Aenza SAA (AENZ) 2014 Q1 法說會逐字稿

Good morning, and welcome to Grupo Grana y Montero's first quarter 2014 conference call. (Operator Instructions) After the presentation, we will open the floor for questions. (Operator Instructions).

It is now my pleasure to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, you may begin.

Thank you. And good morning, everyone. I'm very pleased to welcome you to Grupo Grana y Montero's first quarter 2014 conference call on this April 30, 2014.

This morning, the senior management team of Grupo Grana y Montero will discuss the Company's first quarter 2014 consolidated results per the press release issued yesterday. For a copy of the earnings release and more information available on the Company, we ask that you visit the Company's website at www.granaymontero.com.pe in the Investor Relations section where there is also a webcast presentation to accompany discussion during this call.

This call is for investors and analysts only. Therefore, questions from the media will not be taken.

I will now introduce our speakers. And joining us from Lima, Peru, are Mr. Mario Alvarado Pflucker, Chief Executive Officer; Mrs. Monica Miloslavich Hart, Chief Financial Officer; Mr. Juan Manuel Lambarri, Chief Executive Officer of Engineering and Construction Area; Mr. Luis Diaz, Chief Executive Officer of Infrastructure Area; and Mr. Dennis Gray Febres, Corporate Finance and Investor Relations Officer.

During this call, management's comments may include forward-looking statements, which are subject to various conditions that may differ materially. We ask that you refer to the disclaimer as guidance on these matters.

It is now my pleasure to introduce Mr. Mario Alvarado, Chief Executive Officer of Grupo Grana y Montero for his presentation. Mr. Alvarado, please go ahead.

Thank you, Rafael. Good morning, everyone, and welcome to Grupo Grana y Montero's first quarter of 2014 results conference call. Thank you for joining us and your interest in the Company.

I will begin today with an overview of the main highlights of this quarter.

In terms of the macro environment Peruvian GDP growth was 5.7% in February and analysts' consensus for full year is for 5.3% growth. At this moment, private investment is expected to have a small growth this year.

ProInversion has awarded some of their infrastructure plays announced for 2014, awarding Line 2 of Lima Metro on March; the Chinchero airport on April; to name some examples, and is expected to award approximately $4 billion in the remaining of 2014.

Colombia has also launched its $20 billion road Conexion program with three projects: Girardot-Puerto Salgar, Pacifico 1 and Pacifico 2. The first two projects received two bidders each out of the 10 prequalifiers, and the last one received only one bid yesterday.

Regarding our total backlog, figures remain strong at $3.9 billion at the end of the first quarter of 2014. This amount is equivalent to 1.8 years of annual revenues.

Within the development in first quarter 2014, in March, we agreed to purchase from [CPPIB], the Pension Plan from Canada, a controlling stake of 51% of COGA, operator of the TgP [pipeline]. A transaction that we believe will provide us with expertise in the operation of complex [pipelines] to strengthen our presence in the oil and gas business and present opportunity in the market.

Javier Prado Cuban highway now is in the process of taking approvals from the Ministry of Finance according to a new regulation. In April--sorry, in January, they passed a new regulation saying that all the investment policy has to be approved by this Minister.

Cuartel San Martin, a real estate project, is involved in the license of the project.

A final comment on the [large bidding] projects, and we always say it, we will continue to analyze and participate on the many projects that are coming with a strict and disciplined approach in the risk/return allocation, as we have done in the past.

I believe you will have some questions on this matter, which we will address in the Q&A section.

Thank you for your attention. Now I will turn the call over to Monica Miloslavich, our CFO, who will review the key financial highlights. Monica, please go ahead.

Well, thank you, Mario. Please let's go to page 6 on the presentation.

The revenue growth is explained mainly by the increasing revenues in the E&C segment, particularly in contract mining services. Revenues reported in the Vial y Vives and DSD, two recent acquisitions in Chile.

Additionally, the Line 1 of Lima's Metro reported more revenues, due to more trains under operations since July 2013. More [gas transaction] in GMP and higher revenues in the real estate segment, yielded units delivered with higher prices.

The gross profit was mainly driven by the infrastructure segment, due to the increase on the strength on the operation and higher levels of production in the gas plant.

Additionally, the increase in the E&C segment's gross profit is explained by the revenues in contract mining and services and DSD, the recent acquisition in Chile.

