Letter from the Chairman

Chairman OHL - Juan Villar-Mir de Fuentes

Ladies and gentlemen,

2016 has been a financial year of poor results for the OHL Group, strongly influenced by the impact of the full recognition of the losses in a number of older projects (referred to internally as legacy projects) and by the adverse exchange rate trend in the currencies of the countries in which the Group carries out its business activity.

On the operating level, the Income Statement has been influenced to a large extent by both factors, which have led to losses amounting to 432 million euros. The normalized income statement, without taking into account the influence of the results expected from these older projects and at a constant exchange rate, would have shown a net profit of 248 million euros, four times more than the profit obtained in 2015, which totaled 57 million euros.

Despite these adverse results and following the measures taken in the financial sphere, the 2016 financial year has left a sound and reinforced balance sheet that constitutes a solid base on which to build the company’s future.

In this context, regaining the confidence of our rating agencies has been established as a priority objective for OHL in 2017. The Group trusts that the debt-reduction measures taken, the sound and profitable model of the construction business –once the impact of the older projects has been absorbed– and the strength of the liquidity position –following the agreement with OHL’s reference banks-, will make it possible to reach a recourse leveraging ratio at the end of 2017 of less than 1, an aspect which is expected to bring about a positive impact on the rating.

Principal milestones of the financial year in economic terms

  • Final elimination of the impact of the legacy projects on the results and the curtailing of their impact on the cash flow. At the close of accounts for the year, a revision of the final targets for these projects was made that has translated into lower figures for EBITDA and for the result of entities accounted for by the equity method totaling 520 million and 149 million euros, respectively. With this situation resolved, OHL will be able to center on the management of the rest of the construction business, now on sound footing and producing a positive cash flow on a sustainable basis
  • Successful rotation of assets with capital gains in all cases. That activity, which is a part of the company’s ordinary course of business, has enabled debt reduction and the simplification of OHL’s financial structure. This rotation has involved divestitures totaling 1.6 billion euros in 2016 and 627 million in the first two months of 2017 and has led to a net result of 330 million euros in 2016. Moreover, in the first two months of 2017, an additional amount of approximately 100 million euros has been obtained following the recent divestiture of the 2.5% stake in Abertis and the partial divestiture of the Mayakoba and Canalejas assets
  • Excellent performance of the Concessions Division, where sales and EBITDA from tolls, at a constant exchange rate and excluding the effect of the change in the consolidation method of Metro Ligero Oeste, grew 11.7% and 20.5% respectively, and where the concessions in Mexico, with growth figures in local currency of 14.7% and 14.8%, respectively, stand out particularly
  • The Division has initiated a process for incorporating new partners during this financial year, up to a total of 49%, into its greenfield assets: Vespucio Oriente, Puente Industrial, Río Magdalena, Nogales-Puchuncaví and Puerto Valparaíso. This incorporation would cut the equity contributions by approximately half and, according to current estimates, these would then be reduced to 146 million euros, delivering a cash inflow of approximately 116 million euros, corresponding to the proportionate part of the equity already contributed to these projects at the close of accounts for 2016
  • Complete elimination of trigger risk. Following the sale of the 4.425% stake in Abertis on October 3, 2016, the process was completed for the elimination of all of the borrowings with trigger risk which, at the start of 2015, totaled 1.5 billion euros
  • Backing of the Group by the banking sector. Caixabank, Banco Sabadell, Bankia, Santander, Popular, Société Générale and Crédit Agricole, following a detailed study of the present and future situation of OHL, have decided to maintain their positions and to commit a package of additional financing in a total amount of 747 million euros. This transaction confirms the support of these institutions to the business plan designed by the company, which in 2016 has had to confront high volatility in the markets caused basically by the rating agency downgrades
  • An Investor Day was held on April 5, 2017, during which the current situation of the company and of the market was addressed. OHL will reinforce its presence in its eight home markets and will give priority to the return-risk ratio over the growth target in works completed, in addition to reinforcing the risk control and contract management mechanisms in the tendering and performance stages
OHL will reinforce its presence in its eight home markets and will give priority to the return-risk ratio over the growth target in works completed, in addition to reinforcing the risk control and contract management mechanisms in the tendering and performance stages

Sustainable development

In 2003, the OHL Group stated its public and voluntary commitment to sustainable development. This is a firm commitment that is driven by its Board of Directors through the Audit, Compliance and Corporate Social Responsibility Committee.

As significant events during the financial year in this scope, I would like to highlight the following:

  • The drawing-up of the Group’s Human Rights Policy
  • Review and updating of the corporate sustainability policies within simple, clear and effective regulatory frameworks that are known and applied systematically in all of the business activities and geographical areas in which the Group operates
  • Implementation of 44% of the measures included up to 2020 in the Group’s CSR Strategic Plan 2015-2020. Major objectives of the Plan, which is aligned with the United Nations Sustainable Development Goals, are to strengthen OHL’s contribution to sustainable development and to succeed in having its CSR actions become a factor of competitiveness for the business lines
  • Continued presence on the FTSE4Good Ibex since 2008. This sustainability index ranks us as a committed security and of particular interest to investors who combine their profitability targets with their concern for ethical, social, environmental and good governance aspects in business management
  • Maximum “A” score (formerly, 100A), with leader status in the CDP Climate Change 2016, and renewal of the Group’s presence on the Climate A List, a list made up by only 9% of the companies with the highest scores in the world in the fight against climate change
  • The OHL Group is placed twelfth in the ranking of European construction companies and seventeenth among Spanish companies in all sectors, within the top 1,000 European companies that invest most in R&D&I, according to the document EU Industrial R&D Investment Scoreboard 2015, published yearly by the European Commission

And to conclude, ladies and gentlemen, I would like to convey to you that, in this new stage commencing under my chairmanship, OHL has established a solid foundation on which to consolidate a promising future for the Group that will be achieved, without a doubt, thanks to the support and confidence of all of our shareholders as well as of our stakeholders. And most especially I wish to thank OHL’s outstanding team for their generosity, in singularly difficult and painful circumstances for all of us, and because their effort, dedication and unfailing spirit of achievement will continue to be essential for the attainment of the targets we have set for ourselves in 2017. I wish to thank all of you most sincerely, in my own name and in that of the Board of Directors.

The Chairman of the Board of Directors
Juan Villar-Mir de Fuentes