as we have seen before, there are number of conditions for us to do that. One is that usually the projects that are on the construction are not something that we’re looking to do something with those, probably we’re looking only to asset or either material or are in operations already, and none of those are going to be treated as sales. The fact that we made this joint venture we can’t ditch for looking into new projects and not in – not only a operational partner but also a partner with financial capabilities to provide access to capital in future [ph]. So we might be looking not necessarily to selling assets but for young forces it would all be order legacy in particularly type of projects where we can double our capacity or increase substantial capacity to participate in more and put more – less pressure into our need for capital requirements. We are also looking to minority stakes that may or may not have a potential or strategic inputs going forward in our asset portfolio. Basically this will be throughout the year, in these cases we take our time and since – basically all the construction those have been have added value or have allowed us to recall not only equity goals, some returns to that, that’s a great condition for all of this things that we’ll do.

Juan Lopez

Is there any particular size you’re targeting for this year?

Victor Bravo

No, no.

Juan Lopez

Okay, thank you very much. That’s been very helpful.

Victor Bravo

Thank you, Juan.

Operator

Thank you. (Operator Instructions). Your next question comes from Javier Gayol with GBM.

Javier Gayol – GBM

Hi, thank you for the call. I have couple of questions but the first one would be related to the CapEx that you rounded one throughout the quarter. According to my peers there, my numbers, you spent almost 2.1 billion pesos. Could you give us some color on that so what was this related and how was this financed?

Victor Bravo

Certainly the – the investments that we’ve made in the quarter were basically funded with all these aspects of piping that we pursued, that is the cheapest source of available cash and we are certainly looking for studies not including this. So basically that was for us to decide.

Javier Gayol – GBM

Okay. And could you walk me through your cash – your generation for this quarter excluding the sale for – of the high cash rates [ph]. Can I just get a sense of how much cash could – that the company generate in 4Q excluding the effect of how many times you resale?

Victor Bravo

Well, basically it was all by operations, we didn’t have any sale or any other special transactions in the last quarter. The penetration [ph], we have not collected that, we just have signed the MOU and the acquisitions but it is subject to our process. So in this quarter we have no asset sales and everything was gone from operations or from previous asset sales.

Javier Gayol – GBM

Yes, but what I think I’m trying to get at is, from your net debt can you at least – you said the debt seemed related to the [indiscernible] get 2.5 billion pesos cash adjourned, will that be a fair number to use?

Victor Bravo

No, well you looked over stating those cash flow troubles with operating activities was 1.6 billion pesos. So…

Javier Gayol – GBM

Okay. But nothing that could be talked about that later on another call. Just – I wanted to ask you guys and have a question, driving the accounting changes that it has made in this quarter, I’m looking at the 4Q12 figures and it seems to me that almost the 1.4 billion pesos that you guys are eliminating from 2012 EBITDA – Adjusted EBITDA to you, came from the 4Q12. So this – I just want to get a sense that how was that distributed? Will the beneficiaries [ph] did they bring any profit to 4Q 2012 until 4Q 2012 or how did – I just, I need a little bit of color to understand that.

Victor Bravo

Sure. Javier I’m not sure I’m getting the…

Javier Gayol – GBM

Okay. What I’m trying to see here is, how it was the – the 1.4 billion pesos that you took out – you restated now. For 2012, what I’m trying to get at is that if you look at the 4Q12 that you previously reported, you have 1.6 billion pesos to 1.7 billion pesos, and now you have to put it to 250 million pesos [ph]. So what it seems to me is that the 1.4 billion pesos are all related to the 4Q12, is that what happened because it doesn’t seem logical to me because I’m sure with account here gave you some profit or some EBITDA in quarters before 4Q12. I don’t know if I’m clear…

Victor Bravo

Sure. You can see in the report. In the first portion of the report you will see that it’s actively – in 2012 we took off 1.4 billion pesos in revenues from the recent and…

Javier Gayol – GBM

Okay. Yes, but I’m looking at the EBITDA – the Adjusted EBITDA figures that you guys posted. Maybe we could develop this along with the freakish slow questionnaire I might recall. And just finally, it’s a follow-up question to what you guys, to one of the other questions from all the analysts. Regarding the 3.5 billion pesos CapEx you mentioned for the next year, will that be mostly allocated to investment in concessions that you already have?

Victor Bravo

Yes, that is correct, that is for both – a new…

Javier Gayol – GBM

Okay. And – okay, and just how could that – will the company be financing that through added sales or are you guys looking at some other bridge loans?

Victor Bravo

No we basically use – reducing cash flow from operations and not from sales.

Javier Gayol – GBM

Okay.

Victor Bravo

[Indiscernible] are going to be repaid later with assets. So…

Javier Gayol – GBM

Okay. And I’m sorry to extend so much but you mentioned the projects have you expected to focus on [ph] and figured aren’t so keen to start the operations. I’m wondering about if that’s a highlight, one can definitely expect that because I hadn’t expected for it this quarter?

Victor Bravo

Yes.