The real estate segment's gross profit was impacted during the first trimester by the delivery of units with lower margins; and in the technical service segment by the cancellation of one of the maintenance contracts with the Regional Government of Cusco.

The impact in operating income is due to increase in administrative expenses, as a consequence of more employees hired during 2013. However, the percentage of administrative expenses to revenue is still lower than the industry.

The other impact was less reversions of provisions in relation with the acquisition of CAM and the Vial y Vives that done in the first quarter of 2013.

Finally, the net income has increased 11%, with a net margin of 4.7%.

The amount of EBITDA is explained by the results in gross profit and operating income explained before and, additionally, implies a lower depreciation in the first quarter of 2014, due to less utilization of equipment.

In terms of participation of each of the segments in revenues, the E&C segment represents 70% of the total revenues of the Group.

The EBITDA from the infrastructure segment has increased its participation from 23.5% at the end of the previous year to 36.1%, because of better results during this quarter. On the other hand, technical services has reduced its participation, as a consequence of lower results reported in this segment.

In page 7, the year ended with a total amount of backlog of $3.9 billion, similar to the one reported at the end of the previous year, and represents a ratio of backlog to revenue of 1.8 times.

From the total amount of backlog, $1.5 billion is going to be executed in 2014, which represents a strong backlog for this year. Looking forward, our commercial effort will be focused on increasing backlog for 2015 and beyond.

Adding to the backlog the total amount of recurrent businesses for the next three years is $395 million, from which $110 million is going to be executed during 2014.

Most of the new contracts awarded during the first quarter are in the technical service segment. Therefore, the participation of technical services in the backlog has increased from 15% at the end of 2013 to 20%.

The main contracts awarded are in the electric service business and one new road maintenance contract by (inaudible). The backlog also includes the removal of the backlog of the road maintenance contracts with the Regional Government of Cusco.

From the total amount of backlog by end-market, the most relevant are 17% in mining projects; 31% contract mining projects; and 21% in the electric sector, which has increased from 17% at the end of last year, due to the new contracts awarded in the electric service business.

As previously reported, the private sector remains our main client with 87% and the foreign backlog is at 19%, similar to previous quarters.

In page 8, the amount of relevant investment in this first quarter has been the purchase of land for future development of real estate projects in the city of Lima. As of today, the main users of the receipt of the equity raised of last year has been in the infrastructure and real estate segment.

On page 9, the total amount of debt, as of the first quarter of 2014, is $276 million, a ratio of financial gross debt to EBITDA of 0.88, or negative 0.1 if net debt is considered.

Most of the debt is in dollars, which is related to the currency of the revenues and the assets associated to the debt.

Operator, please proceed to the Q&A session.

(Operator Instructions). Omar Avellaneda, Credicorp Capital.

I have several questions regarding your 1 quarter 2014 results.

My first question is regarding the engineering and construction unit, and it's this one: should we expect the gross margin we have seen in the first quarter to remain in the rest of the year?

Returning to the infrastructure unit, I was wondering if you can tell us, when do you expect the remaining trains to be operative? And how much the revenues will increase as the new trains start operation?

And I have another question regarding your [recent project], please, about Javier Prado project. Can you tell us or can you give us more color regarding the regulatory issues on this project? And what is it needed to sign this contract with the government? And those are my main questions.

Thank you.

Let me start to summarize your questions, because it was difficult for us to hear. The first one has to do with the margin of E&C, do you see a difference between the first quarter last year and this one, and now it's smaller?

The second one is related to the trains, if it's going to increase the amount of, and what the impact is going to be?

And the third one is about the Javier Prado.

Let me start with the third one, then I will pass to Juan Manuel to answer the E&C, and then I'll comment again on the [metro].

Well, Javier Prado, what is happening today is that the new regulation says that all the investment projects has to be approved by the Minister of Economy. We already agree on the terms of a contract. This [carry with] -- most probably we'll get the contract officially into the ministry and we'll have 15 working days to make any comment. That means two weeks.

And after that, if everything is positive, we'll have to go to (inaudible), that is the auditing internal department of our government. And that's the new -- the procedure that has to follow. If everything worked okay, then the contract should be signed. So we have to follow that, that far.

Now, I will pass to Juan Manuel to talk about E&C.

About our gross margin, our gross margin, the last year in the first quarter was 13.6% and now it's 12.8%. Two reasons, I think, are the main of this situation.

One is that last year we had an extraordinary gross margin (inaudible) result and not exactly a positive year, was probably the finish in 2012 and we received the claim in the first quarter 2013, and that increased our gross margin.

