Sustainability Report

Letter from the Chairman

Juan-Miguel Villar Mir
The Chairman of the Board of Directors

Ladies and gentlemen:

I am pleased to address you all in order to present the highlights that have marked the latest progress made by the OHL Group.

In the 2015 financial year two relevant milestones were achieved. First of all, a capital increase for 999.1 million euros completed on 30 October 2015; secondly, presentation of the Strategy Update 2020 in March 2015. These events have opened a new era for OHL, focusing on the generation of sustainable cash in each division, by reinforcing risk control devices and strengthening its capital structure in order to accomplish future growth.

The OHL Group has registered outstanding operating results. Thus, its sales have reached a total of 4,368.9 million euros −20.2% more than in 2014− and operating results (EBIT) have grown by 11.5% up to 684.8 million euros; net attributable profit has also registered a large increase close to 140% until reaching 55.6 million euros.

As part of the Group’s globalization process and in the scope of its lines of business, I would like to highlight the following:


  • Concessions undertook a new concession as a private initiative (IP) in January 2016, approved by Consejo Metropolitano de Lima (Peru), referred to as La Molina-Angamos urban toll road. It will integrate the main service areas of Peru’s capital city with a highway 12 km long, entailing an investment of approximately 460 million euros.

    With this new award, OHL Concesiones is now directly managing a portfolio of 19 main concessions, to include 14 toll roads (covering a total of 962 kilometers), 1 airport, 3 ports and 1 railway.

    In turn, as part of its asset rotation strategy, OHL México successfully completed a sale of 24.99% of its capital stock in Mexiquense Beltway to IFM Global Infrastructure Fund, for 546 million euros. These funds will be used by OHL México to complete its investment in new projects already awarded.

  • In Engineering and Construction it is noteworthy the good performance of the international activity of its main line of business, Construction, thanks to the new awards in USA, where it already carries out infrastructure projects in 10 States, in addition to greater activity in Mexico and the entry into new markets as the Norwegian with the EPC (Engineering, Procurement and Construction) Ski contract for an amount of EUR 290 million. The contract is part of the Follo Line, the most important transport project of Norway currently. The Division short term portfolio reached 6,586.5 million euros, about two years of sales. The portfolio presents a balanced profile, both geographical and by size of work, with 82.3% generated in its home markets (Canada, USA, Mexico, Peru, Chile, Colombia, Spain and Czech Republic).


Financial matters

Further to our policy of continuous financial optimization, the following is relevant:

  • Net Recourse Debt has registered a historic minimum of 379.4 million euros, resulting in a Net Recourse Debt/Recourse EBITDA ratio of 1.3x.
  • Generation of organic net cash in the Construction business of 46.3 million euros.
  • Improvements in the average cost and maturity profile of Eurobonds. In March 2015, a new issue of Eurobonds was launched for 325 million euros, with maturity in 2023 and a fixed coupon of 5.50%; in April 2015 the funds obtained were used for a total early repayment of the issue of 425 million euros, with maturity in 2018 and a fixed coupon of 8.75%.
  • Further to our rotation policy for mature assets, it was decided to sell a series of non-strategic assets most of which belong to the Engineering & Construction division. At the end of the first quarter of 2016, nearly 75% of said assets have been sold and paid for. All the funds obtained from this sale are expected to be assigned in full to reduce Recourse Debt.
  • Finally, please note that 2015 has been marked by a particularly relevant milestone: a capital increase in OHL. The transaction entailed preferential subscription rights and was launched for 999.1 million euros, with the circulation of 199,018,056 new shares (two for each former share), at an issue price of 5.02 euros. The funds have been used as follows:
    • To reduce Net Recourse Indebtedness by approximately 632 million euros.
    • To assign nearly 340 million euros to OHL Concesiones for capital commitments in new concessions awarded in Peru, Chile and Colombia.

On 29 October 2015, the final outcome of the Capital Increase was announced, which was subscribed during the preferential subscription period and registered an additional level of demand of 6.2x, evidencing the strong support received from OHL’s shareholders for this new stage in the company’s life.

 

Reputational crisis in OHL México.

 

Since May 2015, OHL has been the object of a defamatory campaign, which was refuted with legal action in order to clarify the facts.

On 28 March 2016, the Mexican Banking and Securities Commission (CNBV) ascertained the absence of willful intent, fraud or any impact whatsoever on the Mexican financial system or third parties, further to the actions of OHL México and its subsidiaries Organización de Proyectos de Infraestructura (OPI) and Concesionaria Mexiquense (Conmex).

The conclusions reached by the senior financial regulator in Mexico confirmed the same ones reached by E&Y, PwC and KPMG which, along with Deloitte, OHL México’s auditor, belong to the top-rank auditing firms in the world. All of these reports coincide on the fact that the accusations made in the campaign to discredit the company were false.

 

Sustainable development

 

Since 2003, OHL holds a public and voluntary commitment to sustainable development, which is promoted by its Board of Directors through the Auditing, Compliance & Corporate Social Responsibility Committee.

 

I would like to point out the following highlights in this field for 2015:

  • Approval of the new Corporate Social Responsibility Policy, in accordance with the Spanish Guidelines for Corporate Governance for listed companies.
  • Launching of the Group’s 2015-2020 CSR Strategic Plan. The Plan is aligned with the United Nations Sustainable Development Goals, and its main objetives are to strengthen OHL’s contribution to sustainable development and to ensure that its CSR activities work as a competitiveness factor in its lines of business.
  • Renovation, for the seventh consecutive year, of our presence in the FTSE4Good Ibex, one of the most relevant indexes in sustainability matters, which we joined in 2008 and which rewards us as a committed and special-interest asset for investors which, in addition to their profit-seeking objectives, are concerned about ethical, social and environmental matters as well as corporate governance in business management.
  • OHL’s inclusion in the exclusive Climate A-List of CDP, where the 5% best companies in the world that fight against climate change are selected.
  • OHL Group’s inclusion in the ranking of Europe’s 1,000 companies that assign the most resources to RDI investment, as reflected in the EU Industrial R&D Investment Scoreboard 2015, which the European Commission publishes each year. According to this report, the Group ranks twelfth amongst European construction companies and holds position seventeen amongst Spanish companies in all sectors.

 

I am happy to point out that the Group’s results could not have been obtained without our shareholders’ continuous support and trust. This is why I would like to thank them all, on my behalf and on behalf of the Board of Directors. My thanks also go to our stakeholders and to OHL’s outstanding team, for their effort, dedication and continuous search for self-achievement, which have been essential for us to achieve the objectives set for the 2015 financial year.

The Chairman of the Board of Directors
Juan-Miguel Villar Mir