Good morning, we welcome you all to the conference on the presentation of the results of Constructora Conconcreto for the second quarter of 2014.

Transcription

1 INTRODUCTION Good morning, we welcome you all to the conference on the presentation of the results of Constructora Conconcreto for the second quarter of Before we start, I would like to advise you about how to use the platform. If you have questions concerning the presentation, you will find an icon for the questions on the right margin of your screens. You can click on it and then write your questions on the pop-up window and send them. We will answer the questions at the end of the session when Mr. Juan Luis Aristizábal concludes his presentation. After this brief introduction, I give the floor to Mr. Juan Luis Aristizábal Vélez, president of Constructora Conconcreto. Please, you may start your presentation. START OF THE CONFERENCE Good morning to all and welcome to the presentation of the results of Constructora Conconcreto for the second quarter of The second quarter of this year has been very important for the company. We have a 21% increase in the income with respect to the second quarter of We have a good commercial management which has allowed us to obtain some projects, and we have a Backlog that is close to COP$2 trillion. This is a construction Company and getting precise pictures is quite complex so I am going to give you a detailed report concerning the results of this quarter. However, I also have some clear points regarding cumulative figures of the year and the projection for the closing of year This quarter we are starting the construction of the Buró 25 corporate center, located on Avenida El Dorado, quite close to the El Dorado airport in Bogotá. It will have an area of 60,000 square meters for sale and lease. The first building will have the headquarters of Avianca s Back Office and of the Training Center for Pilots. We initiated an important Project in Santa Marta, the Two Towers Project, which includes a residential building and a hotel. We also started the construction of the Fresenius Medical Care plant on the savanna of Bogotá. The State awarded us a project for COP$85.9 billion: the access roads to the La Línea tunnel. If you remember, those of you who have been with us for a longer time, the La Linea pilot tunnel was built by Conconcreto. Now we are going to build the access roads. We are also looking for more opportunities in terms of new contracts in this great project. We finally filed before the ANI, in the department of Cundinamarca, and before Transmilenio in the city of Bogotá, the feasibility of the public-private alliance for

2 the Regio Tram which includes two railway lines using the old railroads of the savanna of Bogotá. The purpose is to connect the south and Soacha, the municipality of Soacha and the Central Station in Bogotá, as well as Madrid (Cundinamarca) and Fontibón. From the commercial point of view, the quarter has been good in terms of income, as I already mentioned to you: COP$ billion, 21% more in relation to last year s second quarter. In general, the cumulative indicators of the Company are good as of June. We are delivering this first report in which we compare each quarter of the year visà-vis the previous year. It will be easier for those who are doing a follow up of Conconcreto to compare the quarterly and cumulative figures. Starting next semester or the second half of this year, we will also include the same tables on our website but with the cumulative reports as quarters pass. Conconcreto s income derived from construction services grew 19%, and the gross profit of the second quarter went from COP$28 billion in 2013 to COP$23 billion in the second quarter of This represents an 18.2% drop of the gross profit. The effect of the drop of the gross profit and the increase in the expenses had an impact on the operating profit, on the profit before taxes, and on the net profit. This increase of the costs is due to the fact that, by already using the International Financial Reporting Standards policies, there was a change in the margin of the Lobo-Guerrero Cisneros dual carriageway project, started three years and a half ago, since we initiated the critical stage for the covering of the tunnels. This activity has costs that are higher than those budgeted so there will be an effect on the final margin of the project. The company has a very orthodox discipline and it recorded, in a retroactive manner, the decrease of the margin as per all the invoicing of the project and it had a high impact on this quarter. In addition, we also have a housing project that had some additional costs. Once this fact is evidenced, it is recorded right away. It is then taken to the income statement in order not to leave deferred costs or inventories that may subsequently cause bigger problems regarding the results of the company. Then, what we see today is basically the effect of the change of the margin of a large construction project. It was decided to record it in full in one single quarter. This had an effect on the profit, on the EBITDA, and on the net profit. In addition, the company is also developing an in-house design workshop for which we hired 25 engineering professionals of different areas. This, with the purpose of