And our other reason is in a couple of projects this year in the (inaudible) division, we have had less margin.

Those are the main reasons.

Well, the rest of the year, in general, I suppose to finish around the same number that I have now. We have around 30% of our revenues in our mining services. And in that company particularly 80% of the projects are a [gross] flat fee and the mining is going to be very stable.

In Chile both companies, DSD and Vial y Vives, is going good and, really, we have only a couple of projects in Peru with UAM with some kind of difficulty. So I think, in general, I consider that at the end of the year the gross margin is going to be similar than now.

Now, I will pass to Luis Diaz to answer the Metro question.

In terms of the operation of the Line 1 of the Metro de Lima we are currently running with 12 trains, and we will keep running these for the next quarter too.

Starting on the third quarter, we expect to start operations in the tranche 2 of Line 1. This should double the amount of trains that we will be operating, increasing substantially the revenues on this area.

Thank you. The next question, please.

Juan Guzman, Scotiabank.

I have a question regarding infrastructure projects. Besides the road concessions in Colombia and the southern gas pipeline, can you give us some color on what other sizeable infrastructure projects are you looking to participate in during this year? Thank you very much.

Yes, there are two ways that we participate in infrastructure projects. One is through the bidding processes that the government has to (inaudible) in Peru and in Colombia, and (inaudible) in Chile, and both are public projects. There are many, many projects in that area currently.

But what is more important is that there is another way of having infrastructure projects; that is through, what we call, iniciativas privada, private initiative. Meaning that we present an initiative, the government studies initiative and once they approve those initiatives, they become under a bidding process.

The majority -- the projects that we are working are through this process of what we call private initiative, and we believe it's a better way to get better projects with better margins. The same -- and that was the case for (inaudible), the one that we are, today, in a positive of doing the engineering, and that process also was begun for Javier Prado.

Now, we are spending a lot of effort creating this initiative and the problem is going to be the capacity of the government to evaluate all these cases.

In the case of the initiative, we have to maintain a very private and confidential, until (inaudible) probably it as one of interest.

So for -- there are many projects that are coming and we are working in so many projects, different projects area. We believe we will continue having a lot of opportunity, so we have to be very careful and very disciplined in the way that we approach all these projects.

Great, thank you very much.

[Peter Sassafer, Tree Capital].

We were just hoping to understand a little bit more about the backlog you have for this year and 2015, if you could give a little bit more color as to your backlog. Thank you very much.

Okay, let me explain you again with about the backlog.

First, the backlog that we report is for the remaining of the year. So the remaining of the year's backlog is $1.5 billion.

Now, at that backlog, we have to add what we call recurring revenue for the remaining of the year. That total amount is going to be for the remaining of the year, backlog and recurring revenues, $1.681 billion.

Now, for that to calculate what we already have in our -- part of our business, you have to add the first quarter; it was $543 million. So the total, what we call -- what is very predictable is that $2.2 billion for this year already left.

The remaining, then you have to add the commercial part that we don't have on the backlog. We may have [strategic] reasons to get for it and increase the amount of revenues for this year.

So the very best case is what we have for the year, already is $2.2 billion and then we have to add to that the probability of some projects that are coming in the next months, and [particularly] the year.

Did I answer the question or do you want it also by sectors?

If you could give us to us by sectors, it would be very appreciated.

Okay, then you have the backlog it remains totally -- or mainly private, 87%; and also, mainly in Peru, 81% in Peru. Chile is now 12%, it's increased in Chile.

And about the other very important part is mining-related. Mining-related, it has two parts; operation of mines, that is 31% of the backlog. It is very strong. And new projects or the CapEx part of the mines is 17% of the backlog.

What is interesting about that is it has not changed much the proportion of the backlog related to mining compared to other periods.

At the same time, we are starting to receive from some clients' an indication that they will proceed with the projects, like (inaudible), Tia Maria, (inaudible), etc.

So the mining part of the backlog remains very strong and we will see in the next months to come how it works out.

Okay perfect, thank you.

Dario Valdizan, BTG Pactual.

I had a couple of questions regarding the results. If you could first go over the dividend that came from TgP, the $6 million [solid], is this something that we need to consider to be recurrent? Or this was a first payment -- first -- a one-time one-off, is this something that happens once a year? If you could provide a little more color on that and then I will go into my other questions.