Javier Gayol – GBM

When would that be –

Victor Bravo

We will take that for the second half of the year, it will be a stand operation. We expected that to be sooner, however the hurricane of last year – as we mentioned before affected a portion of this. And the solution to that technically is not a solid drop impartially and fully lies in the second half of the year. The issue has been that it involves the concessions contact and negotiation would go on in order to recognize the changes and that has warned us thinking back a little bit. But we expect that in the second half it will be fully operational.

Javier Gayol – GBM

Okay. Well, thank you. That will be all for me and I hope to talk to you guys soon. Thank you.

Victor Bravo

Definitely Javier. Thank you.

Operator

Thank you. Your next question comes from Dinesh Harijan [ph] with Deutsche Bank.

Unidentified Analyst

Hi. Excuse me, thanks for the call and for taking my question. This – I guess you partially answered my question in your last answer that you plan on financing all operations with asset sales and internally generated cash, does that mean you will not be present in international debt capital markets in the next coming year or would you – are you perhaps contemplating any liability management or any transactions at all? And then, can you give us any color as to where you might expect your leverage metrics to be by the end of the year?

Victor Bravo

Well, first of all the year where we’re focused on the addition in corporate debt and refinancing some of the opening term. And I hope I – by the middle of the year we will be in terms of debt quarter we are wanting in terms of the debt levels. However, after that probably second part of the year we will be thinking in some liability management transactions but that will depend on how and what the prospects are for fully – for the business are in the future. So going back to the international markets, we will take a little time and certainly we’re not thinking to new dip, anything we do will be to refinance or repay debt.

Unidentified Analyst

Great. And then any kind of guidance on where your leverage might end up?

Victor Bravo

No.

Unidentified Analyst

Okay.

Victor Bravo

Hopefully below of what we’re looking for.

Unidentified Analyst

Below where you’re at now?

Victor Bravo

Yes, certainly. Maybe when we listen to you in some more quarter in the first quarter when we provide the guidance.

Unidentified Analyst

Thanks. And just last one on this team, are you having any discussions with rating agencies in this regard – regarding the outlook, at least the outlooks for your ratings?

Victor Bravo

Yes, we are. We’re seeing that we’re improving suspension people, position however you with that it’s really naïve and not that fast to change the outlook over the rating, but we are positive on that, the AR realizing that we’re on a much better position now than that we have reduced a debt and it will have operating projects [indiscernible].

Unidentified Analyst

Great, thanks very much.

Victor Bravo

Thank you.

Operator

Thank you. Your next question comes from Fernando Beldin [ph] with [indiscernible].

Unidentified Analyst

My question is already related to one previous question. I just wanted to clarify and see what charges would be excluded in order to compare in the fourth quarter from 2012 and do report, now to the one that do report the previous year. And my second question would be, if you can remind me what was your IR aspect that fuller, the bracing projects.

Victor Bravo

Okay. Well, on the first one is, the projects excluded were basically the social infrastructure, two projects which have and also we brought back this housing segment up to the operating level. That’s the difference from 2013 into 2030. And as for the IR in – it’s substantially incur double-digits. I would say above 50% when different sections is developed.

Unidentified Analyst

Okay, thanks.

Victor Bravo

Alright, thank you.

Operator

Thank you. Your next question comes from Manuel Ramos with Credit Suisse.

Manuel Ramos – Credit Suisse

Hi, thank you very much. In – I’m going to go back to our previous question sorry to insist on this but I’m still not clear, can you say again – how much debt and EBITDA are you excluding due to a sale or a social infrastructure, projects in peso amounts and also a separate presentations dealing with your – if you are excluding a 100% or if you are excluding 70%.

Victor Bravo

Yes, the answer to that is from Adjusted EBITDA in the social infrastructure. In 2013 we’re excluding 1.9 billion pesos, and in terms of debt, 9.3 billion pesos. Given notice that this 9.3 billion pesos in debt has been reclassified it has not been erased from the balance sheet, it just does not appear on the debt level, it appears in a different place in the balance sheet.

Manuel Ramos – Credit Suisse

Those issue a percent, 100% or 70% over the…

Victor Bravo

A 100%.

Manuel Ramos – Credit Suisse

A 100%. And then, going forward when you complete the transaction, you’re going to put 30% back?

Victor Bravo

No, no. Remember that was the big thing with the IFRI for our financial segment last year. Once you do not have control, basically everything goes to the line of [ph] affiliate.

Manuel Ramos – Credit Suisse

Okay.

Victor Bravo

Nothing there we’ll be watching [ph].

Manuel Ramos – Credit Suisse

Okay, thank you.

Victor Bravo

Thank you.

Operator

Thank you. And that was our final question.

Victor Bravo

All right. Well, thank you for your interest in ICA and for participating in this call. Please contact us if you have additional questions that we did not address during this call. Gabriel, Paulina, Elena, Rebeca and myself look forward to seeing you in the near future. Have a good day.

Operator

Ladies and gentlemen, thank you for joining today’s conference. Thank you for your participation. You may now disconnect.

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