3 integrating all the designs, becoming more efficient from the construction point of view (time and costs), and starting the rendering of a service integrating designs and optimizing designs for third parties in order to strive for more profitable better business opportunities. We already have a first contract with an important group in Colombia in which we are designing its distribution centers; we are also certifying it with the LEED certification. In other words, this small unit that supports the internal strategy of Conconcreto regarding own projects is already generating income through third parties. And, finally, we started the operation in Barranquilla with the opening of the new office. We already have an important commercial office in that city, and we are executing projects in Barranquilla, Cartagena, and in Santa Marta. With this, the Atlantic Coast, which has been highly dynamic in Colombia during the last years becomes an important market for the growth of Conconcreto. From the point of view of the results, we have a higher financial cost in If you remember, we received the resources from the issuance of shares in Those resources were used for the payment of debts with the obvious purpose of lowering the financial cost. However, as we have been investing, the company has had to assume higher debts. This has also had an impact on the non-operating expenses which we have already been evidencing during the last quarters. Nowadays, we have moved from a total indebtedness of COP$149 billion to COP$348 billion. Most of this money has been invested in the acquisition of plots of land for shopping malls in the southern area of Bogotá. This money appears now as indebtedness of the company. We are creating the trusts in order to transfer the plots of land. Once concluded, the loans will belong to the trusts under which the projects are developed. As per the balance sheet of the company, we went from assets for COP$1.3 trillion to assets for COP$1.75 trillion in the second half of The net worth went from COP$920 billion in 2013, second half, to COP$1 trillion in the second half of Then, in order to conclude with respect to the income statement, this is a situational circumstance which is the result of some decisions that had an effect on the quarter. Nonetheless, the results of the company evidence its good performance. For you, the analysts, and for those of you who already prepared the cumulative comparison tables and added the quarters of the two years, the cumulative result of the first half of 2014 is higher than the cumulative result of the first half of As an illustration, the net profit of the first half of 2013 was COP$ billion due to the impact derived from the concessions, and the net

4 profit of the first quarter of 2014 is COP$ billion; however, we have not received the dividends of the delayed concessions. The next page shows the construction services. This is where we see the great impact I mentioned concerning the infrastructure projects. The larger volume is caused by the execution of large projects; the lower profit is due to the impact of the projects. The projection for the closing of the year is interesting from the constructionpoint of view. The Hidro-Ituango hydroelectric power plant is reaching the average invoicing level it should have according to the projections made: between COP$30 and COP$25 billion per month. The other projects are being executed in a satisfactory manner: the Cucuana hydroelectric power plant, the Lobo-Guerrero Cisneros highway corridors, and the Cucuana highway corridor and, in general, all the progress evidences a satisfactory progress. As per the case of the Ruta del Sol, we were expecting the recommendation of the Colombian Society of Engineers for last week which would lead to the approval of the design of sector one of the Ruta del Sol. We have advanced in the negotiations with the government in order to conclude the differences we had concerning the design of sector one of the Ruta del Sol. We think that we will reach an agreement this year and we hope that this agreement includes the partial execution of this sector that has been under dispute due to its design. In general terms, if you compare only the cumulative figures of construction you can see that the first quarter of 2014 exceeded the profits of the first half of The EBITDA generated for this second quarter of 2014 is COP$437 billion vis-à-vis COP$7 billion of the second quarter of That is where the difference of this quarter appears: despite the fact that sales are high the net profit and the EBITDA have a negative impact. From the perspective of the Backlog, which is very important for the construction business, you can see in the lower part of the page that the remaining Backlog for the year amounts to COP$599 billion. However, we already have a Backlog for COP$715 billion for This gives us peace of mind about having a relatively good year form the commercial standpoint; therefore, the company must focus on the execution of projects in order to obtain the expected margin during the second half of this year and in There are a couple of tables on the following page which detail the Backlog of the company. Currently, 21% of the Backlog is in the private sector (infrastructure) and 79% is in the public sector. As per construction, 52% of the Backlog is in own projects, and 48% in projects that belong to third parties. You can also see the