The dividend for TgP has not to be considered recurrent, even though it's producing a lot of cash. The problem is, as you know, we don't have a policy there. We have a minority stake and it has new shareholders.

So we will know a little bit better in the next months to come, once the new shareholders take more position on what we are going to do in terms of CapEx for this project, so do not consider that as a recurrent.

Perfect, thank you very much. Now, going a little bit over your strategy, we started the year with about $12 billion for the (inaudible) pipeline of projects. As you say that's part of the strategy to apply for the concessions.

The other one, as you said also, was the private initiative. Now, we're seeing $4 billion. Looking back now, doing a little bit of retrospect, looking at Chinchero, looking at Line 2 of the Metro, which we have pretty much discussed previously, so perhaps maybe the last project.

What do you think happened on your debt on Chinchero, for example? Did -- because there was a significant difference between what you guys, according to the news -- there's over $150 million difference between what the winning consortium offered and what you guys did require from the government.

So looking back, what do you think was the difference there? What happened? And what lessons do you take from that? Do you feel that -- in the past, I heard you saying something about unleveraged IRR of 13%, has that become less realistic in the new environment? Do you need to change your strategy? If you could give us some color on that to understand a little bit what happened in your view, appreciate it. Thank you.

Okay, a very important question and thank you very much for asking.

Yes, (inaudible) Chinchero because there is always was a misunderstanding between what they put in the numbers as, what they call, the competition factor and the total cost of the project.

You may have a big difference in the competition factor, but not in the cost of the portfolio, because they use, what they call, marginal numbers. I'll explain a little bit later in details that.

For example, firstly, the big numbers that you have used in the Chinchero airport; one, are the numbers that are coming from the operation of the project.

Second, there is a fixed payment that they're going to be made for the job, but it's not part of the competition.

And then, there is a payment that they will do it at the end of the project for five years -- after the end of the project for five years -- for 15 years on the value of the job.

So if you compare the numbers, you will see, for example, from ourselves and the other group -- the other two groups and you see the numbers. Just using these numbers, you see $400 million ourselves to $348 million and say what a big difference. But if using the evaluation of the government, we were technically tied at 1.3, the factor; so the combination of the factor difference.

Now, to try and explain this, and I hope, [if you will], is a way is to think in a different way. Let's assume that the government says to us, you will have [$100 million] fixed amount and you will receive a payment to everybody. And you will compete for what you require as an additional of [$100 million].

And I would put, for example, $2 million additional, in the [area] we put $10 million additional. So we are comparing $2 million against $10 million, instead of $102 million and $110 million. In one case, it is times 10 the difference and in the other it's a percent, whatever difference. Do you follow me?

Yes, okay. So really the way that it was presented was a bit not complete, therefore, put a picture in which it looks like the difference between the bids were much higher than they were actually, once you factor everything.

Exactly. Now let me answer. What we may exercise doing some, okay, how do you say, assumptions about the consortium and we make the some of the greater value, there is a way to compare each one of all three offers.

And the total amount of the present value, using -- we have used 10% as -- to make it simple for all of them, to [discount] the cash flow. Using the different numbers, the winner will have 100% using the 10% with all these numbers; the second place, 108%; and ourself, 113%. So that's the difference -- the total difference using 10%.

If we use 11%, then, it will be a lot closer the difference. So that's the difference within.

Now, why -- the next question is why we have that difference and I cannot tell you today that; I'm trying to find out. Maybe I will not be able to find out, because what is very important to learn from each of this process, we find as much information as we can and then, we analyze what have we done and what can we do better.

Now, that brings me also the opportunity to explain another thing. I gave you Colombia, it's a very, very interesting case. There are many projects to come. [In our case then], we make a first, well, it is a raffle to decide who is going to participate, and they select 10 in each of the [parts].

We were not lucky in some of them. We were lucky in one, not in the three first [cases]. They have 10 [groups] selected. In the first case, only two present offer. In the second case, two also present an offer.

And in the third case -- I am sorry, two cases. In the first case, two; and in the case that we were going to present, were only one offer going to present; all of them, Colombians and none of them international companies.

Now, if there are many to come, we at that moment decided not to put in an offer, because there was a risk situation between the difference in traffic that [any] predict than the one that we have count, and it was an important difference that you have to (inaudible) to a three-year process. And we put that to the authorities.

Now, what is a key part here is the next quarter to come, because now the (inaudible) is understanding that it's not that simple to have many projects at the same time. And we have to be, in this case, very careful to wait for the right concession.

