Ferrovial - Annual Report 2012

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Construction

The competitive environment

The construction business remains strategically important for Ferrovial, due not only to its solid track record of growth and profitability, but also thanks to its ability to generate cash flows and support other divisions, which helps ensure the continuity of diversification and the group’s international expansion.

Construction Market in Spain

The Spanish construction market saw a further decline in activity over 2012, shrinking 12% over the year, the fifth consecutive year of decline. As a result, investment in construction represented around 11% of Spain’s GDP in 2012, well below the highs of 18% recorded in 2007.

The trend for shrinking public investment, which began in 2010, became more acute in 2012. Forecasts indicate a decline of 20% in civil works this year, far outstripping the overall drop in building work. Spain’s main investors in civil works, the Ministry of Civil Works and the Ministry of the Environment, had their investment budgets slashed 22% in 2012. There were similar cutbacks at regional governments and local authorities, particularly following the 2011 regional and local elections, and the end of the Municipal Investment Fund in 2010.

Building construction, meanwhile, also recorded a 5% drop in activity during 2012. This is a slower rate of decline than in previous years, partly because it is already at the all-time lows of the last decade. For example, the housing sector closed 2012 with housing permits standing at around 70,000, down 35% on 2011, despite already being at the lowest level recorded since the early 1980s.

Forecasts for the construction sector as a whole in 2013 put the drop in activity at around 9%. Just as in 2012, the drop is expected to be sharper in civil works, due to fewer public tenders, which were down 46% in 2012 according to Seopan, making this the third consecutive year of heavy declines. The order backlogs held at construction companies, which still show reasonable levels in terms of months of production, will only partly offset this fall.

These inauspicious forecasts mean any prospects of recovery in the sector rely on the implementation of initiatives announced by the Ministry of Civil Works in September 2012. These are chiefly the new 2012-2024 Infrastructure, Transport and Housing Plan (PITVI in its Spanish acronym), with earmarked investments of 136.627 billion euro. The plan includes government investments of more than 52 billion euro on railroad infrastructure and nearly 40 billion euro on roads, as well as private investment in roads and ports worth more than 15 billion euro. These works should help to stabilize the sector in the medium term, although the Ministry of Civil Works says it intends to further cut investments right up to the inflection point that is expected in 2015.

As for the building sector, any recovery will have to wait until there is an upturn in the general economy, with forecasts from respected analysts indicating a return to growth in 2014-2015. Likewise, there are major one-off projects ahead, such as the construction of Eurovegas in Alcorcon (Madrid) set to begin in late 2013, with initial investment of 6 billion euro up to 2017, and as much as 17 billion in the long term.

Ferrovial Agroman, like all major construction companies, has been affected by this difficult climate, with an overall drop in revenue in Spain of 24% in 2012.

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This is an electronic version of the 2012 Annual Report prepared by Ferrovial, S.A. for its stakeholders, which aims to be complete and accurate. The contents of this version can be checked by referring to the print version. A copy of the print version in PDF format is available to download on this web page