5 evolution of the infrastructure and construction Backlog in the lower part of page 5. We have obtained COP$162 billion in contracts during this quarter, and we have executed a total of nearly COP$220 billion between both units. We also had an income increase in the real estate portfolio and a drop in the gross profit, basically due to the coincidence of starting, during this quarter, the operation of Buró 24 which is an office building on the savanna of Bogotá, and the operation of the GHL Style hotel in Neiva. In addition, the shopping malls are in the last stage as per the occupancy of their leasable area. All this had an effect on the income and on the gross profit. The assets that are not stabilized have an obvious impact when the operation starts. The second half of the year was very active in this sense: the Movich Hotel on 26 th Avenue, the Buró 26 building, and we completed the UStorage building in Crespo (Cartagena). All of them start with low occupancy levels so the quarter was not so good from the real estate perspective. The EBITDAR of the second quarter of the year was COP$ billion, quite higher than the EBITDAR of the second quarter of last year which was COP$6.826 billion. The lower part of the next page has the information concerning the evolution of the GLA in square meters: we have had a growth close to 38% during the last five years. We are reaching 323,000 leased square meters. 300,000 square meters of that total correspond to Conconcreto s participation. The strategy keeps supporting the growth of the company. Right now, almost COP$1.2 trillion are projects, the land has been bought, the licenses are under the approval process, the construction is about to start or is close to completion. This gives us also great strength in the construction area, and we expect to keep generating cash income in order to soften the construction cycles. The next page shows the concessions. For the second quarter we have income for COP$2.748 billion in comparison with COP$4.574 billion of the second quarter of last year. The basic difference here is the Devimed concession which is the exit from Medellín along with the Ruta del Sol connection in order to get to Bogotá. This concession has some traffic guarantees and a fee differential which is eventually paid to us by the state. It is calculated on the first day of the month of January of every year; it is displaced in time and the state delays the payment a little. In this case, we are expecting to be paid the fee differential and the traffic guarantee for This is a figure close to COP$38 billion in which Conconcreto has close to 25% of this concession. This will have a positive effect on the projection of the third quarter and on the closing of the year. These concessions, in turn, for example the CCFC concession has half-yearly closings; it distributes dividends twice a year

6 so the quarter is not so comparable. It is easier to look at the cumulative figure of the year in relation to the previous year. Regarding the equipment and participation area, we have been using a new color. For those of you who have been with us for several years, we are using blue in order to display the income of the company derived from equipment lease (a high percentage in own projects), particularly the large consortia we create in order to undertake infrastructure projects; we have a low income level derived from leases to third parties. Here we are also showing income derived from the participation in partnerships in which the company has proprietary interest: Conconcreto Internacional, Inmobiliaria Conconcreto, Industrial Conconcreto, and Consalfa. We do not control some of them, and we are full owners (100%) of some of them: Inmobiliaria Conconcreto, Conconcreto Internacional, and Industrial Conconcreto. We record all the quarters in the financial statements. This group of income sources, both equipment and proprietary interest, had a good performance during the second quarter of 2014: income for COP$7.792 billion in relation to COP$5.320 billion during last year. And an item called costs; however, it is positive because they are recoveries from the projects. They should be more like income derived from projects of Conconcreto because the costs is an addition and give us a higher gross profit than that of the income. As per the second quarter of 2014, it was COP$9.536 billion with expenses for COP$7.101 billion for an operating profit of the quarter which amounts to COP$2.464 billion; the EBITDA generation was COP$4.149 billion. In general, as I tell you, this quarter, from the results standpoint the numbers are not satisfactory. It is very difficult to take a particular picture of the construction business in which there are fluctuations of the margins of the projects even including the sale of assets, in some cases there is the recovery of income in housing projects, etc. Please, assess the tendencies from the perspective of the management of the company. We do not see anything we should inform you about, as shareholders, which may change the projection of the results for the closing of the year. Maybe the only difference we will have at the end of this year, in relation to 2013, will be the higher financial cost of the investments being made, of the big shopping malls in the southern area of Bogotá, the building offices Buró 51 in Barranquilla, Buró 24 in Bogotá which is requiring a higher level of indebtedness for the company so we will have a higher financial expense. In addition, we already see a reflection of most of the investments being made in the 4G projects for which (if you remember) Conconcreto was prequalified for four

7 projects during the first wave. The terms of only one of the four projects have already expired and Conconcreto decided not to participate because the closing figures were not satisfactory. There are still three projects whose bidding processes have not finished yet. We are highly interested in participating in one of the three projects. As per the remaining two, there is one that does not interest us. We are analyzing the other one in detail, mostly due to the traffic levels. As a result of this first round, which has been very active during the last months, it is satisfactory to see that there are very serious Colombian companies that are obtaining the contracts. It is, from the practical point of view, a very important indicator that only one or two, or maximum three proposals are being submitted for these bidding processes. This reaffirms the fact that figures are not being very attractive for international investors, mainly from the perspective of long-term risks, and some risks the concessionaires at the global level would not like to assume. The State has provided hints in the sense that adjustments will be made for the second wave and in the future projects. It is obvious that when the package is close to 23 projects, there is a long way to run and Conconcreto will be able to play an active role. Likewise, we keep working with public-private alliances. We are working in the Regio Tram that I already mentioned to you, in a corridor in Colombia under a concession which does not belong to the 4G project. We are presenting other public-private alliances in the port sector, we are working in one, and in urban highways in one of the capital cities of the country. These are projects that need a lot of resources, they demand a long time in order to structure them. However, we think that it is an important mechanism for a company the size of Conconcreto to take part in those projects required by the country in which private capital is necessary. I conclude my presentation with this. I open the questions. If there are any questions concerning this, here we are in order to answer them. Thank you. CLOSING OF THE CONFERENCE Thank you, Mr. Juan Luis Aristizábal. Now we open the time for questions and answers. Remember that you find an icon on the right margin of the screen through which you may send your questions. BEGINNING OF THE QUESTION CYCLE The first question comes from Laura Salamanca.