Perfect, that's very helpful. Yes, and I appreciate you elaborated so much on that question, it's really helpful.

Are you still looking at the backlog by sector, and I know that your backlog by sector has been adjusted through time according to economic situations and opportunities, of course. But right now, you're sitting a 48% in the mining sector and divided on the operation in the mining services.

Taking into consideration the current context then, which we are seeing even GDP being brought down by the Peruvian Government as a result of a lower expectation on the recovery for the mining sector.

I'm asking you, while I know this is a difficult question perhaps because of the long-term view, but looking ahead, where do you think that that percentage is going towards, from 48% on your backlog? What mining will look like for you going forward? I don't know if --

Let me [summarize] your question. You're saying that you're assuming that in the next months, the backlog mining-related will decrease; that's what you're saying?

I'm saying that I understand that your backlog adjusted to opportunity, meaning that it is not completely driven by one sector; that that driver on the time depends on economic opportunities.

But what I'm saying is the percentage that they have reached from the mining sector, it seems considerably high and, under the current circumstances, that should decrease due to the different cycle on the mining sector.

Therefore, I would like to see where you think that percentage -- that lower percentage of participation would go. So yes, I'm assuming that it will decrease. I just wonder if that -- what that decrease will look like as I know your service contracts do have a longer lifespan. But the other component, which is the 17%, is a shorter period compared to those ones.

Dario, you may be surprised next semester by the mining report, and maybe we will have an increase. I'm not saying that we will, but you may be surprised. So we are not sure that mining will decrease; we are in -- [allocating] important projects.

But beside that, our focus is, and has been, to have more of the infrastructure. But for that, we have to be very selective and we will continue to do that. We will continue to be very disciplined in approach and be very selective, because we would like to have a good returns on those projects. Those are long-term projects and so you better be good at the bidding process, and that's what we are doing and there are many, many opportunities to come.

But in terms of trying to predict the mining, at least I believe the next quarter it might increase, the mining part of that book.

Okay, perfect. I don't want to take more of your time. I know there's other people on the queue, so I appreciate it. Thank you very much for your time, Mario.

Thank you.

Andres Soto, Santander.

Regarding Colombia's toll road projects you were commenting before, seems to me that the interest in these projects have been rather limited given the long number of bidders in each of these three projects up in it so far.

Would you agree with that view? And if so, what do you believe that the reasons are for that? You mentioned traffic estimates, but any view is that traffic is just a cash flow issue at the end of the day. What guarantees you payment is the (inaudible) component, so that shouldn't be a deterrent in principal for business to participate.

So given this scenario, what are you expecting to happen in terms of the execution of the whole package?

No, it is right; to the whole people let's explain.

They provide you a cash [loan], what is [eight] days, and you calculate your amount of traffic. And if their data different, they will compensate in some years, in five years, in 10 years, in 13 years.

So what actually -- that difference in traffic is not a matter of you're not receiving the income, it's a matter of how much it will impact the rate of return. So in some of the projects where there is a big difference in the amount of traffic predicted, that in fact is bigger than others.

This project, we believe, was one of the ones that has more [profit width], not only because there were only a difference between what they have as numbers as compared to the number of our [advisors].

But also, because the traffic depends on (inaudible) that we didn't know or make sure that we're going to be realized on time. So in that case the uncertainty of the traffic hurts a lot the rate of return, so that's why we decide not to go.

And will you expect that to be the same case for the additional projects that they are expecting to bid this year?

No, no. There are some other projects that we are more interested in and has a lot more opportunity. The problem with that is that also the competition may increase. So we have to be very careful where to bid in those projects, or when to bid too.

So you don't expect the government to go back to the drawing table and really define the projects, based on the low interest of the first -- these first three projects, right?

No, I am not saying that. I am saying that the next projects, some of them, are a lot more with a better cash flow, more predictable traffic. In some of others, they also will change that, because they will have some problems. But it's part of this type of business.

So we believe that there is plenty of opportunity there. We will have to take -- we have to be very careful which one we are going to select.

Okay, thank you very much Mario.

Jorge Opaso, Santander.

I had two questions. The first one was answered. And the second one is related to the real estate business. I don't know if you can give us some color on the declining margins? Is that a mix issue? Is that a definition? What can we expect of margins going ahead for the real estate business? Thanks a lot.