8 -Good morning, thank you very much for the presentation. I would like to understand the real estate business. The impact of the start-up of the operation of assets that are not stabilized. What do you mean by that? - The assets that are not stabilized are those that start their operation and do not have a high occupancy level as the hotels, the office buildings, and the mini storage units. When shopping malls are opened they have already undergone prior negotiations so they usually have occupancy levels exceeding 80% or 85%. As per the hotels, the opening process of a hotel demands a one-month trial and then it takes some months to reach the expected occupancy levels while we get the clients. Likewise, in terms of office buildings, usually the lessees rent the places once the building is very close to completion, or after it is finished. Then, assets are not stabilized when they have not reached the occupancy level expected in the financial model or in the financial projections. In the case of the operating lease, the income derived from the assets that have been financed through an operating lease, they are recorded as income for the company and the cost, or rate of rental, is recorded as a cost. That is why we show the EBITDAR with a final r; it is basically the income before subtracting the operating lease amount in order to have comparable figures not affected by the financial structure of the asset. In the case of the second half of the year, there are several assets that initiated their operation but that are not stabilized. The income grew but the cost of the operating lease is high, and that has an effect on the gross profit. The next question comes from Alejandro Isaza: -Good morning. In order to understand the relationship between the execution and the invoicing, what is the reason behind the difference between the income from the first half of 2014, for COP$315 billion, and the value of the executed works during the same period of 2014 for COP$404 billion reported in a press release of the Financial Superintendence on July 30? -All the construction companies handle the total figure of the executed contracts and we handle the Backlog figure which are the future contracts the company has in terms of the value of the contract, according to the type of execution and, above all, in the case of the works under administration or, as they are internationally known, cost-plus contracts, or the cost plus a percentage. The construction companies only record the part that corresponds to their profit in the case of these works. For example, if one construction work is under administration and it invoices COP$10 billion with an 8% margin, equivalent to COP$800 million, then the

9 financial statements of the company show only the COP$800 million as income for the company, but we record the COP$10 billion as volume. This is done in this way in order to have margins that do not fluctuate a lot depending on the combination of contract types of the construction companies. Then, the net and operating margins are always calculated in terms of the volume, from the perspective of establishing a comparison and against the invoicing in order to have indicators of both types. Having the volume is a cultural trait and we always report the volume in all the figures of the company for the public. In terms of accounting, we can show here only the invoicing or the income. We remind you that the period for questions and answers is open. CONCLUSIONS OF THE CONFERENCE Since we have not received more questions, I give the floor to Mr. Juan Luis Aristizábal in order to conclude the teleconference on the results of Constructora Conconcreto for the second quarter of Well, thank you very much. I only want to say three things: the first one is to emphasize strongly that the quarterly result does not have a big impact on the results at the end of the year as per the press release mentioned now. It was noted that the company has, right now, contracts for nearly COP$920 billion for the closing of the year. These contracts have interesting margins, the concessions and the real estate portfolio business keep meeting its projections. Therefore, the year will be very interesting for the company and we will just have a high financial cost derived from the investments being made for future projects. We will be posting the half-yearly cumulative figures on Conconcreto s website this afternoon by using this same type of report. Next week you will find an Excel table which will include last year s and this year s quarterly results so that you can add cumulative figures, compare cumulative figures, compare quarters, half-yearly periods, etc. You can do all the exercises that will allow you having a lot of clarity as per all the figures. This type of report on the quarterly results was developed by us during the last months. We would accept, via through our AR, any additional recommendation you would like to include in it. Thank you very much for being with us and we hope, with certainty, that the results of the third quarter will be much better and that we will have a more satisfactory projection for the closing of the year. Thank you very much. We conclude now the teleconference on the results of Constructora Conconcreto for the second quarter of Thank you very much for being with us.

10