Let me summarize your question. You're talking the real estate, and from the real estate, why the margin is changed?

Yes. And you going ahead, is that sustainable or not, or I don't know?

There's two things in the real estate, [Superintendencia] of -- the Banking Superintendent, last year, decide to make it -- the ruling for approvals of credit to suffer, and that had an impacted the sales of the whole industry. And that's been discussed in the news, in the papers and here, because they are trying to correct a little bit that, and there has been an impact.

The other has to do with the margin -- with the [government] has to do with the timing of the unit deliver. Remember that the amount that you account, the unit when you deliver, not when you sell them. So the timing here makes it a lot of variation. By one week you can have a strong difference, just because that week you register the building.

Now, on the other hand you have the margins. What has happened is that the margin in the -- we finished -- in the past period there were long projects, in the case of that are a big increase in prices. This one are not the case, so the margins should remain a little bit -- without taking into account the variation in the amount, the margins should be more than in the past. Like it is -- a little bit of (inaudible), but in this range, assuming that there are no price increases.

Okay. Yes, thanks a lot. Thanks.

[Tanya Uchoi], Profuturo AFP.

I just wanted to ask some questions about how do you plan to increase your margins for the next quarter?

And the other question I wanted to ask was one that Dario already asked, it was the decreasing projections on the mining sector, and how do you plan to compensate that? Thank you.

Would you please repeat the second part of your question? The first one was, how do we plan to increase margins, but the second one, I didn't understand it well?

The decreasing projections on the mining sector and how do you plan to compensate those projects, like probably you're going to lose that? You are saying that you're going compensate those with surprising new projects that are coming. Do you agree? Can you something about that? Thank you.

Would you please hold on a minute?

Let me answer the second question about the mining project. This thing about the mining projects reducing, we have been hearing it since 2012, and has not been the case up to date.

Of course, there are many news in the business -- in the area about that. But in our backlog we are not seeing it yet.

Now we believe for next semester it will also continue to be that way. We'll have -- mining continues to be a very important part.

And we are also listen and inform our clients that they are -- try and to speak on some very important forests like Toromocho, like Tia Maria, and like [Tia Rico].

So it's an uncertainty, I cannot say for sure, that the total amount of the backlog in the next year, due to mining, is going to be reduced. Even if I say that we are not seeing it in our numbers yet. Maybe it's happen; we don't know.

And the third question, I believe, is about the margins of the whole Group, what do we believe? We believe that the margins of this year will remain as it is today, and will be almost the same amount -- the same margin, sorry.

Do you believe that your margins are going to be the same after this quarter?

Sorry we didn't understand.

Do you believe that your margins are going to be the same as this quarter?

The margins in general -- the EBITDA margin in general is going to be the same. Some are going to improve; some are going to reduce. But, in general, it's going to be the EBITDA margin the same, and a little bit better at the end of the quarter. It depends on how much machinery we are going to use.

Okay, thank you.

Ricardo Fernandez, Lanin Partners.

A couple of questions, first is, do you get a sense that it's been excessive competition for these public projects that you have either not participated in, or participated in that one? If you had provided a winning bid, would have the return on investment been extremely low in your opinion? That's the first question.

We are seeing a lot of competition the same that we have seen in the last 20 years. It's totally open market. Many companies come and go. And we are seeing the same kind of competition.

Now, in some cases, due mainly to financial problems, the competition is a lot more aggressive, when they have financial problems. So in that case they take a lot more risk than we, for example, are -- want to take, because we don't have to take the project. We would like to, but we not have to take the project.

We analyze in each case. We try to learn in each case what they have done, and what we would have done differently to learn from each lesson.

In the last three projects, in the third one, that is the Metro Lima, we have certainty within the partners. We were four partners. The main ones were the ones that they decide not to go, because the risks involved related to the price were too high according to them.

To us it was a little bit more different, because we were more interested in the operation of the Lima Metro, and those numbers were better in that part. So we were kind of in a different situation, but the complete group is the one that made the decision.

In another one that we did not participate, it's in the Pisco Port. In that case, for example, we knew that there was a structural effect on the port. And that was supposed to be an important investment. And for that reason we decided not to go.

And the other -- and the authorities said if this was the case, it was to be a hidden -- I don't know it in English, (spoken in Spanish), decision [by] -- but we knew about that so we decided not to participate. So they are only to have a complain later with the Government. And that's okay. We don't want to have that at this moment. We want to be involved on that. But the other groups decided to walk out on that situation.

Okay, if I could just interpret just a second, it seems to me that you have a very solid business over the course of, obviously, 20 years, 30 years, 40 years, whatever the number is, in terms of dealing with more or less the private sector, mining companies, where they're not bids, they're not tremendous exposure.

Would you say, because of your situation, that will probably continue, that these high profile, large, projects are generally probably not going to meet your hurdle rates. And, therefore, maybe the market is expecting something that is not going to happen.

But, nonetheless, the backlog and the business will continue to grow, because of your relations with, obviously, the rest of the sectors in mining and infrastructure.

I couldn't follow your idea.

The idea is that -- my speculation is that the market, the investors are looking at your Company and saying these people haven't won any of the big bids, therefore, their backlog's going to fall and, therefore, the stock is going to stagnate.

I'm trying to read through this as saying, those are the big high profile bids -- projects. But in reality, the history of the Company has not been based on that, it's been based on getting business from the private sector, where there's less competition, or maybe not. But where you can -- you have better margins and things are smaller but you have better experience and so forth and so on.

My logic is, is that basically the way you see it?

Well, the logic is this. First, we have got as many contracts in this quarter as we have [consumed]. That's without getting the big projects. When one of these projects will come, it's going to be a big jump. But we want that jump to be a profitable one, not one that is not profitable.

We are going to be very disciplined in all our proposals, and not taking important risks more than the ones that we are able to confront. So we will continue to be very disciplined and we will analyze each project, in each case individually, like the way we have done. And that's what we have promised the market that we will do.

There are so many opportunities there that we have to be careful to take the best ones, not the first ones.

Okay. Thank you very much.

Carlos Rojas, Andino.

Most of my questions have been answered, but I have three of them.

The first one comes on the IPO. The IPO was meant to increase the capital and now that these major big, huge projects of infrastructure are not being auctioned, might you be thinking in the future of a buyback of shares like you thought in the past?

Is that an option if you see that most of the mega projects are not going to get through and you still are having a lot of cash? If you see the stock stagnating at this level, would you be able to start again your buyback idea? That is one question.

The second one comes with CAM in Chile. Backlog has increased significantly there, but margins in Chile are not that high. Can we expect the margins to be increased with this new backlog on Chile?

The third one was again related to the projects that you lost. My question goes, is the [return] on the project a lot less or the risk was a lot more?

Can you repeat the third one?

The last one is about the two projects, the big ones, the Linea 2 and Chinchero. Is that the return that the project was given at the winning price was a lot less, the return, or is it the risk involved with the winners was a lot more? It was something about risk or more it was about return?

Let me go first, okay, one by one. Buyback, we are not -- we have the [talent], we have the ability, we have the approval to buy back up to 10% of our shares. We have made the analysis and we have decided not to do it today. There are plenty of opportunities to invest.

It doesn't mean that we will -- that we might change our idea. We might change. But today, we have decided not to do, because there are plenty of opportunities.

Then CAM in Chile, CAM in Chile it has -- the margins that CAM has are not low, or you are talking about Chile in general?

Okay.

I'm asking you if you feel that the margins in Chile in general are low.

Yes.

In Chile our operation has a very high margin. In construction it's very high; has been last year; is being this year. In CAM we are doing very well. Even though in Chile, it seems that the margins are very low, it not been our case yet. So we are doing very well.

Number two, in Line 2 the returns, you're asking me about the returns or the risk. It's totally different Line 2 than Chinchero or [Bricos]. It's not a matter of rate of return, because the proportion of the projects related to construction are very high. They pay you back the construction, and one part of that is the operation.

So the important part here was cost of construction, the margins of construction, and the risk involved on that cost. That was the decision that we, as a Group, took. It has nothing to do with the rate of returns, because it was less important.

The business part of these projects were a lot smaller than the construction part of the project and they only pay you the construction part -- a part of the construction. So it had to do with the margins and risk relates to construction in both cases.

Okay. Thank you.

Joswilb Vega, BBVA.

Actually you already have answered most of my questions. I understand that you are very connected to the project. But have you considered that you couldn't win any other concessions for being very selective? So in the case, what is going to be the source of backlog, do you think?

I believe you [tell us] if we are going to be very selective, what the source of backlog is going to be? It's the same. We will continue having projects in all the areas, mining, hydroelectric, energy etc., and also infrastructure.

The only thing that we are saying different than we have said in the past or stronger than we have said in the past, is that in the investment part, we are going to be very disciplined.

It does not mean that we are not going to get any projects. It means that the projects that we are going to [bid], we'll try to do it the best we can. We don't want to have the mistake that many companies have done in the past, of investing in projects that are not [work]. And that's what we are doing.

Okay, thank you.

Omar Avellaneda, Credicorp Capital.

I have some more questions. The first one is regarding the CapEx guidance for 2014.

My second one is regarding the mining backlog. Here in Credicorp we have a pretty conservative view about the mining sector. I was hoping that maybe you can give us some information that you may have experienced before, regarding the contracts.

For example, if you have, for example, signed a one mining contract for any project, and then I don't know if that contract, despite you had that signed, has been almost not delivered because of a change in the environment of the mining sector?

I mean not just prices, but, for example, most problems with communities or, for example, you had a contract signed -- I don't know if this has happened for -- to you that you have had signed a contract, but you didn't deliver it, because of the company that contracted you suspended it, because of several problems that the company had at that time.

I don't know if you can tell us if the -- I know that what you show in the backlog it's signed contracts, amounts that you talk with your clients. But have at any time before happened that one of those contracts that were signed didn't -- wasn't delivered, or was suspended?

And regarding this -- with this point, I want to ask it, what would happened if a contract is suspended? You still must charge the company with a penalty, or something?

And my last question is, it's regarding the Line 2 Metro Lima project, it's I want to understand who made the decision of not participating on that project. Was it the main partner of the consortium? Or was a decision that was made by all of the partners? Thank you very much.

There were four questions. I'll try -- let me answer the last ones.

I cannot tell you which one -- who made the decision. We have made it as a concession -- as a consensus; but our point of view was to go ahead. But anyhow, at the end you have to [make] a decision. We cannot tell you.

Now, about the CapEx for 2014, it is going to be very similar to last year, a little bit higher. But it depends on a couple of very important, I would say, projects that we are bidding that I cannot comment to you. And those you will know in the first -- in the next month.

Now, what we have announced is also coming in this year. Now, we are going to buy COGA, the operator of TgP. That's not in the CapEx yet; it will be. And that's -- well, our part is $25 million; that may be the second quarter.

It is not that simple, because there are many papers to sign, and [towards that] we -- and we would remain (inaudible) for TgP.

And also -- that also will create a new stream of business -- of the new market for us. That is also very important. We have a lot of expectations of that.

Now, about the mining backlog. What we have said is that we, the same as you in Credicorp, we have been listening too much about mining; but not seeing it in our numbers yet, up to date.

(inaudible), but we can ask about that, and because of the new projects that we are going to sign in the next days -- we believe we're going to sign, we believe that next quarter will be the same; that we are not going to [appear] in our numbers the reducing in the mining sector.

Going forward, we are already talking with the with all the projects that we'll know they are going to be delivered, but we think that they are going ahead, they are (inaudible) [any decision]. It's [a] given in the minings in Peru, so we are not sure what is going to happen in the minings. It's uncertainty.

And then community -- suspension of working on community. The only case -- important case that we have participated was in Conga, in Conga. In that case we have a small contract. They'd like to stop the project, but we finish our contract. We didn't stop, but we didn't receive new contract; that was the decision. But we didn't have a cancelation.

Now, about the -- in general, the contract we had a very different contract. But in most of the cases, if a mine has to stop, because of a cancelation, they will only pay us the cost -- the extra cost related to moving equipment, (inaudible), that's something that they cannot control.

So they put clauses that are -- which [are under their] control; they are not supposed to be charged. So that's the standard all the contract that you have.

So yes, (inaudible), we have in the past that it's a suspension with a project, then we will have a reduce backlog, even though they will pay us the cost of demobilization.

Okay. Thank you very much.

We have no further questions at this time. I would like to turn the call back over to Mr. Alvarado, for closing remarks.

Well, I would like to thank you, everybody, for this conference call. I know that there are many expectations about the projects. There are many projects to come; but you have to understand that we will continue what we have said.

We will continue approaching the projects in the same way. We believe that's the way to do it with us. In not enough resources to do all the projects. We have to select our financial resources and our ability to deploy it for the best ones. And that's a difficult situation, and a difficult decision to make. But we'll continue doing it the same way.

Thank you very much for all of you; and good luck.

Thank you, ladies and gentlemen, this concludes today's conference. You may now disconnect.